Indiana Law Review Prejudgment Interest for Personal Injury Litigants: A Summons for Indiana Lawmakers I. Introduction In Indiana, prejudgment interest 1 is sanctioned by statute for money due on loans or forebearances of money, goods or things; 2 for money due on a written instrument; 3 for money due when an account stated or an account closed is proved; or for money had and received for the use of another person and retained without his consent. 4 The allowance of prejudgment interest, however, is not solely a creature of statute,' and courts looking to the common law have allowed awards of pre- judgment interest as an element of damages where the loss is ascertainable by fixed rules of evidence and accepted standards of evaluation. 6 Although prejudgment interest has been recognized as an appropriate element of damages in property torts, 7 the Indiana Supreme Court early implanted a bar to recovery of prejudgment interest in personal injury actions. 8 That bar, established by dicta in the 1911 case, New York, Chicago & St. Louis Railway Co. v. Roper, 9 has remained even though it is inconsistent with the general rationale espoused for awarding pre- judgment interest: ''The award of interest is founded solely upon the 'Prejudgment interest is interest awarded for the lapse of time before judgment and is often defined as interest as damages rather than interest as interest which accrues on a final judgment. See generally D. Dobbs, Handbook on the Law of Remedies § 3.5 (1973). [hereinafter cited as D. Dobbs]. 2Ind. Code § 24-4.6-1-102 (1982) provides: "When the parties do not agree on the rate, interest on loans or forbearances of money, goods or things in action shall be at the rate of eight percent (8%) per annum until payment of judgment." y Id. § 24-4.6-1 -103(a) provides: "From the date of settlement on money due on any instrument in writing which does not specify a rate of interest and which is not covered by IC 1971, 24-4.5 or this article." A Id. § 24-4.6-l-103(b) provides: "And from the date an itemized bill shall have been rendered and payment demanded on an account stated, account closed or for money had and received for the use of another and retained without his consent." 'See City of Evansville v. Rieber, 179 Ind. App. 256, 385 N.E.2d 217 (1979); Portage Indiana School Constr. Corp. v. A.V. Stackhouse Co., 153 Ind. App. 366, 287 N.E.2d 564 (1972); New York Cent. R.R. v. Churchill, 140 Ind. App. 426, 218 N.E.2d 372 (1966). "Rauser v. LTV Electrosystems, Inc., 437 F.2d 800 (7th Cir. 1971); New York. C. & St. L. Ry. v. Roper, 176 Ind. 497, 96 N.E. 468 (1911); Brand v. Monumental Life Ins. Co., 396 N.E.2d 417 (Ind. Ct. App. 1979), vacated on other grounds, 417 N.E. 2d 297 (Ind. 1981). 7 Roper, 176 Ind. 497, 96 N.E. 468. \Id. at 510, 96 N.E. at 473 (dictum). 9 Id. After holding that prejudgment interest should be allowed as an element of damages in property torts, the court stated: "Of course, it does not follow that the above rule would apply to personal injury cases . . . ." Id. 1095 1096 INDIANA LAW REVIEW [Vol. 17:1095 theory that there has been a deprivation of the use of money or its equivalent and that unless interest be added, the injured party cannot be fully compensated for the loss suffered." 10 A personal injury litigant suffers the loss of the use of his money," so the current denial of prejudgment interest to him results in an unjust denial of full compen- sation. This Note will briefly review the history of prejudgment interest, including its development in Indiana case law, and will focus on the current inequity which results from denying prejudgment interest to personal injury litigants. Furthermore, and primarily, this Note will summon the Indiana bench and especially the Indiana legislature to modify, clarify, and expand the law to provide fair and full compensation for personal injury litigants. Only an explicit, mandatory prejudgment interest statute will guarantee that awards of prejudgment interest in personal injury actions are consistent. The enactment of explicit statutory guidelines will enable the courts to avoid the conflict and confusion which have pervaded Indiana courts' awards of prejudgment interest in the past. 12 II. Historical Evolution Of Prejudgment Interest A. General Development of Prejudgment Interest From the early days of the common law, interest was considered usurious and was, therefore, viewed with disfavor by the courts. 13 Grad- ually, conventional interest 14 became acceptable as a way of compensating a creditor for the loss of the use of his money. 15 From that point, acceptance of interest progressed, first being allowed where the sum owed was liquidated, that is, computable without relying on opinion or discretion, 16 and then being extended to sums which were ascertainable. 17 Awarding interest for damages has generally been within the province of the judiciary, as legislatures have given limited or no guidance to the courts. 18 Some jurisdictions follow the traditional approach and allow prejudgment interest only when specified by contract or statute; 19 a "Fort Wayne Nat'l Bank v. Scher, 419 N.E.2d 1308, 1310-11 (Ind. Ct. App. 1981). "See infra notes 70-77 and accompanying text. ,2See infra notes 41-50 and accompanying text. "See generally C. McCormick, Handbook on the Law of Damages § 51 (1935). '"Conventional interest is also referred to as promised interest or interest eo nomine. ''See C. McCormick, supra note 13, at 209. "See generally id. §§ 54-56. See also D. Dobbs supra note 1, § 3.5. See generally C. McCormick, supra note 13, § 55. "Note, Recovery of Prejudgment Interest on an Unliquidated State Claim Arising within the Sixth Circuit, 46 On. L. Rev. 151, 152 (1977). Comment, Prejudgment Interest: Survey and Suggestion, 77 NW. U.L. Rev. 192, 199-203 (1982) [hereinafter cited as Comment, Survey]. 1984] PREJUDGMENT INTEREST 1097 majority of jurisdictions sidestep restrictive statutes and use a discre- tionary approach in awarding prejudgment interest; 20 still other states have adopted statutes or court rules which mandate awards of pre- judgment interest under certain circumstances. 21 This latter statutory approach has become the overwhelming trend in recent years as many states have responded to the need for a policy of fairness which mandates recovery of prejudgment interest in tort cases. 22 Covered by these statutes are personal injury cases in which claimants had formerly been denied prejudgment interest because the claimants' damages were not ascertainable with accuracy before trial and because juries' awards of general damages were viewed as arbitrary. 23 B. The Development of Prejudgment Interest in Indiana Although Indiana statutory law permits recovery of prejudgment interest in a contract setting or for money had and received for the use of another person, 24 judicial interpretations of the common law have allowed awards of prejudgment interest as part of recoverable damages in other actions. 25 In the torts area, the Indiana Supreme Court firmly established the award of interest in property torts in the landmark decision, New York, C. & St. L. Ry. v. Roper, 26 stating that "except 20 Id. at 204-209; see id. at 204 n.74 (identifying Indiana as state in which courts have "given themselves discretion to grant interest by judicial decision" and citing Floyd v. Jay County Rural Elec. Membership Corp., 405 N.E.2d 630, 635-36 (Ind. Ct. App. 1980)). 21 Comment, Survey, supra note 19, at 209-213. See generally S. Carrol, Jury Awards and Prejudgment Interest in Tort Cases (May, 1983) (A Rand Note prepared for The Institute of Civil Justice, N-1994-ICJ; Rand, Santa Monica, CA 90406) [hereinafter cited as Rand Note]. See also infra note 129 and accompanying text. 22Rand Note, supra note 21, at 1. "See generally C. McCormick, supra note 13, § 55. See also Restatement (Second) of Torts § 913 comment c (1979). 2'Ind. Code §§ 24-4.6-1-102, 24-4.6-1-103 (1982). 25See, e.g., Miller v. Billingsly, 41 Ind. 489 (1873) (interest upheld for gross breach of trust); Pittsburgh, A.W. & C. Ry. v. Swinney, 97 Ind. 586 (1884) (prejudgment interest allowed in trespass/conversion case); Wayne Pike Co. v. Hammons, 129 Ind. 368, 27 N.E. 487 (1891) (prejudgment interest awarded for fraudulent appropriation of corporate funds); State v. Orcutt, 211 Ind. 523, 199 N.E. 595 (1936) (prejudgment interest awarded in eminent domain proceeding); Chicago, St. L. & P. R.R. v. Barnes, 2 Ind. App. 213, 28 N.E. 328 (1891) (interest award upheld for negligent injury of land and cattle); Wabash R.R. v. Williamson, 3 Ind. App. 190, 29 N.E. 455 (1891) (interest allowed for damage to cattle); Brand v. Monumental Life Ins. Co., 396 N.E.2d 417 (Ind. Ct. App. 19 79) (prejudgment interest allowed where payment of life insurance proceeds withheld), vacated on other grounds, 417 N.E.2d 297 (1981); Board of School Trustees v. Ind. Educ. Employment, 412 N.E.2d 807 (Ind. Ct. App. 1980) (prejudgment interest awarded on damages from unfair labor practices). 2ftNew York, C. & St. L. Ry v. Roper, 176 Ind. 497, 508-09, 96 N.E. 468, 473 (1911). 109$ INDIANA LAW REVIEW [Vol. 17:1095 when the amount of recovery is . . . limited by statute, the law declares the rule of full compensation." 27 The Roper court provided fixed guide- lines for awarding this interest. /. Ascertainable Sum Standard.—Roper went beyond the traditional distinction between liquidated and unliquidated damages,28 and held that prejudgment interest is proper where damages are ascertainable by fixed rules of evidence and known standards of evaluation at a particular time. 20 Roper's "ascertainable sum" test has been reiterated by Indiana courts for over sixty years. 30 Furthermore, federal courts following In- diana law have applied the Roper ascertainable sum test in contract actions." The federal courts have gone beyond the limited guidelines of Indiana's interest statute32 and have applied the common law's ascer- tainable sum test, for example, in determining whether interest should be allowed on damages incurred from an owner's breach of implied contractual duty not to impede a subcontractor's performance. 33 The state courts, following the federal lead, have extended the ascertainable sum test to contract actions. 34 In a leading case, Portage Indiana School Construction Corp. v. A. V. Stackhouse Co., 15 the court reviewed the federal decisions and applied the ascertainable sum test to the facts of the Portage case but concluded that the damages were not ascertainable. 36 In a post-Portage case in the same district, Judge Staton noted that only federal courts had extended the Roper test beyond tortious property damages. 37 Judge Staton questioned whether the Roper ascer- tainable sum test should be extended to contract actions, as statutory remedies were available. 38 The court, however, avoided the "ominous 21 Id. at 508-09, 96 N.E. at 473. -H See supra note 16 and accompanying text. :yRoper, 176 Ind. at 508-09, 96 N.E. at 472. i0See, e.g., Independent Five & Ten Cent Stores of New York v. Heller, 189 Ind. 554, 127 N.E. 439 (1920); Town & Country Mutual Ins. Co. v. Savage, 421 N.E.2d 704 (Ind. Ct. App. 1981); Portage Indiana School Constr. Corp. v. A.V. Stackhouse Co., 153 Ind. App. 366, 287 N.E.2d 564 (1972). "See Luksus v. United Pacific Ins. Co., 452 F.2d 207 (7th Cir. 1971); Rauser v. LTV Electrosystems, Inc., 437 F.2d 800 (7th Cir. 1971); North Shore Sewer and Water, Inc. v. Corbetta Constr. Co., 395 F.2d 145 (7th Cir. 1968). nSee supra notes 2-4. "North Shore, 395 F.2d at 153 (where the circuit court found the damages were not fixed, definite or ascertainable even though the district court found the parties had stipulated that the prime contract unit prices would apply if the plaintiff were entitled to recover damages). uSee infra notes 35, 40. 'Portage Indiana School Constr. Corp. v. A. V. Stackhouse Co., 153 Ind. App. 366, 287 N.E. 2d 564 (1972). *Id. at 373-75, 287 N.E.2d at 568-70. 1 Lindenborg v. M & L Builders and Brokers, 158 Ind. App. 311, 319-21, 302 N.E.2d 816, 821-822 (1973). 'Id. at 320, 302 N.E.2d at 822. 1984] PREJUDGMENT INTEREST \(//j implications" of that question by deciding that the plaintiffs' claim did not satisfy Roper's requirements. 39 In 1981, the second district applied the ascertainable sum test and awarded prejudgment interest in a contract rescission case. 40 The ap- plication of the ascertainable sum test in property torts and in contract actions demonstrates the Indiana courts' willingness to extend prejudg- ment interest beyond the narrow confines of the statute. Even though Roper firmly entrenched the ascertainability prerequisite, and later cases stated that ''prejudgment interest is proper where the trier of fact need not exercise its judgment to assess the amount of damages,"41 the cases reflect uncertainty and inconsistency in construing the criteria necessary for establishing ascertainable damages. For example, one line of cases exhibits willingness to find ascertainability although variances exist between damages alleged and damages awarded,42 while a line of restrictive decisions denies prejudgment interest when differences exist between the amount in the complaint and the amount at judgment. 43 Further inconsistency in determining ascertainable amounts is evi- denced in the consideration of fair rental value as an ascertainable sum by accepted standards of evaluation. 44 If fair rental value has not been agreed to before the dispute between the parties arises, most courts have 39Id. Judge Staton's questioning the extension of Roper's ascertainable sum test to contract actions seems incompatible with Judge Sharp's application of that test to a contract situation only one year earlier. See supra notes 35-36 and accompanying text. 40Economy Leasing Co. v. Wood, 427 N.E.2d 483 (Ind. Ct. App. 1981). 4l Indiana Indus, v. Wedge Products, 430 N.E.2d 419, 427 (Ind. Ct. App. 1982); see also Luksus v. United Pacific Ins. Co., 452 F.2d 207 (7th Cir. 1971); Floyd v. Jay County Rural Elec. Membership Corp., 405 N.E.2d 630 (Ind. Ct. App. 1980). 42 See, e.g., Economy Leasing Co. v. Wood, 427 N.E.2d at 488 (where prejudgment interest was awarded although the plaintiff failed to plead or obtain the full amount due). A federal case which also followed this liberal approach in determining ascertainability of the amount is Rauser v. LTV Electrosystems, Inc., 437 F.2d 800, 805-06 (7th Cir. 1971). For a detailed discussion of this case, see D. Dobbs, supra note 1, at 167 (stating that the Rauser claim could not be fixed before trial and noting that courts have "a strong tendency to treat any contract claim as one that is ascertainable."). See also Indiana Indus, v. Wedge Products, 430 N.E.2d 419, 427 (Ind. Ct. App. 1982) (mere variances in numbers pleaded and numbers awarded do not indicate damages were not ascertainable if damages are subject to simple mathematical computation after liability is found); Floyd v. Jay County Rural Elec. Membership Corp., 405 N.E.2d at 636. 43See, e.g., City of Anderson v. Sailing Concrete Corp., 411 N.E.2d 728, 735 (Ind. Ct. App. 1980) (noting that a variance in the amount of demand and amount of judgment indicates that the damages were not ascertainable until judgment); City of Evansville v. Rieber, 179 Ind. App. 256, 385 N.E.2d 217 (1979) (where prejudgment interest was denied because a disparity existed between the amount pleaded and the amount proved); Portage Indiana School Constr. Corp. v. A. V. Stackhouse Co., 153 Ind. App. 366. 287 N.E.2d 564 (1972) (where the court stated that a wide disparity between invoice, complaint, and actual figure awarded indicated damages were unascertainable before judgment). "See infra notes 45-46 and accompanying text. 1100 INDIANA LAW REVIEW [Vol. 17:1095 denied prejudgment interest on the award.45 However, in a well-reasoned decision, one court allowed prejudgment interest even where the rea- sonable rental value had to be determined by the trier of fact. 46 As a consequence of these conflicting decisions, plaintiffs may receive incon- sistent results in identical fact situations. The distinction between as- certainable and unascertainable damages, therefore, has bred injustices as did the distinction between liquidated and unliquidated damages. 2. Prejudgment Interest as a Matter of Right.—Roper explicitly enunciated the principle that where damages are ascertainable, the award of interest should be mandatory, not discretionary. "The law dispenses no favors, and jurors . . . should not have the right to allow or refuse interest as one of the elements of just compensation, but in fixing the amount of damages . . . should be instructed to find the value . . . and . . . add interest thereon. . . ." 47 The Indiana Supreme Court reaffirmed this position in a 1920 case, Independent Five & Ten Cent Stores of New York v. Heller, 48 yet "a number of decisions over the years have continued to allude to the discretionary nature of including 'prejudgment interest' to compensate a party for the lost use of property." 49 In Fort Wayne National Bank v. Scher, a 1980 decision, Judge Garrard emphasized that Roper correctly sets the rule that when damages are complete and ascertainable at a particular time, the award of prejudgment interest is a matter of right in negligent destruction of property cases. 50 Because prejudgment interest is an element of compensation, the courts should follow the Roper mandate and give prejudgment interest as a matter of right when the ascertainable sum test has been satisfied. 51 3. Bar to Recovery of Prejudgment Interest in Personal Injury Cases.—Although Roper expanded prejudgment interest beyond statutory limits, the decision with one swift stroke felled recovery for personal AiSee, e.g., City of Evansville v. Rieber, 179 Ind. App. 256, 385 N.E.2d 217 (1979); Lindenborg v. M & L Builders and Brokers, 158 Ind. App. 311, 302 N.E.2d 816 (1973). For cases allowing prejudgment interest where fair rental value was agreed to, see Luksus v. United Pacific Ins. Co., 452 F.2d 207 (7th Cir. 1971); Economy Leasing Co. v. Wood, 427 N.E.2d 483 (Ind. Ct. App. 1981). "New York Cent. R.R. v. Churchill, 140 Ind. App. 426, 218 N.E.2d 372 (1966). '"Roper, 176 Ind. at 509, 96 N.E. at 473. 4M89 Ind. 554, 127 N.E. 439 (1920). "Fort Wayne Nat'l Bank v. Scher, 419 N.E.2d 1308, 1311 (Ind. Ct. App. 1981). Judge Garrard suggested that a quotation from a Pennsylvania decision which was cited in a 1920 Indiana Supreme Court case (Bryson v. Crown Oil, 185 Ind. 156, 112 N.E. 1 (1916)) may account for the ensuing confusion in Indiana case law. 419 N.E.2d at 1311. That quotation asserted prejudgment interest was not recoverable as a matter of right. As Judge Garrard emphasized, however, that assertion was not language of the Indiana Supreme Court. Id. "'Ft. Wayne Nat'l Bank, 419 N.E.2d at 1312. 51 See supra text accompanying note 47. 1984] PREJUDGMENT INTEREST 1101 injury litigants. In dicta the court stated: "Of course, it does not follow that the . . . rule would apply to personal injury cases . . . ," 52 Although over seventy years have passed since Roper was decided, no Indiana appellate cases offer any other analysis or reasoning to justify this inequitable denial of prejudgment interest. 53 Indiana has doggedly fol- lowed that traditional rule of denying prejudgment interest in personal injury actions apparently solely for the reason that the damages are not ascertainable. However, the distinction between personal loss and property loss is unfounded when viewed in the context of Roper's doctrine of full compensation for the injured party, including compensation for the deprivation of the use of the party's money or its equivalent. 54 The loss of the use of money from a personal injury loss is no less than from a loss of property and should not go uncompensated simply because the damages may be more difficult to ascertain or calculate. Indiana courts have extended prejudgment interest to claims not covered by statute. 55 Furthermore, the ascertainable sum test has been applied in contract actions even though statutory remedies exist. 56 The courts may elect, as they are not bound by a prohibiting statute, to extend the ascertainable standard to personal injury damages in deter- mining prejudgment interest just as they have extended the awards of interest in other areas. 57 Relief from the bar to recovery of prejudgment interest in personal injury suits could also come from the Indiana legislature. During the first regular session of the 103rd Indiana General Assembly in 1983, a bill which would have allowed prejudgment interest in tort cases was introduced in the House of Representatives. 58 The Senate passed a more comprehensive version which allowed prejudgment interest in all civil actions. 59 Although Senate Bill 366 passed only in the house of origin, and House Bill 1974 failed after leaving committee, the threshhold endeavor reflects the legislature's willingness to address the current in- equity in the law. 60 Further legislative efforts in 1984 during the second '\Roper, 176 Ind. at 510, 96 N.E. at 473. "The reiteration of the Roper dicta is noted in Lindenborg v. M & L Builders and Brokers, 158 Ind. App. 311, 302 N.E.2d 816 (1973). "Roper, 176 Ind. at 508-09, 96 N.E. at 472-73. 5 -See, e.g., Roper 176 Ind. 497, 96 N.E. 468 (allowance of prejudgment interest on damages from property torts). ™See, e.g., Economy Leasing, 427 N.E.2d 483. 51See supra note 25. 5XH. 1974, 103d Ind. Gen. Ass., 1st Reg. Sess., § 6 (1983). 59 S. 366, 103d Ind. Gen. Ass., 1st Reg. Sess. (1983). "The prejudgment interest bill was possibly overshadowed by a concentration of efforts on passage of other torts legislation. One was the comparative negligence bill (S. 287, 103d Ind. Gen. Ass., 1st Reg. Sess. (1983)), a bill favoring plaintiffs which was 1102 INDIANA LAW REVIEW [Vol. 17:1095 regular session of the 103rd Indiana General Assembly demonstrate the legislature's continued willingness to consider expanding the statutory bounds of prejudgment interest. 61 III. The Time Is Ripe For Indiana To Permit Prejudgment Interest A. Policy Considerations Indiana courts, like the majority of courts, in the absence of statutory guidelines, have divided torts into two major groups for determining awards of prejudgment interest: 62 torts which affect a person's property or estate and those which affect a person's body or mind. 63 Prejudgment interest is awarded for fraud, trespass, conversion, and negligent de- struction of property, 64 but is foreclosed for personal injuries. 65 The courts have limited their focus to the ascertainability of damages before trial, 66 a totally defendant-centered focus which concerns itself with a defendant's liability for interest when he cannot stop the accrual of interest by paying the damages. 67 When attention is concentrated on the defendant, the prejudgment interest is viewed more as a penalty than as an ordinary element of damages which fully compensates the injured party.68 Because the purpose of damages, however, is to make the plaintiff whole,69 the successful during the 103rd General Assembly. In addition, another pro-plaintiff bill designed to repeal the guest statute (H. 1644, 103d Ind. Gen. Ass., 1st Reg. Sess. (1983)) vied for the legislators' attention during that session. "Engrossed S. 141, 103d Ind. Gen. Ass., 2d Reg. Sess. (1984); H. 1189, 103d Ind. Gen. Ass., 2d Reg. Sess. (1984). Engrossed Senate Bill 141 passed in the house of origin and was reported out of committee in the House. House Bill 1189, which was a verbatim copy of 1983's Senate Bill 141, failed in committee. h2Roper, 176 Ind. at 505, 96 N.E. at 471. MC. McCormick, supra note 13, at 226-227. MSee supra note 25. ''"Roper, 176 Ind. 497, 96 N.E. 468. Prejudgment interest is also denied in cases of wrongful death. Although the rationale and the policies for allowing prejudgment interest in wrongful death actions are the same or similar to those for allowing prejudgment interest in personal injury cases, the scope of this Note is limited to a consideration of personal injury litigation. '•"Rauser v. LTV Electrosystems, Inc., 437 F.2d 800, 805 (7th Cir. 1971); New York, C. & St. L. Ry. v. Roper, 176 Ind. 497, 510, 96 N.E. 468, 472 (1911). "See Potter v. Hartzell Propeller, Inc., 219 Minn. 513, , 189 N.W.2d 499, 504 (1971) (After acknowledging that a personal injury claimant actually suffers the loss of the use of his money, the court rationalized its denial of prejudgment interest stating that "it would ... be unreasonable to require defendant to compensate plaintiff . . . [for defendant] cannot ascertain the amount of damages for which he might be held liable [and] cannot . . . thereby stop the running of interest."); see also D. Dobbs, supra note I, at 165. But see Busik v. Levine, 63 N.J. 351, , 307 A.2d 571, 575 (1973), appeal dismissed, 414 U.S. 1106 (1973). "See Comment, Survey, supra note 19, at 196-98. ft T. Sedgwick, A Treatise on the Measure of Damages § 30 at 25 (9th ed. 1912). 1984] PREJUDGMENT INTEREST 1103 focus in considering prejudgment interest as a part of damages should be on the plaintiff whose just compensation is the primary consideration. Three policies are noteworthy in shifting this focus from the defendant to the plaintiff. /. Lost Use of Money.—Interest for the lost use of money is an element of compensation, for the ''inherent income-producing ability of money cannot be separate from money itself." 70 A denial of prejudgment interest deprives a plaintiff of full compensation. While the plaintiff is awaiting adjudication of his claim, which may take years, 71 he must continue paying his medical bills and related expenses and providing for himself and his family. To worsen his plight, he may be forced to borrow money at the prevailing interest rate. Inflation may further undercut the value of his dollars when he finally does recover. 72 Con- sequently, all the financial ills from the delay between the date an accident occurs and the date of the judgment are posted on the plaintiff's ledger sheet. An award of prejudgment interest would adjust and convert time-of-accident damages into time-of-judgment damages. 73 Without an award of prejudgment interest, if Plaintiff A and Plaintiff B have exactly the same injury at exactly the same moment with identical losses, Plaintiff A will recover less if his trial is one year later than Plaintiff B's trial, for he will have been deprived of the use of his money while Plaintiff B enjoyed the use of his. 74 Although Indiana has segregated classes of plaintiffs for prejudgment interest recovery, the loss of the use of money is as real for a personal injury claimant as it is for one who suffers loss from having his property negligently destroyed75 or from a breach of contract. 76 Because com- pensation is the primary purpose of awarding damages in civil cases, 77 10Recent Developments—Prejudgment Interest as Damages: New Application of an Old Theory, 15 Stan. L. Rev. 107, 109 (1962); see also State v. Phillips, 470 P. 2d 266, 273 (Alaska 1970) ("[T]he economic fact [is] that money awarded for any reason is worth less the later it is received."). 'Rosenberg & Sovern, Delay and the Dynamics of Personal Injury Litigation, 59 Colum. L. Rev. 1115, 1122-23 (1959) (noting that personal injury cases, especially with serious injuries and large recoveries, often require more than three years to reach judgment). 72Nedd v. United Mine Workers of America, 488 F. Supp. 1208, 1223 (M.D. Penn. 1980) ("[Inflation is a prevailing economic fact that provides sufficient compensatory justification, at least under federal law, for prejudgment interest award."). "Comment, Survey, supra note 19, at 192. 74 State v. Phillips, 470 P. 2d 266, 274 (Alaska 1970). 15See supra notes 62-65 and accompanying text. lbSee Hare, Prejudgment Interest in Personal Injury Litigation: A Policy of Fairness, 5 Am. J. Trial Advocacy 81, 85-86 (1981) (noting that the party to a contract voluntarily entered the relationship whereas one suffering personal injury loss has forcibly incurred his loss); see also F. Hare, My Learned Friends, p. 6 (1976) for an analysis of the distinction between a contract debt and a tort debt. 11See generally, D. Dobbs, supra note 1, § 3.1; C. McCormick supra note 13. § 5; W. Prosser, Handbook of the Law of Torts § 2 (4th ed. 1971). 1104 INDIANA LAW REVIEW [Vol. 17:1095 a distinction among classes of plaintiffs should not be made in awarding prejudgment interest to compensate for the lost use of money. 2. Unjust Enrichment.—The counterpart of the personal injury litigant's losing the use of his money while awaiting the adjudication of his claim is the defendant's unjust enrichment from having the use of the plaintiff's money. 78 The purpose of an award of prejudgment interest is not to punish the defendant79 but is simply to require him to disgorge the inequitable benefits derived from the use of the plaintiff's money. 80 The defendant's gain is a practical consideration in personal injury actions where the defendants are generally covered by insurance, 81 and "the carrier receives income from a portion of the premiums on hand set aside as a reserve for pending claims." 82 The tortfeasor should not be allowed to profit from the use of money owed to the injured plaintiff. Although referring to a tortfeasor in property destruction rather than personal injury, a quote from the Roper decision is equally appropriate for one who causes a personal injury: "Surely the law ought not to hold out to a tort-feasor a premium on delay." 83 3. Settlement of Claims.—A third policy consideration is that pre- judgment interest will promote settlement, and the judicial system, con- sequently, will be aided in administering justice. 84 Increased settlements would aid in decongesting court dockets. 85 When prejudgment interest is banned, the defendant has little or no incentive to negotiate, to offer or to accept a reasonable settlement, for he has little to lose by delay as his money lies accumulating interest, especially if he is liable for a large judgment. 86 As the Michigan Supreme Court stated, "Without such ^See Hare, supra note 76, at 89; Note, supra note 18, at 154-155. 19See supra text accompanying note 10. ^Moore-McCormack Lines v. Richardson, 295 F.2d 583, 594-95 (2d Cir. 1961) (stating that regardless of whether defendant is at fault for delay, the plaintiffs have lost, and the defendant has benefitted), cert, denied, 368 U.S. 989, 370 U.S. 937 (1962). R1 North Carolina's prejudgment interest statute specifically limits interest to com- pensatory damages where claims are covered by liability insurance. See N.C. Gen. Stat. § 24-5 (Supp. 1981). « 2 Busik v. Levine, 63 N.J. 351, , 307 A.2d 571, 575-76; see also Cree Coach Co. v. Wolverine Ins. Co., 366 Mich. 449, 463, 115 N.W.2d 400, 407 (1962) ("All the time the defendant insurance companies have been withholding payment, they have had the use of the money due to the plaintiffs with the consequent possibility of realizing income therefrom."). "Roper, 176 Ind. at 508-09, 96 N.E. at 473. "State v. Phillips, 470 P. 2d 266, 274 (Alaska 1979); Denham v. Bedford, 407 Mich. 517, , 287 N.W.2d 168, 175 (1980). "See State v. Phillips, 470 P. 2d at 274; Busik v. Levine, 63 N.J. at , 307 A.2d at 575. "Denham v. Bedford, 407 Mich, at , 287 N.W.2d at 175. However, the delay argument cuts both ways. If the defendant should not be allowed to benefit from delay, 1984] PREJUDGMENT INTEREST 1105 an incentive, the insurer may refuse to settle a meritorious claim in hopes of forcing plaintiff to settle for less than the claim's true value.'"57 Prejudgment interest not only compensates the claimant, but liability for prejudgment interest may serve as an incentive for the insurer promptly to settle a meritorious claim. 88 B. Courts Could Allow Prejudgment Interest Under Present Standards As Professor McCormick stated almost fifty years ago, "Courts have usually summarily discountenanced interest in all personal injury cases. This generalization (like so many dicta about interest, thrown off hur- riedly as relating to a minor feature of the case) is hasty and injudi- cious/' 89 The time is long overdue for Indiana courts to institute a policy of fairness by dispensing with the dictum in Roper which inju- diciously bars the recovery of prejudgment interest in personal injury suits. Justice and parity in reasoning dictate that Indiana courts at least allow recovery for purely pecuniary losses such as medical bills and lost wages as these are sums which are ascertainable at a particular time by fixed rules of evidence. 90 Although some Indiana cases have stated that prejudgment interest is only proper when the trier of fact need not exercise its judgment to assess the amount of damages, 91 the court in New York Central R.R. v. Churchill92 allowed prejudgment interest even though the fact finder had to make a determination of the reasonable rental value of certain destroyed property. 93 The court acknowledged that there was language in Roper suggesting that "[i]n all personal injury cases . . . where the damages are . . . peculiarly within the province of the jury to assess at the time of the trial, no interest is permissible." 94 However, the Churchill court emphasized that this dictum was not language from the Indiana Supreme Court but was from a Utah case cited by the Indiana Supreme Court. 95 The court in Churchill further noted that "[t]he [Roper] court did not conclude that merely because the assessment of damages was peculiarly within the province of a jury or court, that interest on neither should the plaintiff. See Me. Rev. Stat. Ann. tit. 14, § 1602 (Supp. 1983) (suspending interest during a plaintiff-requested continuance of greater than thirty days). "Denham v. Bedford, 407 Mich, at , 287 N.W.2d at 175. H*See supra text accompanying note 10; Hare, supra note 76 at 90; Podgers, Pre- judgment Interest Held Available in DC-I0 Suits, 66 A.B.A. J. 137 (February, 1980). H9See McCormick, supra note 13, § 56 at 224. ™See D. Dobbs, supra note 1, at 165 n.4; C. McCormick, supra note 13, § 57. "See Indiana Indus, v. Wedge Products, 430 N.E.2d 419, 427 (Ind. Ct. App. 1982). y2New York Cent. R.R. v. Churchill, 140 Ind. App. 426, 218 N.E.2d 372 (1966). "Id. "Roper, 176 Ind. at 507, 96 N.E. at 472. "Churchill, 140 Ind. App. at 435-36, 218 N.E.2d at 378. 1106 INDIANA LAW REVIEW [Vol. 17:1095 such damages should not be allowed." 96 The Churchill decision to allow prejudgment interest even if the trier of fact must make a value determination ' is a sound one, because a plaintiff should not be deprived of interest simply because the jury must make a value determination. Although the rule in Indiana is that damages for medical expenses are awarded based on reasonable value as determined by the trier of fact, gs prejudgment interest for medical expenses would not be precluded under the Churchill rationale. Medical bills are ascertainable before trial, and they are evidence for the jury's consideration in determining rea- sonable damages for medical expenses." The plaintiff should not be deprived of prejudgment interest on these costs simply because the jury must assess their reasonableness. Other damages in a personal injury suit, however, would not qualify under the ascertainable standard. Because nonpecuniary damages such as those for pain and suffering are not compensatory in the ordinary sense of making the plaintiff whole or replacing his loss, 100 and because there is no market value by which they can be measured, these losses are not liquidated or ascertainable and, therefore, would not receive prejudgment interest under the ascertainable sum standard. 101 Indiana courts recognize that prejudgment interest is not solely a creature of statute but is allowed as an element of damages for com- pensation by the judicial branch. 102 However, the courts have refused to extend their discretion to the recovery of prejudgment interest in personal injury suits as an element of compensation, even though in a 1980 fraud case the court noted that prejudgment interest was not "a question of equity, but an element of compensatory damages." 103 Still, the courts have maintained an impenetrable barrier against prejudgment interest for personal injuries. 104 Dicta from the 1911 Roper decision and a tenacious clinging to the ascertainable standard against all parity in reasoning have kept the courts' doors closed on this injustice. As no statute prohibits the award of prejudgment interest for personal injury damages, the courts could remove the barrier to recovery of prejudgment interest for personal injury litigants by applying the standard *>Id. 'See supra text accompanying notes 92-93. "See, e.g., Herrick v. Saylor, 160 F. Supp. 25, 29 (N.D. Ind. 1958); Havanagh v. Butorac, 140 Ind. App. 139, 144, 221 N.E.2d 824, 828 (1966); Kampo Transit, Inc. v. Powers, 138 Ind. App. 141, 161, 211 N.E.2d 781, 793 (1965). "Herrick v. Saylor, 160 F. Supp. 25, 29. 'See D. Dobbs, supra note 1, at § 8.1 at 544-45; C. McCormick, supra note 13, § 57. ""Id. ,r,2Floyd v. Jay Rural Elec. Membership Corp., 405 N.E.2d 630, 636 (Ind. Ct. 1980). ""Id. ""See, e.g., Lindenborg v. M & L Builders and Brokers, 158 Ind. App. 311, 318- 319, 302 N.E.2d 816, 821 (1973). 1984] PREJUDGMENT INTERESI 1107 of ascertainability enunciated in Roper to personal injury cases and disarming the Roper dicta which have heretofore totally denied pre- judgment interest. C. Legislative Action is the Preferable Solution for the Denial of Prejudgment Interest in Personal Injury Actions Indiana courts, like other courts, 105 could address the denial of prejudgment interest in personal injury cases based on a sense of equity, and award prejudgment interest in personal injury suits without legislative guidelines. 106 However, the lack of precedent in Indiana and the necessity for the courts to square the decisions with rulings in other types of prejudgment interest cases would likely result in inconsistent judgments as the courts struggled to establish standards in personal injury cases. Litigants would, consequently, be at a loss to discern which factors control an award of prejudgment interest in a certain case, and outcomes of similar cases would be unpredictable. Already inconsistencies and varying requirements plague the predictability of awards of prejudgment interest in other cases in Indiana. 107 Adding another line of cases would result in inconsistent judgments as the common law developed in the different courts, especially in light of the various damages involved in a personal injury suit. 108 A more appropriate response to the current inequity caused by the denial of prejudgment interest would be for the Indiana legislature to follow the lead of the many states 109 which have adopted statutes which allow prejudgment interest for personal torts as well as property torts. 110 ,mSee, e.g., American Ins. Co. v. Naylor, 103 Colo. 461, 87 P. 2d 260 (1939) (permitting plaintiff to claim interest on personal injuries from date suit filed); Lucas v. Leggit & Myers Tobacco Co., 51 Hawaii 34, 461 P. 2d 140 (1960) (stating that since prejudgment interest was not expressly forbidden by state statute, the court was free to permit it). See Brennan, Prejudgment Interest in Wisconsin Personal Injury Cases, 56 Wis. B. Bull. 18 (1983) (discussing the developing trend in the Wisconsin judiciary to allow prejudgment interest in personal injury cases and arguing that the legislature is best suited to implement a fair and workable policy of prejudgment interest in personal injury cases). l(*See In re Air Crash Disaster Near Chicago, Illinois, on May 25, 1979, 480 F. Supp. 1280, 1285 (N.D. 111. 1979) (determining that as a matter of law "fair and just compensation . . . must include interest on a judgment in a wrongful death case from the date of death."), aff'd, 644 F.2d 633 (7th Cir. 1981). W7See supra notes 41-46 and accompanying text. [0gSee supra notes 90-100 and accompanying text. 109According to a 1983 Rand study, twenty-six legislatures have enacted prejudgment interest statutes for personal torts. Rand Note, supra note 21 at 1. For a look at how Canadian lawmakers have dealt with this issue, see Pre-judgment Interest and the Personal Injury Action, 4 Advocates' Q. 219 (1983) (reviewing the development of the law regarding awards of pre-judgment in personal injury suits in Ontario in the six years since Ontario effected a radical change in its statutory law relating to damage awards). n "See infra note 93 and accompanying text. 1106 INDIANA LAW REVIEW [Vol. 17:1095 In 1983 legislative sessions, at least twenty-six states proposed new or expanding prejudgment interest legislation. 111 Indiana was among the states proposing new legislation with the introduction in both houses of bills which sanctioned prejudgment interest in personal injury actions and with the passage of the Senate version in that house. 112 Indiana also considered prejudgment interest legislation in its 1984 legislative session. 113 Even though the 1983 and 1984 efforts which would have allowed prejudgment interest in all tort cases failed, the Indiana legislature remains the proper vehicle through which to insure that personal injury litigants are fully compensated for their losses and that juries are provided with clear guidelines for awarding prejudgment interest rather than randomly and indiscriminately "adding in" what they consider a fair amount to compensate for the plaintiff's loss of the use of his money while awaiting final adjudication of his claim. 114 As one federal court noted, "[N]o one would be so naive as to suppose that juries do not throw into the scales the years that a plaintiff may have had to wait before his case can be heard by a jury .... Likewise judges doubtless make some allowance for loss because of the law's delay." 115 Furthermore, legislative action would avoid the confusion which might result from the courts' endeavor to forge new guidelines for personal injury recovery. 116 Although limited interest could be recovered by the application of current common law rules, results would likely be inconsistent as courts varied in their application of those rules. 117 The courts would be faced with the confusion between mandatory awards and discretionary awards which has surfaced in property torts cases. 118 The problems which have occurred in other cases when the trier of fact must determine value might also breed the confusion in personal injury cases which has been apparent in other actions. 119 Therefore, the more satisfactory resolution would be enactment of a prejudgment interest statute by the Indiana legislature. '"Rand Note, supra note 21, at 1. " 2 H. 1974, 103d Ind. Gen. Ass., 1st Reg. Sess., § 6 (1983); S. 366, 103d Ind. Gen. Ass., 1st Reg. Sess. (1983). '"See supra note 61. '"See, e.g., Moore-McCormack Lines v. Richardson, 295 F.2d 583, 594 (2d Cir. 1961); Chicago v. Barnes, 2 Ind. App. 213, 28 N.E. 328 (1891) (where plaintiff had a loss of $165 to land and $100 to cattle, jury returned a $277.41 verdict. Court on appeal allowed jury to add this interest.); Keir and Keir, Opportunity Cost: A Measure of Prejudgment Interest, 39 Bus. Law 129 (1983); Hare, supra note 76, at 90; Rand Note, supra note 21, at 13 (Results of Cook County, Illinois, study show juries provide an implicit 3.7% interest rate for delay over and beyond the interest rate.). '"Moore-McCormack Lines, 295 F.2d at 594. "''See, e.g., supra notes 42-46, 49-50 and accompanying text. ""Id. ''See supra notes 47-50 and accompanying text. "''See supra notes 41-46, 91-92 and accompanying text. 1984] PREJUDGMENT INTEREST 1109 IV. Suggestions for a Statute to Provide Just COMPENSATION for Personal Injury Litigants Even though the Indiana Senate's efforts in considering a prejudg- ment interest statute are laudable, the 1983 proposed bill left the award of prejudgment interest, including date of accrual, rate of interest, types of damages to receive interest, and the determination of what constitutes a bona fide settlement offer, totally to the courts' discretion. 120 Although the award of prejudgment interest remained discretionary, the Senate's effort in 1984 mended some of the 1983 defects. The date of accrual was fixed; the rate of interest was still discretionary in the 1984 version, but the range of discretion was narrowed by fifty percent; and the settlement offer was specifically defined. 121 I20 S. 366, 103d Ind. Gen. Ass., 1st Reg. Sess. (1983) provides: SECTION 1. IC 24-4.6-2 is added to the Indiana Code as a NEW chapter to read as follows Chapter 2. Prejudgment interest. Sec. 1. This chapter does not apply to actions against the state or against any other governmental entity. Sec. 2. In a civil action resulting in a judgment awarding damages, the court may award interest on the judgment over the period between the date on which the cause of action arose and the date of the judgment, or over a lesser period of time. In deciding whether to grant interest under this section, the court shall consider the following factors; (1) Whether the action concerned money or goods wrongfully taken. (2) Whether the action was to recover money or goods withheld in an unreasonable manner. (3) Whether the action was to recover damages based upon bodily injury, property damage, or death. (4) Whether the plaintiff suffered unusual expense between the date on which the cause of action arose and the date of the judgment as a result of the defendant's actions. (5) If the action was to recover an amount due under a promissory note or other contract, whether the amount due and due date under the note or contract were reasonably ascertainable. Sec. 3. In any action, if a bona fide offer of settlement was previously made in writing by the party against whom judgment is subsequently entered, and the amount of the offer was: (1) substantially identical to the amount of the judgment; or (2) more favorable to the prevailing party than the judgment; no interest may be allowed under section 2 of this chapter for the period between the date on which the offer of settlement was made and the date of the judgment. Sec. 4. The rate of the interest on a judgment under section 2 of this chapter may not exceed the rate set by IC 24-4.6-1-101 for interest on the judgment from the date of the judgment until satisfaction. mEngrossed S. 141, 103d Ind. Gen. Ass., 2d Reg. Sess. (1984) provides: SECTION 1. IC 34-2-36 is added on the Indiana Code as a NEW chapter to read as follows: Chapter 36. Prejudgment Interest. Sec. 1. In any civil action, other than an action based on contract, the court 1110 INDIANA LAW REVIEW [Vol. 17:1095 In order to avoid discrepancies in prejudgment interest awards among personal injury litigants who should each receive full compensation for the lost use of money, the legislature should enact a mandatory statute. Only a mandatory statute will assure full compensation and consistent judgments. Several factors should be considered by the Indiana legislature in order to avoid later conflicts when the courts construe that statute. The more carefully these factors are considered and the more specifically the guidelines are drafted, the more equitable will be the awards granted to individual litigants. A. Date of Accrual Some states' prejudgment interest statutes set the date of accrual at the date the cause of action accrued. 122 Some leave the date of accrual to the courts' discretion. 123 A majority of states, however, set the date of accrual as the date the complaint was filed. 124 This latter alternative may award prejudgment interest in accordance with this chapter. However, such interest may not be awarded until judgment has been rendered in the action. Sec. 2. The period with respect to which prejudgment interest may be awarded begins one (1) year after the cause of action arose and may not extend past the date of judgment. In addition, the period may not exceed forty-eight (48) months. Sec. 3. Prejudgment interest that is awarded under this chapter must be awarded as simple interest. The rate of simple interest awarded under this chapter must be equal to or greater than six percent (6%) per year but may not exceed twelve percent (12%) per year. Sec. 4. Prejudgment interest may not be awarded under this chapter: (1) if within one hundred eighty (180) days after the filing of the action a written offer of settlement was made by the party against whom the prejudgment interest is requested, if: (A) the term of the offer included payment within sixty (60) days after the time of acceptance of the offer of settlement; and (B) the amount of the offer of settlement was at least eighty percent (80%) of the amount of the judgment; or (2) as to any award of punitive damages. Sec. 5. The state and its political subdivisions (as defined in IC 36-1-2-13) are not liable for prejudgment interest). Sec. 6. This chapter does not prevent a court from awarding prejudgment interest in a civil action based on contract. SECTION 2. This act does not apply to actions that arise before September 1, 1984. >uSee, e.g., Alaska Stat. §§ 45.45.010 (Supp. 1983), 09.50.280 (1973); Colo. Rev. Stat. § 13-21-101(1) (Supp. 1983); Ohio Rev. Code Ann. § 1343.03 (Page Supp. 1982); R.I. Gen. Laws § 9-21-10 (Supp. 1983); Utah Code Ann. §§ 15-1-4, 78-27-44 (1977). mSee, e.g., Tenn. Code Ann. § 47-14-123 (1979); W. Va. Code § 56-6-31 (Supp. 1983). ,24See, e.g., Iowa Code Ann. § 535.3 (West Supp. 1983-84); La. Rev. Stat. Ann. § 13:4203 (West 1968); Me. Rev. Stat. Ann. tit. 14, § 1602 (Supp. 1983-84); Mass-Gen. 1984] PREJUDGMENT INTEREST 1111 seems the most equitable in light of the policy of preventing a party from benefiting from delay. 125 If a plaintiffs suffering the loss of the use of his money as a result of delay caused by the defendant's refusal to negotiate is unfair, then holding a defendant liable for prejudgment interest for a time period before the plaintiff has summoned the defendant to the negotiating table is equally unfair. Therefore, a defendant should not be liable for interest accruing before the complaint is filed. 126 B. Mandatory or Discretionary Award In explicit terms, the Indiana Supreme Court announced in Roper that when an award is due for prejudgment interest in a property loss case, it should be as a matter of right, not at the jury's discretion. 127 "The law dispenses no favors, and jurors should mete out equal and exact justice, and should not have the right to allow or refuse interest as one of the elements of just compensation , . . ." ,28 The Roper rationale is equally pertinent to an award for personal injury loss. In recognition of this principle, Indiana should join the majority of the states which have mandatory prejudgment interest statutes. 129 Laws Ann. ch. 231, § 6B (West Supp. 1984-85); Mich. Comp. Laws Ann. § 600.6013 (West Supp. 1983-84); Nev. Rev. Stat. § 17.130 (1981); N.H. Rev. Stat. Ann. § 524:1- b (1974); N.C. Gen. Stat. § 24-25 (Supp. 1983); Okla. Stat. Ann. tit. 12, § 727(2) (West Supp. 1983-84). UiSee supra notes 78-83 and accompanying text. See also Comment, Availability of Prejudgment Interest in Personal Injury and Wrongful Death, 16 U.S.F.L. Rev. 325, 341- 46 (1982). 126Indiana's Engrossed S. 141, supra note 121 at § 2, offered a hybrid accrual date wherein the interest accrues one year after the cause of action arose. This arbitrary point of accrual will unfairly allow plaintiffs who file a complaint after one year to collect interest before the complaint was filed, yet plaintiffs who file a complaint before one year cannot recover prejudgment interest for the period between date of filing until one year from the date of the cause of action. Although this hybrid accrual date is an improvement over the wholly discretionary accrual date of the 1983 Senate Bill 366, supra note 120, the most equitable date would be the date on which the complaint was filed. l27New York, C. & St. L. Ry. v. Roper, 176 Ind. 497, 509, 96 N.E. 468, 473 (1911); see also C. McCormick, supra note 13, § 55, at 221 ("A rule, however, which leaves the award of this important element of compensation to the unbridled caprice of the jury, in cases where a fairly measurable sum has been withheld from plaintiff, seems hard to support."). ]2*Roper, 176 Ind. at 509, 96 N.E. at 473. See also Fort Wayne Nat'l Bank v. Scher, 419 N.E.2d 1309, 1311-12 (Ind. Ct. App. 1981). i29See, e.g., Alaska Stat. §§ 45.45.010 (Supp. 1983), 09.50.280 (1973); Cal. Civ. Code § 3291 (West Supp. 1984); Colo. Rev. Stat. § 13-21-101 (Supp. 1983); Ga. Code § 51-12-14 (1982); Iowa Code Ann. § 535.3 (West Supp. 1983-84); La. Rev. Stat. Ann. § 13:4203 (West 1968); Me. Rev. Stat. Ann. tit. 14, § 1602 (Supp. 1983-84); Mass. Gen. Laws Ann. ch. 231, § 6B (West Supp. 1984-85); Mich. Comp. Laws Ann. § 600.6013 (West Supp. 1983-84); Nev. Rev. Stat. § 17.130 (1981); N.H. Rev. Stat. Ann. § 524:1- b (1974); N.C. Gen. Stat. § 24-5 (Supp. 1983); Okla. Stat. Ann. tit. 12, § 727(2) (West Supp. 1983-84); R.I. Gen. Laws § 9-21-10 (Supp. 1983); Utah Code Ann. §§ 15-1-4 Hi: INDIANA LAW REVIEW [Vol. 17:1095 Mandatory awards would assure consistency in plaintiffs' compen- sation and encourage settlement by eliminating any economic incentive for a defendant to postpone settlement negotiations. 130 Therefore, both plaintiffs and defendants could benefit from the predictability of judg- ments, and crowded court dockets would be relieved by the increase of serious settlement endeavors, especially in cases where liability is indis- putable. C. Types of Damages to Which Statute Applies A statute should enumerate the types of damages which are eligible for prejudgment interest. Although most statutes mandate interest on the entire judgment, 131 this often results in overcompensation for the plaintiff. Exemplary damages, for example, should not be included, as the purpose of exemplary damages is punishment for the defendant, not compensation for the plaintiff. 132 Awarding prejudgment interest on pu- nitive damages would result in overcompensation or a windfall for the plaintiff and an excessive penalty for the defendant. 133 Another consideration is whether to allow prejudgment interest for future damages such as loss of future earning capacity and future medical expenses. Although most jurisdictions award interest on the entire judg- ment, 134 the plaintiff is overcompensated when prejudgment interest is awarded on future losses such as earning capacity and future medical expenses, for the plaintiff has not lost the use of that money as of the date of the judgment. 135 Therefore, future losses should not be included in the prejudgment interest calculation as the purpose of prejudgment interest is to compensate for the lost use of money. 136 (1977), 78-27-44 (1977); Wis. Stat. Ann. § 807.01(4) (West Supp. 1983-84). Some states, however, have discretionary statutes. See, e.g., Hawaii Rev. Stat. § 636-16 (Supp. 1983); Md. Cts. & Jud. Proc. Code Ann. § 11-301 (Supp. 1983); Ohio Rev. Code Ann. § 1343.03 (Page Supp. 1982); Tenn. Code Ann. § 47-14-123 (1979). ""See supra notes 85-87 and accompanying text. ]il See supra note 129 and accompanying text (all states with mandatory statutes allow prejudgment interest on the entire judgment with the exception of Massachusetts (limited to pecuniary and consequential damages); Nevada (not allowed on future damages); North Carolina (only on compensatory damages); and Utah (special damages only)). Engrossed S. 141, 103d Ind. Gen. Ass., 2d Reg. Sess., 84 (1984) specifically denies prejudgment interest on punitive damages. "2See Roper, 176 Ind. at 510, 96 N.E. at 473; C. McCormick, supra note 13, at 227; Comment, supra note 125, at 355. "'See Comment, Survey, supra note 19, at 210 n. 103, 1 2. "ASee supra note 131 . "'See Nev. Rev. Stat. § 17.130 (1981) (prejudgment interest not allowed on future damages). But see Carlton v. H.C. Price Co., 640 F.2d 573 (5th Cir. 1981) (awarding prejudgment interest on future medical damages); Busik v. Levine, 63 N.J. 351, 307 A. 2d 571 (1973), appeal dismissed, 414 U.S. 1106 (1973). '"See supra notes 70-77 and accompanying text. 1984] PREJUDGMENT INTEREST 1113 Although the trend with recent legislation is to allow prejudgment interest on all losses, 137 there are two strong arguments against awarding prejudgment interest on non-pecuniary losses such as pain and suffering. 13 *- First, damages for non-pecuniary losses do not constitute compensation for loss in the traditional sense of making the plaintiff whole or replacing his loss, 139 because pain and suffering cannot be measured in dollars or eliminated by the payment of money. Second, the jury's awards are arbitrary, as there is no market value on these losses, and an award of prejudgment interest would result in undue compensation. 140 Both ar- guments have merit when one looks to the policy of providing fair compensation to the plaintiff. 141 Fair, not excessive, compensation is the objective of prejudgment interest. Granting an award of prejudgment interest which unjustly enriches the plaintiff, by allowing him interest on money of which he has not lost the use, would simply be trading the current injustice where the defendant is unjustly enriched by being allowed to benefit from the use of the plaintiff's money for a new injustice. An award on the total judgment, including non-pecuniary losses, would be as unfair as denying prejudgment interest on the entire judgment. To achieve just compen- sation, a compromise is appropriate. 142 However, the division of damages for the purpose of awarding prejudgment interest will affect the policy consideration of promoting settlement. Limiting prejudgment interest to pecuniary losses such as lost wages and medical expenses will necessarily reduce the defendant's liability for interest and, consequently, prejudgment interest will not provide as much incentive for the defendant to avoid delay and negotiate a set- ,37Rand Note, supra note 21, at 1; see supra note 131. But see Mass. Gen. Laws Ann. ch. 231, § 6B (West Supp. 1984-85) and R.I. Gen. Laws § 9-21-10 (Supp. 1983) (allowing prejudgment interest only on pecuniary losses). l,8Professor McCormick defines pecuniary loss as loss from injury which can be measured in money by a standard, whereas non-pecuniary loss such as pain and suffering and mental anguish cannot be measured by a standard of valuation. C. McCormick, supra note 13, §§ 56-57, at 224-26. For commentary supporting allowing prejudgment interest only on pecuniary losses, see C. McCormick, supra note 13, § 56; Note, supra note 18, at 161 ("segregate pecuniary from nonpecuniary and . . . award damages on the former."); Comment, Prejudgment Interest: An Element of Damages Not to be Overlooked, 8 Cum. L. Rev. 521, 535 (1977). Contra State v. Phillips, 470 P. 2d 266, 273-74 (Alaska 1970) ("All damages, then . . . should carry interest."). i39See D. Dobbs, supra note 1, § 8.1, at 544-45. l40Id. "'Contra Comment, supra note 125, at 341-46. "2See Feirich, Pre-Judgment Interest or Conflict of Interest, 71 III. B. J. 526 (1983) (where the president of the Illinois State Bar Association discusses the association's draft legislation which offered to the legislature a compromise position similar to the one advocated in this Note). For an in depth view of the Illinois debate over prejudgment interest, see Londrigan, Prejudgment Interest The Case For . . ., 72 III. B.J. 62 (1983) and Smith, The Case Against . . . , 72 III. B.J. 63 (1983). 1114 INDIANA LAW REVIEW [Vol. 17:1095 dement. The legislature, therefore, must weigh the divergent effect of two policies—just compensation and promotion of settlement—in de- termining whether to allow interest on the non-pecuniary damages. Although dividing an award into pecuniary and non-pecuniary dam- ages, punitive damages, and future losses requires some computations, this need not be an overburdening complexity for the juries. 143 Instead of returning a general verdict, the jury could be instructed to complete a form distinguishing the amounts awarded for non-pecuniary and pe- cuniary losses, and past and future damages. 144 The court could then assess the interest to the appropriate damages, or the jury could be instructed to assess the interest. D. Effect of Settlement Offer Because promoting settlement is a major policy consideration in the allowance of prejudgment interest, some states' statutes include contin- gencies regarding the offer of settlement. 145 Some require that the award obtained must be equal to or greater than previous settlement offers before prejudgment interest is allowed for the entire period before final judgment. 146 Such a contingency would require that the plaintiff, too, l43 Both courts and legislatures have likely been concerned with the calculation involved in dividing the damages for computing prejudgment interest. This concern may be partially responsible for many legislatures awarding prejudgment interest on the entire judgment. As Professor McCormick noted, "[d]oubtless, due to a fear that undue complexity in instructions to juries, and excessive intricacies of calculation might be called for, courts have been slow thus to analyze damages in personal injury cases into their component parts and authorize interest in some and not in others." C. McCormick, supra note 13, § 56, at 225. As juries must necessarily do calculations to arrive at any award and since modern technology has made the calculator a commonplace aid, dividing an award should cause minimal computation difficulty. l44Courts now return general verdicts pursuant to Ind. R. Tr. P. 49 which abolished special verdicts. However, the court could furnish a form similar to that which the legislature described in the Comparative Fault Act, Act of Apr. 21, 1983, Pub. L. No. 317-1983, Sec. 1, § 6, 1983 Ind. Acts 1930, 1933 (codified at Ind. Code § 34-4-33-6 (Supp. 1984) which provides that: The court shall furnish to the jury forms of verdicts that require the disclosure of: (1) The percentage of fault charged against each party; and (2) The calculations made by the jury to arrive at their final verdict. If the evidence in the action is sufficient to support the charging of fault to a nonparty, the form of the verdict also shall require a disclosure of the name of the nonparty and the percentage of fault charged to the nonparty. •See infra note 146. 'See, e.g., Cal. Civ. Code § 3291 (West Supp. 1984) (interest calculated from date of plaintiff's written offer if plaintiff receives a more favorable verdict than that offer); Ga. Code § 51-12-14 (1982) (plaintiff gives defendant a written offer; if not paid by defendant within thirty days, plaintiff gets interest from date of offer if award is equal to or greater than that offer); Pa. R. Civ. P. 238, § 231, (award must be greater than 125°7o of offer or interest accrues only to date of offer); Wis. Stat. Ann. § 807.01(4) 1984] PREJUDGMENT INTEREST 1115 make a good faith effort to settle if a reasonable offer were extended by the defendant. If a plaintiff refuses a reasonable, legitimate offer of settlement, perhaps he should be denied recovery of prejudgment interest, for the plaintiff should not benefit from delaying the litigation or holding out for a higher award any more than the defendant should benefit from delay. In fairness, the settlement promotion argument must cut both ways. The most equitable solution is a moderate approach which tolls the accrual of prejudgment interest after the offer is made. 147 Indiana's Senate Bill 366, introduced in 1983, offered this alternative approach. 14* Interest accrual was tolled after a written offer of settlement by the defendant if the amount of the offer was "substantially identical to the amount of the judgment; or more favorable to the prevailing party than the judgment." 149 Although the Senate's alternative is an attractive one, the "substantially identical' ' language is vague and ambiguous, and invites incongruous awards of interest. 150 The use of "equal to or greater than" language would result in consistent awards and avoid trial courts' or juries' varying determinations of what amount is "substantially identi- cal." Although the 1984 Engrossed Senate Bill 141 defined the settlement offer in explicit terms, interest is totally prohibited if the defendant's offer was made within one hundred eighty days after the complaint was filed, if the offer included payment within sixty days after acceptance of the offer, and if the offer was at least eighty percent of the judgment amount. 151 The 1983 version, with a modification of the "substantially identical" language, is the more equitable proposal. (West Supp. 1983-84) (interest allowed if plaintiff recovers a judgment greater than the offer of settlement). ""See, e.g., Mich. Comp. Laws Ann. § 600.6013 (West Supp. 1983-84) (interest may- be tolled after date of offer if offer was equal to or greater than judgment); cf. Ind. R. Tr. P. 68 ("If the judgment finally obtained by the offeree is not more favorable than the offer, [offer must be made by the defendant more than ten days before the trial begins] the offeree must pay the costs incurred after the making of the offer."). l48See the text of S. 366, ch. 2, § 3 at supra note 120. ,49 S. 366, 103d Ind. Gen. Ass., 1st Reg. Sess., § 3 (1983). However, this section failed to specify a particular time within which the offer must be made. Ind. R. Tr. P. 68, supra note 146, requires that the offer be made ten days before trial. Such a provision could be included in a prejudgment interest statute. l50The "substantially identical" language opens a range of considerations which require unwarranted judicial discretion which will result in inconsistent awards among similarly- situated plaintiffs. How will the court determine what is substantially similar? Percentages? Dollar amounts? Is one percent variance substantially identical? On a $3,000 judgment that would amount to only $30, whereas if the court were considering a $1 million award, one percent would amount to $10,000. If one percent is not substantial, where should the line be drawn? Five percent? Ten percent? The courts will likely disagree on this line drawing, and plaintiffs, consequently, will be subject to uncertain judgments. '"See supra note 121; cf. Pa. R. Civ. P. 238, § 231 (wherein interest is tolled after the date of offer). 1116 INDIANA LAW REVIEW [Vol. 17:1095 In weighing the importance of the policy of promoting settlement, the legislature should carefully consider the various contingency alter- natives that are available. E. Rate of Interest Most statutes award interest on tort actions at a fixed rate of interest 152 while a few allow a discretionary rate with a maximum rate defined. 153 Even though only one state has adopted an indexed rate of interest, 154 a "floating" rate of interest would assure that rates awarded reflect current market rates as they would be indexed to an economic activity. Indiana's House Bill 1974 proposed that interest be indexed at six-month intervals based on treasury bills. 155 A floating rate is probably the most equitable interest alternative, but a fixed rate would be preferable to the discretionary rate proposed by Senate Bill 366 in 1983, 156 or the six to twelve percent range proposed by 1984's Engrossed Senate Bill 141. 157 There is no justification for similarly-situated plaintiffs' receiving interest calculated at different rates. Therefore, in drafting a prejudgment interest statute, the legislature should explicitly set interest rates, so the courts will not calculate awards at their discretion, resulting in indis- criminate variations in plaintiffs' compensation. 158 ,$1See, e.g., Cal. Civ. Code § 3291 (West Supp. 1984); Iowa Code Ann. § 535.3 (West Supp. 1983-84). ,5iSee, e.g., Md. Cts. & Jud. Proc. Code Ann. § 11-301 (Supp. 1983); Tenn. Code Ann. § 47-14-123 (1979). See also Engrossed S. 141, supra note 121, which is unusual because it offers a range, i.e. a floor of 6% and a ceiling of 12%. ,54Del. Code Ann. tit. 6, § 2301 (Supp. 1982) (interest rate 5% over the Federal Reserve discount rate). ,SiSee H. 1974, § 6 (adding IC 34-2-22.5-1) 103d Ind. Gen. Ass., 1st Reg. Sess. (1983). Section 1(b) provides that: To establish the rate of interest to be applied, the director of the department of financial institutions shall identify the average annual yield on twenty-six (26) week term treasury bills, as reported by the United States Federal Reserve Board, and shall round that figure to the nearest one-quarter percent (0.25%). mSee the text of S. 366, ch. 2, § 4 at supra note 120. The provision for the interest rate would allow courts to vary the interest rate as long as the rate did not exceed the twelve percent (12%) rate set by Ind. Code § 24-4.6-1-101 (1982). '''See supra note 152. ""For a contrary view, see Keir & Keir, Opportunity Cost: A Measure of Prejudgment Interest, 39 Bus. Law 129 (1983) where the authors propose that awards of prejudgment interest be based on opportunity cost to the injured party rather than by a static, inflexible rule and that, in addition, the rates be compounded. The proposal offers two calculation provisions: (1) For business entities, the opportunity cost can be calculated within a range where the minimum award would be the company's cost of capital and where the maximum would be calculated on the company's historical rate of return, if higher. (2) For individuals, the opportunity costs can be calculated at the rate of a low-risk, liquid investment such as money market instruments or treasury bills and, if higher, the maximum rate would 1984) PREJUDGMENT INTEREST 1117 Ordinarily, prejudgment interest is not compounded. 1 ' 9 Indiana fol- lows the majority rule and currently does not allow compound interest, that is, interest on interest, when prejudgment interest is awarded. m Determining the date of accrual, deciding on a mandatory or dis- cretionary approach, defining types of damages eligible for interest, and setting the rate of interest to be awarded are the foremost considerations in drafting a prejudgment interest statute. Finally, the legislature may also want to consider whether the state, when a defendant in a personal injury suit, is subject to prejudgment interest. 161 VI. Conclusion Limited legislation and ambiguous standards in judicial interpretation of the common law have produced inequitable judgments for plaintiffs in the recovery of prejudgment interest in Indiana. Personal injury litigants have suffered the ultimate injustice, for the entire class has been totally barred from recovery of prejudgment interest on any damages under all circumstances. Case law is devoid of thoughtful analysis or sound reasoning in barring the personal injury claimant from full and just compensation for his damages. Since full and fair compensation for the plaintiffs should be the focus in an analysis of prejudgment interest, the courts' emphasis on the defendant and the courts' adherence to the ambiguous be the greater of the individual's historical return on investments or the average yield of a mutual fund including dividends. Id. at 152. "9See D. Dobbs, supra note 1, at 164. But see Colo. Rev. Stat. § 13-21-101(1) (Supp. 1983) (calculation shall include compound interest from the date suit filed); Mich. Comp. Laws Ann. § 600.6013 (West Supp. 1983-84) (compound interest included from date complaint filed until judgment satisfied); Comment, Survey, supra note 19, at 218 (proposing that "[c]ourts should uniformly give compound interest for the prejudgment period."). I60lndiana Tel. Corp. v. Indiana Bell Tel. Co., 171 Ind. App. 616, 641, 360 N.E.2d 610, 613 (1977) (holding that interest could not be compounded by figuring interest on the award of interest as damages); see Engrossed S. 141 at Sec. 3, supra note 121, which requires awards to be simple interest. lhl Some states do not hold the government liable for prejudgment interest when the government is a defendant. See, e.g., Cal. Civ. Code § 3291 (West Supp. 1984); Civ. Prac. Rules Governing Courts of the State of N.J., Rule 4:42-1 1(b); see also, S. 366, 103d Ind. Gen. Ass., 1st Reg. Sess. § 1 (1983) (proposing exclusion of the state or any other governmental entity from prejudgment interest) and Engrossed S. 141, 103d Ind. Gen. Ass., 2d Reg. Sess., § 5 (1984) (excluding the state and its political subdivisions). See also Tort Law: State Immune From Prejudgment Interest Statute, 17 Suffold U.L. Rev. 473 (1983) (where the judiciary refused to construe the statute waiving the State's immunity in tort as extending liability for prejudgment interest to the state and indicated that rendering the state liable for prejudgment interest was a legislative, not judicial, function). HIS INDIANA LAW REVIEW [Vol. 17:1095 "ascertainable sum" standard create injustice for personal injury claim- ants, in recognition of this injustice, the courts could apply the ascer- tainable damages prerequisite in personal injury suits and allow prejudgment interest on pecuniary losses which are ascertainable before trial. The more appropriate solution to the inequity in the law, however, would be enactment of a mandatory prejudgment interest statute by the Indiana legislature. A legislative mandate would accomplish dual goals of providing just compensation for the plaintiff and encouraging de- fendants to settle meritorious claims. The Indiana legislature showed a willingness to address this problem in 1983 and 1984 even though the prejudgment interest bills introduced were unsuccessful. Full compensation should include prejudgment interest on all pe- cuniary losses incurred between the date the complaint is filed and the date of judgment. Future damages and exemplary damages should not be included in the interest computation. If the primary policy for giving prejudgment interest is just compensation for the plaintiff, then non- pecuniary losses should also be excluded from the interest calculations as those awards are inherently arbitrary and cannot be assigned a market value. On the other hand, if the major policy consideration is settlement promotion, interest on those damages would provide an increased in- centive for the defendant to make a good faith effort to settle. By weighing the policy considerations, the Indiana legislature can reach a fair compromise by which the plaintiff will be justly compensated yet will not receive the windfall which results from awarding interest on the entire judgment. Mitzi H. Martin