Ignoring Prejudgment Interest = A Costly Mistake

Prejudgment interest awards are often overlooked in evaluating a claim, especially legal malpractice matters.  Typically, when valuing exposure, the focus centers upon the underlying action had the attorney avoided alleged negligence.  But overlooking the impact of prejudgment interest can prove to be a costly mistake. Depending upon the statutory interest rate in your jurisdiction and the potential amount of the award, prejudgment interest can transform a nuisance value malpractice case into a hefty judgment.

Consider Corsiatto v. Maddalone, March, 2013 N.Y.Slip. Op. 30553, (Sup. Ct. Suffolk County, 2013), in which the New York Supreme Court issued a prejudgment interest award that more than doubled the legal malpractice award with the waive of a gavel.

The Corsiatto court awarded $200,000 as a result of an attorney’s admitted failure to timely commence an action on behalf of the Estate of a woman who died in a nursing home.  The court concluded that this amount represented fair and reasonable compensation the Estate should have recovered for the underlying medical malpractice claim but for the attorney’s failure to timely file the action.

However, after awarding the $200,000, the court went a step further and awarded an additional $263,417 in statutory interest.  The court applied a statutory 9 percent interest rate over a 15-year time period beginning from the date that the statute of limitations ran in the underlying claim to the date of the award.  The court reasoned that there had been a deprivation in the estate’s ability to use the $200,000 for 15 years because of the attorney’s negligence and, therefore, the estate was entitled to 9 percent interest.  The total award was  $463,417.

While the amount of this court’s award represents the higher end of prejudgment interest awards, it still imparts a strong lesson. Corsiatto clarifies that attorneys and other professionals cannot underestimate the implications of prejudgment interest claims when valuing exposure particularly when there might be a prolonged resolution of the claim.

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1 Comment

  1. Excellent reminder to adjusters and insurance defense counsel alike. Adjusters need to remember to ask this when discussing case value with defense counsel on a case, but it is also helpful if counsel will provide this information in any case evaluation report, as oftentimes adjusters are handling claims all over the country, and may not be aware of the law in each jurisdictions.

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