The Importance of Prejudgment Interest
Prejudgment interest is an important issue that can dramatically affect the amount a party is obligated to pay on a judgment. I have previously discussed some of the issues surrounding how to calculate prejudgment interest here. Recently, the Minnesota Supreme Court issued a new decision addressing two key issues in the calculation of prejudgment interest.
The Case: Scheurer v. Shrewsbury, 24 N.W.3d 670 (Minn. 2025).
The facts of the case were relatively straightforward. It involved an automobile accident between the plaintiff and the defendant. There was no dispute the defendant was at fault. The parties went to trial only on damages.
After the jury returned its verdict determining the amount of damages, the parties disputed how to calculate prejudgment interest. The plaintiff made two arguments. First, he argued that under the prejudgment interest statute, Minn. Stat. § 549.09, he was entitled to prejudgment interest from the time of the written notice of claim, even though it was more than two years before the commencement of the action. Second, he argued that prejudgment interest should be calculated based on the full amount of the jury’s verdict before collateral source deductions are applied. Ultimately, the Minnesota Supreme Court rejected both arguments.
For Prejudgment Interest to Run From the Written Notice of Claim, the Action Must Be Commenced Within Two Years
The court began its analysis of the first issue with the text of the statute. It states prejudgment interest is generally computed “from the time of the commencement of the action … or the time of a written notice of claim, whichever comes first…” However, “for interest to begin to accrue from the time of the notice of claim,” the plaintiff must commence the action within two years of the written notice of claim.
The plaintiff relied on a later provision of the statute, which states:
If either party serves a written offer of settlement, the other party may serve a written acceptance or a written counteroffer within 30 days. After that time, interest on the judgment or award shall be calculated by the judge or arbitrator in the following manner. The prevailing party shall receive interest on any judgment or award from the time of commencement of the action or a demand for arbitration, or the time of a written notice of claim, or as to special damages from the time when special damages were incurred, if later, until the time of verdict, award, or report only if the amount of its offer is closer to the judgment or award than the amount of the opposing party’s offer.
But the Court noted that this provision does not instruct the reader how to choose whether interest starts from the commencement of the action or a demand for arbitration or the time of a written notice of claim. To decide the start date, one would have to refer back to the previous part of the statute that directs, “whichever comes first,” is to control. Therefore, the statute must be read as a whole and, when it is so construed, the requirement that the action must be commenced within two years for interest to begin accruing on the date of the written notice of claim applies to all cases.
Prejudgment Interest is Calculated on the Amount of the Judgment, After Collateral Source Deductions are Applied
Turning to the next issue, the Court ruled that the prejudgment interest statute provides for prejudgment interest on the “judgment or award.” It concluded the term “award” was ambiguous because it could refer to the jury’s verdict or it could be limited to arbitration awards.
The ambiguity was resolved by statutory and legislative history, the purpose of the statute, and the consequences of the plaintiff’s proposed interpretation. Specifically, the word “award” had been added as a part of an amendment clearly aimed at including arbitration awards within the statute. This suggested that the use of the word “award” was intended to refer to arbitration awards, not the jury’s verdict. The Court also noted that the purpose of prejudgment interest is to compensate for the lost time value of money and that there is no such loss when collateral sources are received well before the verdict. The Court found the legislature could not have intended to require defendants to pay prejudgment interest on the full amount of the verdict in those circumstances.
The Importance of the Decision
This decision is significant because it will affect countless cases in which a money judgment is awarded. It increases the importance of commencing an action within two years of a written notice of claim because failing to do so can forfeit years of interest to which the plaintiff might otherwise be entitled. The decision also prevents windfalls to plaintiffs by ensuring they cannot receive interest on amounts that they have already recovered from collateral sources.
If you have questions about prejudgment interest, please contact Michelle Kuhl.