Bill would cut interest rates on settlements, judgments

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Milwaukee personal injury lawyer Victor Harding knows from experience there’s a big difference between winning a verdict and collecting the money.

Last year, the attorney with Warshafsky, Rotter, Tarnoff & Bloch SC won an $800,000 verdict for the family of a man killed in a car crash. But after waiting two months for payment from the insurance company, Harding turned to the court to add to the verdict the full 12 percent in interest allowed by statute. The interest generally is applied annually to judgment amounts and is effective from the date of judgment or settlement until the date of payment.

“They paid right away, plus the interest,” Harding said.

The 12 percent interest, especially in sizeable settlements or judgments, often gives plaintiffs’ attorneys leverage to get timely compensation for clients and themselves, Harding said.

But legislation introduced Tuesday could threaten that leverage. Special Session Senate Bill 14 would adjust the annual interest rate applied to such tort actions as personal injury, product liability and consumer protection to match the Federal Reserve Board’s rate, plus 1 percent.

The board’s rate Wednesday was 3.25 percent. Under the bill, the interest rate tied to applicable judgments and settlements would be 4.25 percent, marking a drop of 7.75 percent from the current 12 percent rate.

Harding predicted the cut would lead to banks, insurance companies and other defendants delaying settlements for claims that otherwise would be resolved with the current rate. He said some defendants would be content to delay if their rate of return on investments is higher than the federal rate.

“This provides no incentive for defendants to pay,” Harding said. “Companies will make more money if they pay their lawyers to stall.”

But defense lawyers argue that won’t happen because there is no monetary benefit to keeping files open, regardless of the interest rate.

American Family Insurance attorney Terrence Berres said his priority is to work with claims adjustors to quickly resolve legitimate claims.

“I don’t think businesses want to waste time and money having lawyers keep a case open that should be settled,” he said. “The longer a file stays open, the other inventory piles up and that is more lawyers needed to handle them.”

The goal of the new legislation is to modernize the 32-year-old interest rate and promote job growth in the state by making it more affordable for businesses to pay interest on judgments and settlement amounts, according to a statement attributed to state Sen. Rich Zipperer, R-Pewaukee, the bill’s co-sponsor.

The general statutory interest rate in Illinois is 9 percent on judgments and settlements.

Zipperer and bill co-sponsor state Rep. Robin Vos, R-Burlington, could not immediately be reached for comment by Wednesday afternoon.

Milwaukee insurance defense lawyer Paul Erickson said the change appears to be in line with the reasoning behind the increase 32 years ago from about 5 percent to 12 percent. The rate, he said, reflects the current economy.

“Interest rates were through the roof when I started practicing,” said Erickson, of Gutglass, Erickson, Bonville & Larson SC. “So the thought was judgments should track with the prevailing rate.”

Erickson said he has never had a client pressure him to settle a case based on the threat of a 12 percent interest rate.

“For the most part, insurance companies are well-funded,” he said. “They are more concerned about evaluating cases and what their exposure is than if they should hang onto their money for another six months.”

Still, Harding said, if the bill passes, he will prepare himself to use other tools to pressure companies that delay, though he said he shouldn’t have to do it.

“I will start executing judgment orders on them,” he said, “or filing complaints with the insurance commission.”