What is Prejudgment Interest?

Prejudgment interest is a type of compensation payable to the plaintiff from the time the cause of action accrues until the time of the final judgment. Under Florida law, prejudgment interest is merely another element of pecuniary damages that is intended to make the prevailing party whole from the date of loss, once a finder of fact (judge or jury) has determined the amount of damages and defendant’s liability for same.

 

There are two lines of thought when it comes to prejudgment interest:

 

1. “Old Rule”–Disallowing prejudgment interest on “unliquidated damages” where “the amount of damages cannot be computed except on conflicting evidence, inferences and interpretation.”
2. “Better Rule”–“For purposes of assessing prejudgment interest, a claim becomes “liquidated” and susceptible of prejudgment interest when a verdict has the effect of fixing damages as of a prior date.” The term “liquidated” refers to a fixed or determined sum or amount. 

 

Noteworthy cases

• Argonaut Ins. Co. v. May Plumbing Co., 474 So. 2d 212 (Fla. 1985): Abiding by the “Better Rule” and describing the “loss theory” when awarding prejudgment interest i.e., when a verdict liquidates damages on a plaintiff’s out-of-pocket, pecuniary losses, plaintiff is entitled, as a matter of law, to prejudgment interest at the statutory rate from the date of that loss. 
• CH2M Hill Southeast, Inc. v. Pinellas County, 698 So. 2d 1238 (Fla. 2d DCA 1997): Reversing award of prejudgment interest on $10 million awarded to replace County’s pipeline because the figure did not represent out of pocket expenditures by County. 
• Air Ambulance Professionals, Inc. v. Thin Air, 809 So. 2d 28 (Fla. 4th DCA 2002): Subscribing to the “Old Rule” and holding that only liquidated damages claims generate prejudgment interest; in a case involving various claims in a business dispute, prejudgment interest was only proper on a claim for open account.
• Bosem v. Musa Holdings, Inc., 46 So. 3d 42 (Fla. 2010): Florida Supreme Court confirmed that Florida followed the “loss theory” discussed in Argonaut and cemented the scope of that decision to include prejudgment interest awards for damages–whether or not liquidated, and certain, at the time of filing a claim.
• Tampa Bay Water v. HDR Engineering, Inc., 2011 WL 3101803 (M.D. Fla. July 25, 2011): Implicitly agreeing that, where a jury verdict fixed plaintiff’s damages as of the date of loss, an award of prejudgment interest would be proper – even on repairs that still needed to take place in the future.

 

Why does Prejudgment Interest matter?

Prejudgment interest is a factor of damages often overlooked when negotiating a claim. A construction defect plaintiff’s claim for prejudgment interest can become an expensive element of damages because it can begin accumulating before construction defects are discovered. Thus, it is not uncommon for the prejudgment interest component of damages in complex construction defects cases to be half of the actual damages, especially in cases involving large community associations.

By the time the negotiation of a construction defect claim begins, it is often several years after a certificate of occupancy is issued. Thus, those who are contemplating the filing of a construction defect claim would be wise to seek legal counsel regarding the calculation of prejudgment interest. Parties need to analyze prejudgment interests as a significant element of damages, and this analysis can be useful when it comes to motivating defendants to settle cases before trial. To learn more contact Kristina Puente at kpuente@haber.law.