Let’s say you obtain an award of damages against your former attorney in a Phoenix legal malpractice lawsuit. You may be entitled to prejudgment interest.
In my home state of Arizona, the law on prejudgment interest is similar to the law in most other states.
Arizona Law on Pre Judgement Interest
Whether a party is entitled to prejudgment interest is decided by the judge after a damages award has been rendered, not by a jury. Employer’s Mut. Cas. Co. v. McKeon, 170 Ariz. 75, 821 P.2d 766 (App. 1991).
The test for whether a damages award qualifies for prejudgment interest is whether the claim is liquidated. Fleming v. Pima County, 141 Ariz. 149, 685 P.2d 1301 (Ariz. 1984).
A claim is “liquidated” if the person who received the damages award provides a basis for precisely calculating the amount of damages owed. John C. Lincoln Hosp. v. Maricopa County, 96 P. 3d 530, 208 Ariz. 532 (App. 2004).
By way of example, “my lawyer’s negligence caused me to lose my $100,000 cash inheritance” is liquidated, even if the other side disputes the amount. “My lawyer’s negligence caused me emotional distress and I feel that is worth $100,000″ is not liquidated.
As a general rule, the trial judge should calculate prejudgment interest from the date the claim becomes due. Lindsey v. University of Arizona, 157 Ariz. 48, 754 P.2d 1152 (App. 1987).
The rate of interest for Arizona is contained at ARS 44-1201. In most cases, it provides for interest on a judgment equal to the prime rate plus 1%.
Pre Judgment Interest
Pre judgment interest can make a very large difference. A hypothetical situation where a lawyer’s negligence caused a client to lose an inheritance that they otherwise would have received on July 15, 2016 is illustrative. In July, 2016, the prime rate was 3.5%, which means the prejudgment interest rate would be 4.5%. If the award of $250,000 damages was received five years later, the plaintiff would be entitled to $250,000, plus simple interest of 4.5% of $250,000, multiplied by each of five years. This means that with prejudgment interest, the actual award would be $306,250.
As a final matter, prejudgment interest is not available on punitive damages. This does not come up a lot in legal malpractice, because awards of punitive damages in legal malpractice cases are relatively rare.