Senate Bill S4589

                                BILL NUMBER:S4589

TITLE OF BILL:
An act
to amend the civil practice law and rules, in relation to offers to
compromise the computation of interest in personal injury actions and
the rate of interest

This is one in a series of measures being introduced at the request of
the Chief Administrative Judge upon the recommendation of her
Advisory Committee on Civil Practice.

This measure would: (1) authorize payment of prejudgment interest in
personal injury actions, and (2) change the legal rate of interest
and make the interest rate for all actions uniform.

I. Payment of prejudgment interest in personal injury actions. This
measure would amend CPLR 3221 to provide that where an offer to
compromise is proffered in any action by a party against whom a claim
is asserted, but is not accepted by the claimant, if the claimant
fails to obtain a more favorable judgment, the claimant's recovery of
interest as well as costs shall be limited to the period preceding
the offer. The amendment of CPLR 3221 is designed to encourage
parties to settle claims at an early stage by potentially affecting
the amount of interest as well as costs recoverable upon judgment.

              

This measure also would amend subdivisions (a) and (b) of CPLR 5001,
relating to prejudgment interest, to provide for the prejudgment
accrual of interest in a personal injury action. CPLR 5001(a)
designates the types of actions in which prejudgment interest now is
accruable, and CPLR 5001(b) fixes the date from which interest
accrues in those actions. This measure would add personal injury
actions to those which are now included in subdivision (a). It also
would specify in subdivision (b) that such interest shall
commence to run one year from the date of the commencement of the
action to the date of verdict, report or decision, exclusively on
special and general damages incurred to
the date of such verdict, report or decision. Both subdivisions (a)
and (b) of CPLR 5001 would be restructured to achieve greater order
and cohesiveness.

The amendment to CPLR 3221 gives an incentive to plaintiffs to settle
or proceed expeditiously to trial; the amendment to CPLR 5001 gives
the same incentive to defendants.

This measure, based on considerations of equity and effective case
disposition, reflects a growing national trend. At least 27 states,
as opposed to five in 1965, now require an award of prejudgment
interest in personal injury and wrongful death actions.
New York's EPTL §5-4.3 already provides for such interest in a
wrongful death action.
This measure, by selecting one year from the date the action is
commenced as the point at which interest begins to accrue, is
designed to strike a balance of equities between plaintiff and
defendant while fostering disposition. Such balance discourages undue
delay by a plaintiff who might be tempted to seek accumulation of


interest from an earlier accrual date, and discourages excessive
reticence in settling by a defendant who might be prompted to delay
settlement if the accrual date were later. Interest would be computed
on awards only, since settlements are concluded with interest in
mind, and the imposition of additional interest where settlements are
achieved would be inequitable.

The measure would allow for prejudgment interest for compensatory
damages already incurred. Prejudgment interest would not accrue for
punitive or future damages.

II. Legal rate of interest. This measure would amend CPLR 5004 to
replace the current interest rate -- which is set at a fixed 9% per
annum -- with a variable rate that would be the rate of return on
one-year Treasury bills plus 3%. The measure also would amend section
5004 to override all other interest provisions in New York law and to
make the interest rate for all actions uniform.

This measure would alter the rate of interest in those instances in
which the parties have not agreed on a different rate. However, in
contrast to the current statute, which defers to other statutes that
set different rates for different entities, the amended statute would
govern all municipal and non-municipal entities. Indeed, the desire
for uniformity is one reason for the proposed change.

There are three principal reasons for the proposed amendment. First,
we believe that an unchanging, fixed rate is both illogical and
unfair. A fixed rate does not reflect the changing economic reality
of the cost of money. Many states have abandoned fixed rates in favor
of variable interest rates. Such is also the norm in the federal
courts, where 28 U.S.C. .1961 ties the interest rate to the one-year
Treasury bill rate. We believe that a
variable rate is inherently fairer to both plaintiffs and defendants.

Second, we believe it inappropriate to have widely varying rates for
different payors. Currently, some municipal defendants, including New
York City, and the State have rates that "shall not exceed" 9%. Some,
like the Water Authority of Southeastern Nassau County, have rates
that "shall not exceed six per centum per annum." Some municipal
defendants, like the Metropolitan Transportation Authority and the
New York City Transit Authority, have rates capped at 4% or 3% per
annum.

Third, a uniform, easily calculated rate will avoid unnecessary and
wasteful litigation. As matters now stand, where the applicable
statute provides for a municipal rate that "shall not exceed 9%," the
parties are forced to litigate what is appropriate on a case-by-case
basis. See Denio v. State, 7 N.Y.3d 159 (2006).

Some states that have variable interest rates use a rate tied to prime
lending rates.
Other states follow various Treasury bill rates. The "one-year United
States Treasury bill rate" in the proposed statute is the same exact
rate, word for word, as is currently used in federal courts under 28
U.S.C. § 1961. The difference is that we propose an addition of 3%.


The reason for the 3% addition is that the federal rate is very low as
compared to (1) the real cost of money (including, most notably, the
prime rate that a bank would charge a "blue chip" corporate
borrower); (2) the interest rates (both fixed or variable) in all or
virtually every other state; and (3) our current, statutorily fixed
rate of 9%. The other states that already use the federal rate as a
base include an addition that ranges from a low of 2% to a high of 6%.

The federal rate exceeded 5% at different points during 2006, but
dropped below 1% in December, 2008. The rate has dropped below 2% at
various times this decade. We believes that this recent history
underscores the need for the 3% additur. Yet, even with the 3%
additur, enactment of this measure would currently effect a
significant decrease in the legal interest rate as compared to the
cunent 9% fixed rate.

Under the measure, the rate in any particular action would be 3%
higher than the published one-year Treasury rate for the week
preceding entry of judgment in that action.
That rate would remain in place throughout the course of the
post-judgment proceedings and would also govem the assessment of
pre-judgment interest in those actions in which pre-judgment interest
is awarded. This one-rate-per-action feature strikes a balance
between the competing goals of accuracy and simplicity.

Curently, CPLR 5001 dictates that pre-verdict interest "shall" be
recovered upon awards in certain actions. CPLR 5002 states that
interest "shall" be awarded from date of verdict until date of
judgment upon any sum awarded. CPLR 5003 dictates that every judgment
"shall" bear interest from date of entry. Yet, at least with respect
to nonmunicipal defendants, there is one rate of interest regardless
of whether interest is assessed pre-verdict or post-verdict: the
legal rate of interest specified in CPLR 5004.

In contract actions, the parties may agree among themselves as to the
(nonusurious) interest rate that will govern in the event that
damages must be paid, at least with regard to pre-judgment interest
and arguably with regard to post-judgment interest as well. This
measure would not change the existing law with regard to contract
rates of interest in any respect.

This measure would take effect January first next after it shall have
become a law.

2009 Legislative History:
OCA 2009-40