North Carolina Trial Law Blog

Prejudgment Interest in Arbitration Awards: Updated decisions

I frequently serve as an arbitration panel member for Uninsured (UM) and Underinsured Cases (UIM) in NC.  Our standard UIM & UM policy says that if the claimant opts for arbitration instead of jury trial, then they get arbitration.  This is a supremely efficient use of time and probably saves the state of North Carolina MILLIONS of dollars in judicial and court costs every year.  I'd estimate that an arbitration which takes about 4 hours to complete would typically take at least 3 days of a jury trial, with the costs of Judges, Bailiffs, Court reporters, Court Clerks, and Jurors. 

Arbitration is a good thing when it is at the option of the injured person.

One issue that is constantly debated on arbitration panels is the issue of "Prejugment" Interest on the Arbitration Award.  A new case from the North Carolina Court of Appeals clarifies this often hotly debated subject. 

The case is Hamby v. Williams, NO. COA08-662 (May 2009) which supports the leading case on the issue Sprake v. Leche, 188 N.C. App. 322, 658 S.E.2d 490 (2008)

In Hamby, the arbitration panel was asked to award interest on the award but deferred that issue to the Superior Court "for further review".  The plaintiff presented evidence of the date of filing of the complaint.  The Superior Court denied Plaintiff's motion for interest and confirmed the arbitration award.  In Hamby, the court first confirms that Interest is available under the standard insurance policy. 

[Insurance carriers contend that] the UIM/UM policy “does not specify anywhere that a party is entitled to prejudgment interest on an arbitration or jury award.” This assertion is incorrect. The applicable provision of the policy provides that “[UIM carrier] will pay all sums the 'insured' is legally entitledto recover as compensatory damages . . . .” In Sprake v. Leche, 188 N.C. App. 322, 658 S.E.2d 490 (2008), this Court held that prejudgment interest is part of compensatory damages for which an UIM carrier is liable. Id. at 325, 658 S.E.2d at 492 (citingBaxley v. Nationwide Mutual Ins. Co., 334 N.C. 1, 11, 430 S.E.2d 895, 901 (1993) and Austin v. Midgett, 159 N.C. App. 416, 419, 583 S.E.2d 405, 409 (2003)). Since the policy specifically provides for payment of “compensatory damages” these cases control. The arbitration provision provides that if the parties disagree on the amount of damages, then the matter may be arbitrated. The arbitration provision in no manner limits the scope of “compensatory damages” and the above-referenced provision of the policy controls.

Then the court goes on to establish HOW a Plaintiff can get interest awarded.

In the instant case, the parties consented to arbitrate plaintiff's UIM claim “in accordance with the terms of the policy of insurance[.]” The parties stipulated that the issue to be determined was the amount of plaintiff's “damages resulting from the auto accident of May 22, 2003[.]” The terms of the policy provided for “compensatory damages,” which included prejudgment interest. Id. at 325, 658 S.E.2d at 492. We thus hold the arbitration agreement did encompass prejudgment interest. Since the arbitration agreement encompassed prejudgment interest, and this issue was deferred to the trial court for resolution, Palmer, Eisinger, and Blantonare not applicable, and an award of prejudgment interest would not constitute a modification of the arbitration award. N.C. Gen. Stat. § 24-5(b) (2007) provides that: “[i]n an action other than contract, any portion of a money judgment designated by the fact finder as compensatory damages bears interest from the date the action is commenced until the judgment is satisfied.” We hold this provision to be mandatory and not discretionary on the part of the trial court, and that the trial court erred in not awarding prejudgment interest to plaintiff. (emphasis added) The portion of the trial court's order denying prejudgment interest to plaintiff is reversed and this matter is remanded for entry of judgment awarding plaintiff prejudgment interest.

So what does this mean?  How do you get interest?

1.  Have an arbitration agreement that includes, at least, the following:

(A)  The  "issue to be determined is the amount of plaintiff's compensatory damages resulting from the auto accident  of ......"

(B) The arbitration is to proceed "“in accordance with the terms of the policy of insurance".

2.  You MUST ADDRESS and ASK for prejudgment interest at the time of the arbitration. 

3.  If the panel does not address the issue of interest in the award, you will not get interest from a Superior Court Judge even if you attempt to get it by having the award entered as a judgment.  See Blanton v. Isenhower, ___ N.C. App. ___, ___ S.E.2d ___ (April 7, 2009) (No. 08-864) which cites the original "killer" of interest awards, Palmer v. Duke Power Co., 129 N.C. App. 488, 499 S.E.2d 801 (1998) (sorry no link, but basically the Court said that if the arbitrators did not address something in an Award, a Court can not modify that award unless it is simply a mathematical error.)

My last bit of advice is to advise your opposing counsel that you are seeking interest before the arbitration.  Send a copy of the Hamby case.  Get a copy of the policy and make sure that the language works for you.  Prepare a "suggested" award for the panel which addresses the interest issue.  Be prepared to hand up cases to the Panel confirming they have the power to award interest.

Chris Nichols

Nichols Law Firm

NC Arbitration and Prejudgment Interest: New COA case allows award

We've had a great decision published by our North Carolina Court of Appeals which finally clarifies the issue of prejudgment interest on Underinsured and Uninsured Motorist Arbitrations in North Carolina.

The gist of the problem was that the while the Uniform Arbitration Act provides that arbitration Awards can be reduced to judgments and filed as judgments, AND judgments in North Carolina are subject to prejudgment interest at 8% per annum, the insurance policies were not clear as to whether pre-judgment interest was covered under the policy.

That problem lead many arbitration panels to conclude that they did not have the authority to award pre-judgment interest.  Then as an extra twist, there is North Carolina case law (see Palmer v. Duke) which stands for the proposition that if an arbitration panel does not award a certain damage, a Superior Court Judge can not change or modify that award to include the damage.  In 2000, there was another Court of Appeals case which went on to say that if a panel failed to award something in their award, even if both parties agreed that the award was incorrect but one party objected to an amended award, the panel did not have the authority to amend the award (see North v. North)

Thus, Courts were ruling that they could not add prejudgment interest to the Award even when they were reducing the Award to a judgment.

Major Catch 22.

Finally, this has come to a Court of Appeals panel and we have some clarification.  Sprake v. Lech, NC COA 06-1690.  The case is best summarized in the last few paragraphs:

Defendant argues that the language of the agreement did not include any specific provision allowing prejudgment interest. The contract permits an insured party to demand arbitration when the parties “do not agree: 1. Whether that insured is legally entitled to recover compensatory damages from the owner or driver of an uninsured motor vehicle or underinsured motor vehicle; or 2. As to the amount of such damages . . . .” It is true that there is no explicit mention of prejudgment interest in this section. However, as our Supreme Court has stated,
        [a]n ambiguity can exist when, even though the words themselves appear clear, the specific facts of the case create more than one reasonable interpretation of the contractual provisions. In interpreting the language of an insurance policy, courts must examine the policy from the point of view of a reasonable insured.

    This Court has applied the rule that “prejudgment interest up to the amount of the carrier's liability limit is part of compensatory damages for which the UIM carrier is liable.” Austin v. Midgett, 159 N.C. App. 416, 419, 583 S.E.2d 405, 408 (2003) (citing Baxley v. Nationwide Mutual Ins. Co., 334 N.C. 1, 11, 430 S.E.2d 895, 901 (1993)). This Court has also noted that “unless the policy of insurance provides to the contrary, prejudgment interest constitutes a portion of a plaintiff's damage award.” Ledford v. Nationwide Mutual Ins. Co., 118 N.C. App. 44, 50, 453 S.E.2d 866, 869 (1995). Given the law as it stands in this State, we hold that the provision granting the arbitration panel authorityto address issues of “compensatory damages” was ambiguous as to whether prejudgment interest was available. As such, we resolve our doubt “against the insurance company and in favor of the policyholder.” Register, 358 N.C. at 695, 599 S.E.2d at 553. The arbitration panel had the authority to address the issue and the trial court properly confirmed the amended award. Defendant's assignment of error regarding the trial court's denial of its motion to vacate the arbitration award is likewise without merit. We therefore affirm the order of the trial court.

Congratulations to Jay Ferguson, of Thomas, Ferguson & Mullins, L.L.P., of Durham.  The above link tracks to the unpublished opinion, but the COA has agreed to make the case a published opinion so you can cite it in briefs now.  This case will have two great side effects.  First, insurance companies will not drag their feet on scheduling arbitrations because the extra time will cost them money.  Second, arbitration panels will finally have some authority to "back up" interest awards.

If you have an arbitration in North Carolina, bring this case with you for your panel to consider.  And as always, it is best to have this issue resolved in a pre-arbitration agreement if possible.  Finally, I would calculate interest (or present to your panel) the interest running from the day the 30 day notice of tender of liability limits is made to the UIM carrier, or the day that the Demand package is sent to the UM carrier.

I think it is sufficient for the arbitration award to simply cite "that upon motion of the Plaintiff and based upon the authority vested in this pane pursuant to Sprake v. Lech, NC COA 06-1690, this arbitration panel awards prejudgment interest on the award to be paid by defendant or any unnamed defendant responsible for paying the award."  Probably it would be better for the panel to award an actual sum so there is no post award battle over how the interest should be calculated.

Chris Nichols

www.NicholsTrialLaw.com