As anyone who has gone through the court system knows, the wheels of justice turn slowly. If there was ever such a thing as instant justice, prejudgement interest would not be necessary. However, the reality of our system is that justice often takes many years and the laws of Ontario provide interest from the date the cause of action arose to the date of the judgement. Prejudgment interest plays an important role in ensuring fairness and expediting the resolution of disputes, particularly in personal injury claims.
As recognition for the profound effect delay can cause to personal injury victims, the Courts of Justice Act has a special prejudgment interest rate for damages for pain and suffering in claims arising out of actions for personal injury. The rate is 5% per year as opposed to the standard rate in Courts of Justice Act which is 1.3%.
Prejudgment interest serves as a deterrent for insurance companies to delay the resolution of a claim. The prejudgment interest with its compound effect, even on small amounts, serves to recognize the fundamental concept of the time value of money.
Ontario’s provincial government has recently introduced legislation to reduce the prejudgment interest rate for pain and suffering damages in car accidents from 5% to the standard rate in Courts of Justice of 1.3%. This is yet another step that will have the effect of taking money from innocent accident victims and putting it into the pockets of large insurance companies.
If the prejudgment interest rate is lowered, there will be even less incentive for insurers to deal with motor vehicle accident claims promptly. It is all too common for insurers to deny justified claims, which forces innocent victims to bring a court claim. The major reductions in the prejudgment interest will likely lead insurers to choose to delay settlement and keep money as long as possible and continue to make money from investments. Insurers already make use of their resources to make the litigation process slow, expensive and painful for suffering accident victims. Big insurance companies and their lawyers understand that many plaintiffs will be tempted to settle for less than their claims are worth in order to avoid more delay and stress.