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March 22, 2011

Pre-Arbitration Award Interest Available to Plaintiffs if Liability Previously Determined by Jury

In virtually all claims in New York State, except personal injury claims, interest is calculated from the time a claim accrues, which in most cases is when the wrong was committed and damage occurred. However, in personal injury cases, interest is calculated from the date that liability is determined, such as a jury verdict. The rationale distinguishing interest calculations in personal injury cases is, in part, due to the fact that an award of interest is simply the cost of having the use of another person's money for a specified period of time. Therefore, in a personal injury action, the aim of an interest award is to make the victim whole, not to punish the wrongdoer.

It has long been the rule that in bifurcated trials, where liability is determined separately from damages, interest accrues from the time liability is determined, not when the damages is determined. See, Love v. State, 78 N.Y.2d 540 (1991). A substantial amount of time may elapse between a liability determination and later, a damages determination. This elapsed time period, added to an unknown anticipated damages amount, may result in a significant amount of interest.

Although Love settled this issue for most bifurcated court cases, left unanswered was when an arbitrator decides the damages in a case after liability was previously determined, whether interest begins to accrue upon the arbitrator's award determination or the date of the previous liability determination.

This issue has been answered in Grobman v. Chernoff, 15 N.Y.3d 525 (2010). In Grobman, in a bifurcated civil action, the jury found the defendants liable for an automobile accident, and a damages trial followed. Subsequently, the case was appealed, and the Appellate Court found that the damages award rendered by the jury was inconsistent, and remitted the matter for a new damages trial. After the case was remanded for a new trial, one of the parties made an application to compel arbitration. In addition and over time, the parties experienced further conflicts including a secon appeal. Ultimately, a court determined that the previous liability verdict confirmed a "serious injury" existed, and that the anticipated arbitration addressed the outstanding damages issue only. As a result of the arbitration, the arbitrator awarded the plaintiff $125,000 in damages, but the arbitrator did not specifically address whether the interest was included in such award, and if not, whether interest on the award would begin to accrue on the date of the previous liability determination, now a significant period of time ago, or upon the arbitrator's award determination.

Not surprisingly, the plaintiff argued that interest started from the time when liability was first established. Defendants argued that the entire damages issue was submitted to the arbitrator, which empowered the arbitrator to decide the entire controversy, including the amount of any prejudgment interest. The defendants also argued that because the arbitrator did not award interest, the court was precluded. At the trial court level, the court agreed with the defendant, acknowledging that while the general rule for most bifurcated cases is that interest on a judgment begins to run from the date liability is determined, here, the rule did not apply because the parties agreed to submit the entire dispute to arbitration.

The plaintiff in Grobman appealed to the Second Department, Appellate Division. Relying on Love v. State of New York, the Second Department reversed the lower court's decision and held that the plaintiff should recover interest on her personal injury award from the date the defendants' liability was first fixed. Then in late 2010, the Court of Appeals granted defendants leave to appeal and affirmed the Appellate Division's ruling in favor of the plaintiff.

In affirming the Appellate Division's decision, the Court of Appeals in Grobman held that while the parties were free to submit the issue of prejudgment interest to the arbitrator, the Court did not read the parties' arbitration agreement as having done so. The Court of Appeals found that the parties' arbitration agreement merely stated "AT ISSUE: Damages," and citing to Love, the Court reiterated that damages and prejudgment interest are not the same thing.

Thus, unless the arbitration agreement is clear and specifically states that the issue of prejudgment interest is to be included in the award rendered by the arbitrator, then Grobman says an arbitrator's award for damages in a personal injury case does not include prejudgment interest. Grobman not only solidifies the Court's position that in personal injury cases interest starts at the time liability is determined, but also serves as a bit of caution for those preparing and entering into arbitration agreements"¦as the wording in such agreements should clearly reflect the intentions of the parties and whether the parties are permitting the arbitrator to determine only damages or damages and any applicable interest.

If you require further information regarding the information presented in this Legal Alert and its impact on your organization, please contact any of the members of the Practice Area.


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