Colorado Supreme Court rules that homeowners may not recover prejudgment interest

Monday, October 6, 2008 @ 02:10 PM
Author: Jesse Witt

by Jesse Howard Witt
Today, the Colorado Supreme Court reversed a lower court’s award of prejudgment interest to a homeowner who had suffered extensive property damage from leaks in a radiant floor heating system. I filed a friend of the court brief on behalf of one of the amici curiae and am disappointed in the ruling.
Until now, Colorado state and federal courts have consistently held that statutory prejudgment interest existed both to allow for the time value of money and to encourage prompt settlement. Thus, a homeowner who experienced damage in 2004 could recover prejudgment interest starting on that date, even if his or her actual damages were calculated at the time of a 2008 trial. While some defendants argued that this amounted to a double recovery, the courts had upheld application of the statute to promote the legislature’s stated intent to remove the incentive that had existed for defendants to delay resolution of disputes.
With today’s ruling, defendants and their insurance companies will have much less incentive to settle property damage cases prior to trial. Although they may incur greater defense costs, delaying resolution of a case will allow them to leave settlement funds in profitable investments until the last possible moment (recent market turbulence notwithstanding). Paradoxically, this incentive may increase linearly in proportion to the plaintiff’s damages, since defense costs vary more with the complexity of a case than the actual value of a plaintiff’s claim.
This ruling may also reduce the amount of insurance coverage available to builders seeking to reduce their risk. Standard ISO liability policies already exclude a growing list of damage categories, but most do still provide indemnity for prejudgment interest in excess of policy limits. This, in effect, provides extra dollars for use in settling a claim prior to trial. Now, however, such monies will not be triggered in cases where the plaintiff seeks to recover repair costs calculated at the time of trial. In light of today’s ruling, future plaintiffs may adjust their strategies to seek damages calculated at some fixed point in the past (and demand prejudgment interest from that date forward), but the defendant builder will have to deal with the claims as they are alleged.
The Supreme Court’s opinion is available at http://www.courts.state.co.us/Courts/Supreme_Court/opinions/2007/07SC263.pdf