State Supreme Court cites four factors necessary for collecting prejudgment interest
A recent ruling by the Colorado Supreme Court could alter how parties negotiate settlements in uninsured motorist cases in the state.
In a unanimous decision in Munoz v. American Family Insurance, the court found that insured parties are not eligible for prejudgment interest — calculated at 9 percent annually in uninsured motorist cases — unless four specific criteria are met, including that an action is brought and that there are findings of damages by a jury or court.
Delivering the opinion for the court, Justice Brian Boatright wrote, “an insured is not entitled to collect prejudgment interest against an insurer on a settlement.” Rather, the court found in its Sept. 10 opinion that a party could only collect the interest “after (1) an action is brought, (2) the plaintiff claims damages and interest in the complaint, (3) there is a finding of damages by a jury or court, and (4) judgment is entered.”
“This has been an issue that has been around for several years,” said Brad Levin, shareholder at the firm Levin Sitcoff PC, who focuses on insurance cases. “What the Supreme Court did is look at the very narrow context in the way in which the prejudgment statute was written.”
The case before the Supreme Court stemmed from a car accident that involved the plaintiff, Joel Munoz, and an uninsured motorist. During negotiations of a settlement, Munoz’s insurance carrier, American Family Insurance Company, made Munoz a $10,008 offer; the settlement, however, did not include prejudgment interest, calculated at 9 percent per year. Munoz indicated he would accept the offer, but that he also wanted the prejudgment interest factored into the bid. American Family declined to add the interest, and Munoz sued. In his complaint, according the opinion, Munoz “alleged that American Family did not have a reasonable basis to deny him this benefit and that it had acted in bad faith by compelling him to litigate his claims to recover his full benefits.”
In making his argument, Munoz cited a 2009 state Supreme Court decision, USAA v. Parker. “Parker stated that the uninsured motorist statute … requires that an insured be able to recover the same amount of damages from an insurance company as he would from a direct action against the tortfeasor. … Because prejudgment interest is an element of damages, Munoz reasons that he should be able to recover interest from the insurance company.”