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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 1.800.906.5984


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