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The New Jersey Supreme Court has banned prejudgment interest on future economic losses in tort actions, dismaying the plaintiffs’ bar and handing the insurance industry a victory worth millions. In decisions during the past 26 years, the court had ruled that such awards were a valid component of prejudgment interest packages, not just to make plaintiffs whole but to deter carriers from stonewalling on cases they were sure to lose. Indeed, in January 2001, the court’s Civil Practice Committee not only urged the justices to reaffirm the principle, it recommended making the availability of interest on future losses more than a matter of precedent. It advised the court to explicitly authorize these awards in the relevant court rule, 4:42-11(b). Some members of the committee dissented, however, saying that interest on future losses made no logical sense and that model jury charges already require calculations that make plaintiffs whole. The court, apparently agreeing with the dissent, reversed three decades of its own jurisprudence and made the ban public, effective July 1, in a notice published in the New Jersey Law Journal, [172 N.J.L.J. 694, June 2]. That it took the justices more than 15 months to make the decision after the Civil Practice Committee report suggests the possibility there was a vigorous debate. The good news for plaintiffs is this: The court did not take the next leap and ban interest on noneconomic damages, too. “That would have been a really big step,” says Peter Chamas of Woodbridge, N.J.’s Gill & Chamas. Bruce Stern, a partner in Princeton’s Stark & Stark and president of the Association of Trial Lawyers of America-New Jersey, says, “It’s just another invitation to the insurance industry to sit on its reserves and not settle cases.” On the other side, a leading advocate of the ban, Edward Thornton, a partner in the insurance defense firm Methfessel & Werbel in Edison, N.J., says, “Interest on future lost wages is illogical and the fact is it never stimulated defendants to settle.” In an April 2002 comment to the state Supreme Court, Thornton echoed critics of the principle when he said awarding interest on losses is punitive. He wrote: “Simply, a loss has not been incurred, yet we are purposely going to take money in the form of prejudgment interest from the defendant, supposedly for the use of money that the plaintiff himself would not have possessed.” Such awards do not foster settlements because plaintiffs will hold out, “knowing that they will receive a windfall on future losses,” Thornton wrote. The Civil Practice Committee’s minority report gave an example of the difference between prejudgment interest on money owed to a plaintiff and interest on future wages. A plaintiff who is owed $20,000 but is not paid for three years loses the ability to earn interest on that money for three years. Prejudgment interest compensates for the delay and “encourages settlement since any incentive the defendant had to delay payment has been removed,” the minority report said. When it comes to future lost wages, though, model civil jury charge 6.11(d)(2)(c) takes into account the delay in payment so increases in the award are built into the calculation. For example, a plaintiff who is owed $20,000 for future lost wages in the year 2001 would be awarded a sum larger than $20,000 to take into account the passage of time. “To award prejudgment interest on top of this sum represents a double payment due to the passage of time,” the minority found. “It serves as a penalty to the defendant and a windfall to the plaintiff.” That, in turn, makes settlements less rather than more likely. The majority of the panel cited three reasons for retaining the rule, which is used in other states such as Texas and Pennsylvania. First, though it said there was no hard data, there is a common perception that prejudgment interest of all kinds promotes settlements and that the goal is “equally promoted” by interest on future losses. Second, all sums due a plaintiff represent damages suffered, and by withholding the money, the defendant is able to earn income. Third, juries are not usually asked to separate past and future noneconomic damages. A ban on interest for future economic damages would require separate verdict sheet entries, which would add unnecessary complexity to jury deliberations, the majority asserted. The rule change ends a debate that seemed to have been settled in Busik v. Levine, 63 N.J. 351 (1977). In that case, the state Supreme Court majority included prejudgment interest on future economic losses in the prejudgment interest package, rejecting dissenters’ suggestion it be authorized on a case-by-case basis. But the doubts about the fairness of awarding interest on compensation for future sums never went away. In Ruff v. Weintraub, 105 N.J. 233 (1987), the court stuck to the it’s good-for-settlements theme, but conceded interest on future economic losses “may be questionable.” An appeals court in Statham v. Bush, 253 N.J. Super, 607 (App. Div. 1992) went farther and urged a review of the issue. Virginia Long, now a New Jersey Supreme Court justice, wrote the opinion. In 2000, the court was poised to review the issue again when it agreed to hear McKeand v. Gerhard, 331 N.J. Super. 122 (2000), another case in which the appellate division expressed disdain for a rule it had no power to disturb. But after hearing oral argument, the state Supreme Court took the unusual step of saying certification had been mistakenly granted and referred the question to the Civil Practice Committee. Thornton, who argued for the defendant, says he was disappointed at the time but what he didn’t win in court he has now won in the rule change, two years later. “I think the Supreme Court took a better look at it and was not afraid to disregard unsupportable precedent,” he says. One of his adversaries in McKeand, Bruce Glassner, who now practices in San Francisco, says he is not surprised by the new rule. “The court never seemed too enthused about the idea of prejudgment interest for economic damages not yet suffered.” “In those cases where most of plaintiff’s damages come in the form of future lost wages, however, the threat of prejudgment interest is the only incentive defendant has to settle,” says Glassner, who briefed the case when he was an associate at Secaucus, N.J.’s Chasan Leyner Bariso & Lamparello. “Policy, however, seems to have lost out to logic.” But he concludes: “The answer is that logic sometimes should yield to public policy.” It’s impossible to know, of course, how much money the rule change will save the insurance industry in New Jersey. Contacted last week, Robert Simmons, Allstate Insurance Company’s counsel in New Jersey, didn’t know the rule had been finalized, let alone its economic impact. But plaintiffs’ lawyers say the change will play a significant role in cases where the claimant is the estate of a personal injury victim who was young and had high earnings. Kenneth Andres Jr. of Haddonfield, N.J.’s Andres & Berger calls it “an unfortunate change of policy that will be a significant loss to seriously injured plaintiffs.” He says, for example, that he recently won prejudgment interest on a future lost wage claim of $500,000 arising from a 1997 accident. An even better example is provided by the June 2 appeals court ruling in Estate of Williams v. St. Joseph’s Hospital & Medical Center, A-2684-01T55. The court affirmed a $5 million medical malpractice verdict, mostly for future economic losses. Abbott Brown of West Orange, N.J.’s Bendit Weinstock, whose partner William Gold won the case, says the prejudgment interest will be worth about $1 million. For the most part, though, the ban won’t have much effect on medical malpractice cases because there are few verdicts above $1 million each year, Brown says. He says it’s an open question as to whether insurance companies are sophisticated enough to base settlement strategies on their new ability to save, say, the 15 percent interest they might have to pay on a big award. Ronald Grayzel of Edison’s Levinson Axelrod says interest can be significant in big cases, but he says of the rule change, “I don’t think it’s the end of the world.” Richard Schall, of Moorestown, N.J.’s Schall & Barasch and president of the state chapter of the National Employment Lawyers Association, says awards for future wages aren’t as significant as backpay in employment cases. It’s hard for him to muster anger at the new rule. “Why should you get it?” he says of interest on future sums. “There was something there that didn’t make sense.”

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