The moto here could be “Careful What you Wish For.”
In my article “Calculating Prejudgment Interest – Not as Easy as It Appears,” I provide a detailed breakdown of the many nuances behind calculating prejudgment interest, and what follows is a brief summary of a recent turn of events that has led to a rather unusual, and likely unintended, outcome.
For many decades the prejudgment interest rate for personal injury non-pecuniary damages was pre-set at 5% under the Ontario Rules of Civil Procedure: and this 5% rate prevailed even if the prejudgment interest rate prescribed under the Courts of Justice Act (the “Prescribed Rate”) was different. This was acceptable to the automobile insurance industry because for a long-time the Prescribed Rate for prejudgment interest hovered around 5% (sometimes a little above and sometimes a little below).
However, in-and-around 2010, the Prescribed Rate began to plummet, and often hovered around 1%. This, of course, did not sit well with the automobile insurance industry who successfully lobbied the Ontario Government to change the law. As a result of those changes, civil litigants with personal injury claims were treated differently: if they were involved in a car accident, prejudgment interest on their non-pecuniary damages matched the Prescribed Rate (ie: the 1% at the time), and for all other personal injury claimants injured through other torts (ie: medical malpractice, slip and falls, product liability, etc), they were entitled to prejudgment interest on their non-pecuniary damages at the fixed 5% prejudgment interest rate.
For years-and-years this amendment lowered the recovery for civil litigants injured in car accidents: until now. The Prescribed Rate has, since Covid, been on the rise, and starting in this quarter (the fourth quarter of 2023), the Prescribed Rate has now surpassed the fixed 5% rate for non-pecuniary personal injury damages: the Prescribed Rate for the fourth quarter of 2023 hit 5.3%. As such, in theory, for the first time since the changes were implemented, civil litigants injured in car accident may recover more in prejudgment interest on their non-pecuniary damages than their counterparts injured through other tortious events.
It is almost a certainty that the courts will be asked to cap the prejudgment interest rate on auto related non-pecuniary damages to 5% despite the Prescribed Rate being higher, and despite the fact that the auto insurance industry lobbied hard to tie car accident victims to the Prescribed Rate (when it conveniently lowered their exposure historically). It will be interesting to see if the courts apply the “careful what you wish for” principle and uphold the adverse result that emanates from their past lobbying, or whether the courts will bail them out and agree to cap the prejudgment interest rate at 5% when the Prescribed Rate exceeds that amount.