The Colorado Supreme Court in Munoz v. American Family Insurance Co. unanimously rejected the contention that an injured party is entitled to recover prejudgment interest on damages claims resolved prior to the filing of a lawsuit or the entry of a judgment.  The Court’s ruling gave effect to the plain language of Colorado’s prejudgment interest statute and, in doing so, prevented a substantial expansion of potential damages in personal injury lawsuits.

Munoz addressed a common factual circumstance punctuated by a bold legal assertion.  Mr. Munoz suffered injury in a crash caused by an uninsured motorist.  Prior to filing a lawsuit, he asserted an uninsured motorist claim with his insurer and entered settlement negotiations.  Although the parties agreed upon a sum that would properly compensate Mr. Munoz for his damages, he insisted on receiving an additional amount for prejudgment interest.  He contended that Colorado recognizes prejudgment interest as an element of damages that a tortfeasor must pay, and so complete compensation for an uninsured motorist claim must include prejudgment interest.  American Family Insurance rejected that view as inconsistent with Colorado statute, and the dispute proceeded to a lawsuit.  The trial court ruled on a motion for determination of law that Colorado law did not require prejudgment interest to be included in the insurer’s offer to settle a pre-judgment claim.

The Colorado Supreme Court affirmed the trial court’s conclusion.  The Court found that the plain language of the Colorado statute entitles a claimant to receive prejudgment interest only when four conditions are established: “(1) an action is brought, (2) the plaintiff claims damages and interest in the complaint, (3) there is a finding of damages by a jury or the court, and (4) judgment is entered.”  A pre-lawsuit settlement does not fulfill any of these conditions.  Although previous Colorado case law noted that the full measure of damages includes compensating an injured party for the time value of losses, the Court recognized that Colorado’s General Assembly imposed statutory requirements that a claimant must meet in order to be entitled to prejudgment interest.

Although Munoz arose from an uninsured motorist claim, the prejudgment interest limitations announced by the Colorado Supreme Court will likely extend to personal injury actions of all types.  By adhering to the plain language of the applicable stature, the Court rejected a concept of prejudgment interest that would have greatly expanded the number of claims in which such payments are required.  

Taylor| Anderson, LLP, on behalf of Colorado Civil Justice League and Colorado Defense Lawyers Association, submitted an amicus curiae brief in support of American Family Insurance Co.