The Role of Prejudgment Interest in Construction Defect Litigation
By Nicholas Elder April 6, 2020 Posted in Construction Law Share
One of the most important responsibilities of an attorney when evaluating a claim is to identify the risks and potential exposure resulting from a lawsuit. In doing so, one aspect of damages often overlooked in this evaluation is the entitlement by a plaintiff to prejudgment interest. In the arena of construction defect litigation, due to the significant time that it takes to resolve such matters, prejudgment interest is often substantial. However, the amount of a prejudgment interest award is entirely dependent on determining when this interest begins to accrue.
Pursuant to the Florida Supreme Court holding in Argonaut Ins. Co. v. May Plumbing Co., 474 So. 2d 212 (Fla. 1985), prejudgment interest awards in Florida are governed by the “loss theory.” Under the loss theory, “when a verdict liquidates damages on a plaintiff’s out-of-pocket, pecuniary losses, plaintiff is entitled, as a matter of law, to prejudgment interest at the statutory rate from the date of that loss.” Argonaut, 474 So. 2d at 215. Prejudgment interest may be awarded in both tort and contract cases, as long as the claimed loss is wholly pecuniary, and may be fixed as of a definite time, whether the loss is liquidated or unliquidated. Bosem v. Musa Holdings, Inc., 46 So. 3d 42, 46 (Fla. 2010).
As noted by the highlighted phrases above, following a construction defect trial, if the judge or jury can point to a specific date when the Plaintiff owner suffered a “loss,” prejudgment interest can be awarded from the date of that loss. However, the Florida District Courts have seemingly been split as to when prejudgment interest begins to run for purposes of calculating damages.
The Fourth DCA has ruled that in condominium defect matters, prejudgment interest begins to accrue when the developer turned the condominium association over to the unit owners. Pine Ridge at Haverhill Condo. Assoc., Inc. v. Hovnanian of Palm Beach II, Inc., 629 So. 2d 151 (4th DCA 1993). More recently, in examining a breach of contract condominium matter, the court held that prejudgment interest should be calculated from the date of the lawsuit. Berloni S.P.A. v. Della Casa, LLC, 972 So.2d 1007, 1012 (Fla. 4th DCA 2008).
The Third DCA has taken a more hard-lined approach and has ruled that when the jury does not identify a specific date of loss, and this date cannot be determined by the evidence, prejudgment interest should be awarded from the date of the verdict. Albanese Popkin Hughes Cove, Inc. v. Scharlin, 141 So. 3d 743 (Fla. 3d DCA 2014). The Second DCA also ruled that when the evidence fails to demonstrate a fixed date of loss, the jury verdict starts the interest calculation clock. Citizens Property Ins. Corp. v. Alvarez, 198 So. 3d 45 (Fla. 2d DCA 2015).
The First DCA examined the issue in a case involving defects to chemicals used in manufacturing carpet. Arizona Chemical Co., LLC v. Mohawk Industries, Inc., 197 So. 3d 99 (Fla. 1st DCA 2016). Again, the court was faced with the question of when the purchaser of the defective carpet actually suffered a loss, as only then could prejudgment interest accrue. The court ultimately rejected the trial court’s ruling that prejudgment interest began when the defective chemical was placed in the carpet, and remanded the matter for a ruling focused on when the plaintiff suffered an actual economic loss. Id., at 106. Thus, whether a case is based in contract or in tort, prejudgment interest is to be awarded from the date of the plaintiff’s actual loss (rather than the specific breach), as that date is determined by the evidence in the case. Id.
Finally, it should be noted that the Florida Supreme Court has outlined an equitable exception to the loss theory, denying recovery of prejudgment interest based on “considerations of fairness.” See Broward County v. Finlayson, 555 So. 2d 1211, 1213 (Fla. 1990). Recent appellate cases have recognized this exception and cautioned against an interest award that results in a windfall to the plaintiff or improperly penalizes the defendant. Arizona Chemical, 197 So. 3d at 107; Leila Corp. of St. Pete v. Ossi, 230 So. 3d 488, 494 (Fla. 2d DCA 2017). Because potential prejudgment interest sums in construction litigation are often significant, equitable considerations should be included in any pre-suit analysis.
Taking the above precedent into consideration, a prudent litigator will focus at the outset on identifying evidence (or a lack thereof), which could establish the specific date of the alleged economic loss by the plaintiff. This will allow a more accurate evaluation of prejudgment interest and potential damages going forward.
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