Opinion ID: 2582415
Heading Depth: 1
Heading Rank: 4

Heading: Prejudgment Interest as an Element of Compensation

Text: AE urges us to conclude that our early case, Hays v. Arbuckle, 72 Colo. 328, 211 P. 101 (1922), controls the issue of prejudgment interest and requires us to allow prejudgment interest in this case pursuant to Colorado's prejudgment interest statute, section 5-12-102, C.R.S. (2006). In Hays, we said that the rate of interest awarded as damages for a breach of contract claim is determined according to the law of the forum. Id. at 330, 211 P.2d at 102. Although Hays is not directly on point, it reflected the law at a time prior to a substantial change in choice of law jurisprudence, both in Colorado and nationwide. We decided Hays forty-nine years before the publication of the Second Restatement, at a time when interstate travel and business dealings were far less common. Since that time, Colorado law has shifted to a new direction. Nevertheless, AE contends that  5-12-102 is primarily procedural, and we should apply it to this case. We disagree. The practice of awarding prejudgment interest serves two purposes: to compensate the plaintiff for the loss of the use of property during the time the case is pending and to discourage a defendant from delaying payment in order to enjoy the use of money interest-free until judgment. Mesa Sand & Gravel Co. v. Landfill, Inc., 776 P.2d 362, 364 (Colo.1989). AE argues that the delay in payment rationale is a procedural purpose, not a substantive purpose, and should control here. Our discussions of prejudgment interest in a variety of contexts clarify that prejudgment interest is an element of damages; its primary purpose is to compensate the plaintiff. Farmers Reservoir & Irrigation Co., 113 P.3d 119, 132-33 (Colo.2005). [6] Thus, we have held that prejudgment interest on compensatory damages . . . is necessary to make the plaintiff whole. Seaward Constr. Co., 817 P.2d at 975. In Seaward Construction, we affirmed the trial court's decision not to award prejudgment interest on punitive damages. Our reasoning focused on the primary purpose of prejudgment interest, compensating the plaintiff. We concluded that this purpose is inconsistent with punitive damages, which are awarded for the purposes of punishing the wrongdoer and deterring similar conduct. Id. at 975-76. Awarding prejudgment interest on punitive damages would not accomplish the primary purpose of making the plaintiff whole. In accordance with the evolution of Colorado choice of law standards, we would apply the most significant relationship to the occurrence and parties test to the award of prejudgment interest as well as to the tort cause of action. To the extent that our ruling in Hays is inconsistent with our holding in this case, we overrule Hays.