Illinois Governor J.B. Pritzker recently signed into law SB0072 (the “Prejudgment Interest Act”), a revised version of the bill he had previously vetoed and that we discussed in a prior alert. The Prejudgment Interest Act will amend the Code of Civil Procedure (735 ILCS 5/2-1303) to provide plaintiffs with prejudgment interest on certain damages awarded in Illinois personal injury and wrongful death cases.[1] While the new law dials back some of the controversial aspects of its predecessor bill – for example, the nine percent interest accruing when the defendant receives notice of the injury – the new law still increases the potential risk that companies face in defending personal injury and wrongful death suits. Unlike the earlier bill, however, the new law gives defendants an opportunity to reduce their risk through settlement offers.
Key Provisions and Key Differences
The Prejudgment Interest Act goes into effect on July 1, 2021, and will entitle plaintiffs to prejudgment interest in cases of negligence and strict liability, as well as in cases of willful or wanton or intentional misconduct. The earlier bill faced intense opposition, and – likely in response – the Prejudgment Interest Act revised a number of controversial provisions.
First, prejudgment interest will now accrue at a rate of six percent annually. The nine percent interest rate that was originally proposed would have been a higher rate than that imposed in nearly any other state that allows for prejudgment interest in personal injury cases. The Prejudgment Interest Act also caps interest at a maximum of five years.
Second, interest will begin to accrue only from the date the lawsuit is filed and not from the date the company has notice of the injury. For cases filed before July 1, interest will begin to accrue on July 1. This bright-line rule will both prevent plaintiffs from delaying suit in order to earn additional interest and will also prevent litigation arising from disputes over whether a defendant actually received notice. Relatedly, in the event that a plaintiff voluntarily dismisses the suit (which plaintiffs may do as of right before the trial begins), then prejudgment interest will be tolled between the time of the voluntary dismissal and the time of the refiling.
Third, the Act excludes the running of interest on certain types of damages. Specifically, the Act excludes “punitive damages, sanctions, statutory attorney’s fees, and statutory costs.” It is important to note, however, that plaintiffs may still earn interest on future lost wages, medical expenses, and pain and suffering damages.
Fourth, the Act removed a controversial provision that had been included in the earlier bill and would have given judges discretion to divert a portion of the awarded interest to any state agency or department. Critics argued that this provision would have turned judges into quasi tax collectors.
Finally, the Act provides defendants facing prejudgment interest an option to mitigate the size of a potential interest award by receiving a “credit” for certain settlement offers.
A New Option for Defendants: Credit for Settlement Offers
The Prejudgment Interest Act adds a new provision permitting defendants to reduce interest awarded through a “credit.”
To be eligible for the credit, a defendant must make a written settlement offer within 12 months after the date the lawsuit is filed or by July 1, 2021, whichever is later. If the plaintiff either rejects the offer or fails to accept it within 90 days, then the amount offered is credited against any verdict that forms the basis for the interest (i.e., damages not including punitive damages, sanctions, statutory attorney’s fees, and statutory costs). The plaintiff is entitled to prejudgment interest only on the difference between the verdict and the rejected offer. If the rejected offer amount is equal to or exceeds the verdict, then no prejudgment interest would be awarded.
For example, if a defendant made a written settlement offer of $40,000 within the 12-month period, the plaintiff rejected the offer, and the verdict was $50,000, then prejudgment interest would be assessed only on $10,000. If, in the same scenario, the verdict is equal to or less than $40,000, then the plaintiff would not recover any prejudgment interest.
Conclusion
While the Prejudgment Interest Act will – for the first time – subject those defending tort actions in Illinois to prejudgment interest, it also presents an option for mitigating that risk. The Act provides clearer guidance for when interest begins to accrue, when it stops accruing, and what damages may form the basis for that interest.
[1] The bill exempts state and local public entity defendants from prejudgment interest.