Politics
Bill to cut civil litigation interest rates stuck in neutral in state Senate
Photo: Shutterstock/Adam Parent
With interest rates hovering near zero ever since the 2008 financial crisis, one state lawmaker has been pushing to reduce the fixed level of interest on civil litigation judgements by linking it to the substantially lower nationwide rate.
Instead of the current fixed rate of 9 percent, state Sen. Joe Griffo has been introducing legislation since 2011 that would tie the legal rate of judgements to the floating market interest rate.
Although the legislation has drawn opposition from the state’s trial lawyers lobby, such a move would not be unprecedented. Nearly half of U.S. states use the federal interest rate as guide for determining interest on judgements, according to the New York Insurance Association, although the formulas vary from state to state.
Griffo’s bill would tie the state’s civil judgement interest rate to the weekly average one-year constant maturity Treasury yield, as published by the Federal Reserve’s Board of Governors. As of April 29, the federal post-judgement interest rate was 0.58 percent.
Ellen Melchionni, president of the New York Insurance Association, argued that using such a high interest rate for civil litigation judgements in New York is hurting businesses and costing New Yorkers money.
“Right now, at 9 percent, these judgements are costing consumers more as businesses are forced to raise prices on their goods and services,” she said. “It also leads to higher taxes for all New Yorkers because many of the lawsuits are against municipalities, so they recoup that money through higher taxes.”
Griffo’s bill memo describes the changes to the state’s fixed 9 percent interest rate as saving about $9.5 million in the state’s civil justice system and further resulting in lower costs of doing business and living in New York.
“Passage of this bill will also help reduce the burden imposed by an overly generous tort system,” the memo argues. “Many of our sister states have enacted comprehensive tort reform thereby attracting business development and New York simply cannot afford to retain rules which result in windfall recoveries in tort cases.”
Griffo’s memo also claims the state would save $2.6 million, while New York City would save $1.5 million.
“When interest rates were 15, 17, 19 percent long ago, 9 percent was still generous, but below what the market was bearing,” Melchionni said. “In the environment we have (now) we think it’s right for this issue to be addressed.”
The bill has not advanced from the state Senate banking committee and has no co-sponsor in the Assembly. Melchionni claimed that the reason it has not advanced in Albany is due to the opposition of the influential New York State Trial Lawyers Association.
“The trial lawyers want to keep the current system because right now it’s extremely lucrative,” Melchionni said. “We’re fighting against the trial lawyers – this is their bread and butter. They’re influential, as you know, in the Albany arena and they’re our main opposition.”
The NYSTLA declined to be interviewed for this story. However, a year ago it issued a memo of opposition to Griffo’s legislation, arguing that it would discourage settlements by providing an incentive for defendants to delay the resolution of cases.
“If the return on invested funds exceeds the interest rate on a judgment, a defendant’s insurance carrier would have a strong financial incentive to defend actions that would otherwise settle,” the group said in the memo. “Promoting settlements where appropriate, and not discouraging them as this bill would, should be a priority for the legislature as settlements reduce the costs of litigation and free court resources for other pressing matters.”
Additionally, the group argued that Griffo’s bill would be especially damaging to people who file personal injury lawsuits. In such cases, unlike in other legal actions, interest begins to accrue only at the date of judgement rather than when the actual injury is suffered.
“This is especially unfair when one considers that lost earnings, medical bills, and other losses are expenses that the victim incurs immediately,” the group’s memo said. “Reducing the rate of interest that accrues after the judgment and before its satisfaction only compounds the injury.”