Calculating Interest

Many people who deal with personal injury damages claims (including lawyers and judges) don’t know (or don’t know that they don’t know) how to calculate prejudgment interest. This edition of the CW Update will summarize the applicable rules.

The Courts of Justice Act

The basic statutory provisions are found in ss. 127-128 of the Courts of Justice Act. The first thing to realize is that the entitlement to prejudgment interest doesn’t arise until there is “an order for the payment of money”. Of course, claims are settled every day without there being any such order. Lawyers and adjusters simply calculate the interest that would be payable if there were an order and settle the case accordingly.

The Act sets out a basic rate of prejudgment interest for all types of damages. That rate, called (naturally) the “prejudgment interest rate” is calculated according to a formula set out in s. 127. Many people don’t realize that the rate is based, not on when the cause of action arose, but on when the proceeding was commenced. The rate is published for each quarter of each year, beginning in 1989.

So, for example, if the proceeding (that is, the lawsuit) was commenced on November 4, 2003, the prejudgment interest rate is 3.3 percent. This is because the date falls in the last quarter of 2003. The rate for the previous quarter (the third) was 3.5 percent.

The Ministry of the Attorney General publishes these rates on its website. You can view them by clicking this link. But remember that, to use the table, there must be a proceeding that has already been commenced.

Interest runs from the date the cause of action arose to the date of the order for the payment of money (s. 128(1) of the Courts of Justice Act). Generally speaking, the cause of action “arises” when all facts necessary to constitute the action have occurred.

There is an exception to the commencement date rule for claims arising of the operation of a motor vehicle. This will be discussed below. But if you are dealing, for example, with an occupier’s liability case, interest will typically run from the date of the accident that caused the injury.

Non-pecuniary General Damages in Personal Injury Actions

There is a special rate prescribed for damages for non-pecuniary loss in actions for personal injury (MVA or otherwise). That rate is 5% per annum, regardless of when the action was commenced (Rule 53.10 of the Rules of Civil Procedure).

We frequently see this same rate applied to all damages in personal injury actions, but that is incorrect. For damages other than non-pecuniary general damages, the provisions of the Courts of Justice Act apply.

Special Damages

The Courts of Justice Act contains a different provision for “special damages” or “past pecuniary loss” (both terms are used in s. 128(3) of the Courts of Justice Act). This would apply, for instance, to claims for pre-trial income loss. In these types of claims, interest is to be calculated at the end of each six-month period. The purpose of this provision is to recognize that some types of loss or expense are not incurred all at once, so it would be unfair to award interest for a period before there has been a loss.

Calculating the interest at the end of each six-month period can be cumbersome. Fortunately though, the Court of Appeal, in the 1985 case of Borland v. Muttersbach, ruled that instead of calculating interest this way, it is a permissible shorthand approach to apply a rate one-half that otherwise applicable. So, if an action was started on November 4, 2003 and the claim included one for past pecuniary loss, the rate otherwise applicable is, as we saw above, 3.3 percent. Dividing this by two gives us 1.65%, and that would be the correct rate to use for past pecuniary loss in such a case.

Now, some pecuniary losses are incurred all at once rather than over time. In those cases, a court would likely not use the “one-half” rate discussed in the last paragraph. The full rate would probably be applied.

Miscellaneous Rules

Before we turn to the specialized subject of motor vehicle cases, some other things to remember:

  • A court has very broad discretion to vary the rate or period of interest that is calculated under ss. 127-128. This is conferred by s. 130 of the Courts of Justice Act.
  • The plaintiff might be entitled to claim prejudgment interest on some basis other than the Courts of Justice Act. For example, if a claim is in contract, the contract itself may provide a rate of interest different from the one that in the Act. In that event, interest is not recoverable under the Act.
  • PJI under the Act is not payable on exemplary or punitive damages, on prejudgment interest awarded under the Act, on costs, or on awards for future pecuniary loss.

MVA Claims

The Insurance Act contains some special provisions that apply “in an action for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of an automobile” (Insurance Act, s. 258.3(8). As we have seen, under the Courts of Justice Act, interest is payable from the date on which the cause of action arose. But in BI or fatal claims arising out of automobile accidents, the Insurance Act provides that “no interest shall be awarded under s. 128 of the Courts of Justice Act for any period before the plaintiff served the notice under clause (1)(b)”. The notice referred to is “written notice of the intention to commence the action on the defendant within 120 days after the incident or within such longer period as a court in which the action may be commenced may authorize, on motion made before or after the expiry of the 120-day period”.

So, s. 258.3(8) of the Insurance Act varies the period during which prejudgment interest is recoverable. It has no effect on the rate. The latter is determined by either the Courts of Justice Act or, in personal injury cases, by Rule 53.10.

Postjudgment Interest

Once an order has been made, for the payment of money, it attracts postjudgment interest. This is an entirely different thing from prejudgment interest. It need not be claimed. It runs from the date of the order. The court will automatically apply when the judgment is signed and entered at the court office. However, a judge does have discretion to order a different rate, period, etc. than would otherwise apply. In practice though, this rarely happens.

Insurance Coverage Issues

A number of cases have held that a motor vehicle liability insurance policy’s limits include prejudgment interest. (See, for example, Allstate Insurance Co. v. Lappalainen, [1984] O.J. No. 428, Kosanovic v. Wawanesa Insurance, [2002] O.J. No. 4131.) So, by way of example, if the policy limits are $1 million and the judgment is for $900,000 plus prejudgment interest of $150,000, the policy would indemnify for the damages of $900,000 plus $100,000 of the $150,000 in prejudgment interest. At that point, the limits would be exhausted and the insurer would have no further obligation for prejudgment interest. The situation is different for postjudgment interest, as discussed below.

Therefore, for purposes of evaluating whether or not a claim potentially exceeds an insured’s liability limits, it is necessary to add up all of the claims for damages and then calculate what the interest on the various heads of damages would be, as of the estimated date of trial. In our experience, this is often overlooked.

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