When a disability attorney wins an ERISA claim for his or her client, it is common to ask for pre-judgment interest as part of the appropriate restitution. There is a valid reason for making this request. The disability insurance company prevented the Claimant from receiving their money and as a result the claimant lost interest on the money. Additionally, while the insurance company held back the claimant’s money benefits, the insurance company was investing and receiving interest on the money.
When a disability insurance plan has wrongfully denied benefits, it is reasonable to request pre-judgment interest to fully compensate someone who was a rightful beneficiary of long-term disability benefits and was denied their rights.
Factors Courts Consider when Awarding Pre-judgment Interest for Disability Claims
Whether the Claimant Delayed Filing a Lawsuit
The Court may take into consideration whether the claimant appears to have deliberately waited for as long as possible before filing a lawsuit. This is yet another reason why filing timely appeals and filing an ERISA suit within a reasonable time after final denial of benefits has been issued can work to a claimant’s benefit. When the Court can see that it was the long-term disability insurance plan administrator that was clearly at fault, and the claimant did not delay the progress of the claim, this can work in the claimant’s favor.
Whether the Disability Insurance Company Was Culpable
Not only does culpability impact the Court’s decision on whether to order a disability plan to pay attorney’s fees it also has an impact under ERISA on whether the Court will order a disability plan to pay pre-judgment interest. If a decision was a close one and could be seen as partially supported by the evidence, the Court may find that pre-judgment interest is not justified.
Whether Awarding Pre-Judgment Interest Is Mandated
Prejudgment interest it not mandated under ERISA. It is allowed. It is “a question of fairness, lying within the court’s sound discretion, to be answered by balancing the equities.” (See Shaw v. Int’l Ass’n of Machinists & Aerospace Workers Pension Plan.) When the Court finds that awarding pre-judgment interest balances the equities, then making the award becomes logical.
Guidelines Used to Calculate Pre-judgment Interest for Successful ERISA Claims
While there have been some District Court decisions that have upheld using state statues for calculating the appropriate interest rate for specific interest claims, in general an effective argument must be presented to the Court to justify doing so. In the case of Sherri Kay Smith v. American International Life Assurance Co. of New York, the Court recognized that federal courts often look to state law for guidance when ERISA is silent, as it is on pre-interest judgment. In this case heard in 1995, the Court used a state statute to establish a rate of 18% per annum.
States have a variety of methods for calculating pre-judgment interest, so in the effort to secure uniformity under the Employee Retirement Income Security Act (ERISA), the Courts have developed specific guidelines. Since Blankenship v. Liberty Life Assurance Co. of Boston, District Courts have found that the interest rate prescribed under 28 U.S.C. § 1961 for post-judgment interest is also an appropriate guide for pre-judgment interest.
Section 28 U.S.C. § 1961 establishes a precedent where post judgment interest is calculated at a rate equal to the weekly average 1-year constant maturity Treasury yield.” The Court uses the rate published by the Board of Governors of the Federal Reserve System during the calendar week that proceeds the date of the judgment.”
In Nelson v. EG & G Energy Measurements Group, Inc., the court found that calculating the pre-judgment interest rate based on the average 52-week Treasury bill rate operative immediately prior to the date judgment made the most sense, as this would compensate adequately based upon actual market values during the time benefits were withheld.
The Court may then decide that the best method for calculating the pre-judgment interest involves calculating interest as though the plaintiff had invested the money, rather than spending it, at the 52-week Treasury bill rate. Then the Court calculates what would happen if the compound interest was reinvested annually at this same rate. This could enable the Court to establish a fair level of compensation for pre-judgment interest. The problem with a court relying on the 1 year constant maturity yield is that it is less than 1%, which is much different than most state judgment interest rates which exceed 6%. Courts have the discretion to choose a reasonable interest rate. In most of our cases we will consult with an accounting expert to advise the court on reasonable interest rates that should be used.
Importance of Asking for Pre-judgment Interest
It is vital that a disability attorney not overlook the value of making a request for pre-judgment interest as part of the lawsuit. It isn’t enough to move for summary judgment. Courts can issue summary judgment and not award pre-judgment interest.