On May 9, 2023, the Massachusetts Supreme Judicial Court (SJC) upheld the award of pre-judgment and post-judgment interest at the hefty rate of 12%. The Commonwealth’s highest court reviewed the constitutionality of two statutes when defendant Philip Morris appealed a $37 million personal injury award, which included $7 million in pre-judgment interest and another $4 million a year in post-judgment interest. In its decision, Green et al. v. Philip Morris USA Inc. et al., case number SJC-13330, the SJC rejected Philip Morris’ argument that the 12% interest rates are excessive and unconstitutional.
The 12% interest rate was set in 1982 when the prevailing interest rate was much higher than it is today. Philip Morris claimed that the rates — among the highest pre- and post-judgment rates in the country — violate due process, arguing that there is no rational basis for the high rates which penalize defendants and result in a windfall to plaintiffs. The SJC disagreed, explaining that the rates are designed to make plaintiffs whole by providing compensation for the returns they could have otherwise earned on their money while the plaintiff awaited its day in court and the ultimate damages award. Additionally, the SJC rejected Philip Morris’ position that floating interest rates would better reflect the fluctuating market rates, citing the administrative ease in applying fixed interest rates.
Similar challenges to pre- and post-judgment statutes have been waged over the past decade, including unsuccessful challenges to twelve percent rates in fellow New England states Rhode Island and Vermont. The likelihood of continued appellate review is certainly greater in jurisdictions with double-digit rates, but the accrual date, any compounding of interest, or applicability to certain causes of action may also prompt challenges by defendants.
In subrogation actions, plaintiffs should specifically include in any claim for relief both pre- and post-judgment interest and be familiar with how interest is calculated and to which damages it applies. Additionally, it is important to understand the nuances of the specific applicable statutory provisions, as there are typically separate statutes that apply to tort and contract actions. In Massachusetts, for example, the statute that governs pre-judgment interest for contract claims1 specifies that the date of contractual breach or demand triggers the accrual of interest. In tort actions, on the other hand, the accrual date is when the action is filed.2 In other states, such as Connecticut, it is necessary to file an Offer of Judgment within a specific timeframe in order to be eligible for an award of interest.
These days, it is no mystery that a small percentage of civil cases actually proceed to verdict. Although a verdict or entry of judgment is necessary to award interest, the subrogation professional should always consider interest when evaluating subrogation potential and engaging in settlement negotiations. Pre- and post-judgment interest should play a role in how quickly an action is commenced and should be periodically calculated when assessing the value of a claim, particularly when engaging in settlement discussions.
1 Mass. Gen. Laws ch. 231 § 6C
2 Mass. Gen. Laws ch. 231 § 6B.
