Code Details

Civil Code – CIV
DIVISION 4. GENERAL PROVISIONS [3274 – 9566] ( Heading of Division 4 amended by Stats. 1988, Ch. 160, Sec. 16. )
PART 1. RELIEF [3274 – 3428] ( Part 1 enacted 1872. )
TITLE 2. COMPENSATORY RELIEF [3281 – 3361] ( Title 2 enacted 1872. )
CHAPTER 1. Damages in General [3281 – 3296] ( Chapter 1 enacted 1872. )

ARTICLE 2. Interest as Damages [3287 – 3291] ( Article 2 enacted 1872. )

Exact Statute Text

In any action brought to recover damages for personal injury sustained by any person resulting from or occasioned by the tort of any other person, corporation, association, or partnership, whether by negligence or by willful intent of the other person, corporation, association, or partnership, and whether the injury was fatal or otherwise, it is lawful for the plaintiff in the complaint to claim interest on the damages alleged as provided in this section.

If the plaintiff makes an offer pursuant to Section 998 of the Code of Civil Procedure which the defendant does not accept prior to trial or within 30 days, whichever occurs first, and the plaintiff obtains a more favorable judgment, the judgment shall bear interest at the legal rate of 10 percent per annum calculated from the date of the plaintiff’s first offer pursuant to Section 998 of the Code of Civil Procedure which is exceeded by the judgment, and interest shall accrue until the satisfaction of judgment.

This section shall not apply to a public entity, or to a public employee for an act or omission within the scope of employment, and neither the public entity nor the public employee shall be liable, directly or indirectly, to any person for any interest imposed by this section.

(Added by Stats. 1982, Ch. 150, Sec. 1.)

Civil Code § 3291 Summary

California Civil Code § 3291 allows plaintiffs in personal injury lawsuits to claim prejudgment interest on their damages. This statute applies to injuries caused by negligence or willful intent of another person, corporation, association, or partnership, regardless of whether the injury was fatal.

However, the application of this prejudgment interest is conditional. It is triggered only if the plaintiff makes a formal settlement offer under Code of Civil Procedure § 998 (often called a “998 offer”), and the defendant rejects that offer (either before trial or within 30 days, whichever comes first). If the plaintiff then goes to trial and obtains a judgment that is *more favorable* than their original 998 offer, the judgment will accrue interest. This interest is calculated at a rate of 10 percent per annum, starting from the date of the qualifying 998 offer, and continues until the judgment is fully satisfied.

It is important to note that this statute specifically exempts public entities and public employees acting within the scope of their employment. Therefore, prejudgment interest under Civil Code § 3291 cannot be imposed against them.

Purpose of Civil Code § 3291

The legislative purpose behind California Civil Code § 3291 is primarily to encourage reasonable settlement offers and deter unnecessary delays in resolving personal injury disputes. By allowing prejudgment interest, the statute aims to:

1. Incentivize Settlement: It places significant pressure on defendants to carefully evaluate and accept reasonable settlement offers made by plaintiffs. If a defendant rejects a reasonable offer and subsequently loses at trial for a higher amount, they face the added financial penalty of 10% annual interest, which can accumulate quickly.
2. Compensate Plaintiffs for Delay: It ensures that plaintiffs are more fully compensated for the time value of money. If a plaintiff is legitimately owed damages but must wait years for a trial and judgment, the prejudgment interest helps offset the financial impact of that delay, effectively making them more “whole.”
3. Promote Judicial Efficiency: By encouraging earlier settlements, the statute helps reduce the number of cases that proceed to trial, thereby conserving court resources and allowing the judicial system to operate more efficiently.
4. Deter Unreasonable Litigation: It discourages defendants from taking an overly aggressive or unreasonable stance in litigation simply to delay payment, as doing so could result in a much higher final payout due to accrued interest.

Real-World Example of Civil Code § 3291

Imagine Sarah was severely injured in a car accident caused by David’s negligent driving. Sarah incurred $150,000 in medical bills, lost wages, and pain and suffering.

1. Demand & 998 Offer: After negotiations, Sarah’s attorney believes the case is worth at least $200,000. Six months after the accident, Sarah’s attorney sends David’s insurance company a formal Code of Civil Procedure § 998 offer to settle the case for $175,000.
2. Rejection: David’s insurance company believes they can win at trial or at least get a lower verdict, so they reject Sarah’s $175,000 offer.
3. Trial and Judgment: The case proceeds to trial. Two years after the initial 998 offer, the jury awards Sarah $220,000 in damages. This judgment is “more favorable” than her original $175,000 998 offer.
4. Prejudgment Interest Applied: Under Civil Code § 3291, Sarah’s judgment of $220,000 will now include prejudgment interest at 10% per annum. This interest will be calculated from the date she made her $175,000 998 offer (two years prior to the judgment).

In this example, the two years of prejudgment interest would add approximately $44,000 ($220,000 * 0.10 * 2 years) to Sarah’s total award, bringing her total recovery to $264,000, plus any post-judgment interest that accrues until David’s insurance company pays the full amount. Had David’s insurance company accepted the $175,000 offer, they would have avoided this significant additional cost.

Related Statutes

• Code of Civil Procedure § 998 – Offer to Compromise: This is the most directly related statute. Civil Code § 3291 explicitly references CCP § 998 as the mechanism through which prejudgment interest can be triggered. CCP § 998 allows any party to litigation to make a written offer to compromise the action. If the offer is rejected and the offering party obtains a more favorable judgment at trial, there can be significant cost-shifting consequences, including the prejudgment interest provision of CC § 3291 for plaintiffs.
• Civil Code § 3287 – Interest on Damages: This general statute addresses interest on damages. Subdivision (a) allows for interest on “damages certain, or capable of being made certain by calculation” from the date the right to recover vests. Subdivision (b) allows for interest in other cases, at the discretion of the jury or court, for the period before judgment. Civil Code § 3291 specifically carves out a rule for personal injury actions, providing a fixed 10% rate and a specific trigger (the 998 offer) for prejudgment interest in such cases, rather than leaving it to the court’s discretion or requiring “certainty.”
• Government Code § 818 – Immunity of Public Entities from Punitive Damages: While not directly about interest, this statute is relevant because it is part of the California Government Tort Claims Act, which provides broad immunity for public entities. Civil Code § 3291 specifically states that it does not apply to public entities or public employees acting within the scope of employment. This aligns with the broader principle that public entities are generally shielded from certain types of financial penalties beyond direct compensatory damages.

Why Civil Code § 3291 Matters in Personal Injury Litigation

Civil Code § 3291 is a crucial statute for both plaintiffs and defendants in California personal injury litigation, profoundly impacting settlement negotiations and trial strategy:

For Plaintiffs:

• Powerful Leverage: It provides a significant tool to encourage defendants to settle. A well-timed and reasonable 998 offer can create substantial financial pressure on the defense.
• Increased Recovery: If a defendant rejects a reasonable offer, and the plaintiff ultimately wins more at trial, the 10% prejudgment interest can add tens or even hundreds of thousands of dollars (or more in large cases) to the final judgment, significantly increasing the plaintiff’s recovery.
• Compensation for Delay: It helps to ensure that plaintiffs are more fully compensated, accounting for the time value of money lost during the often lengthy litigation process.

For Defendants and Insurers:

• Serious Evaluation of 998 Offers: Defense attorneys and insurance adjusters must meticulously evaluate every 998 offer made by a plaintiff. Rejecting an offer carries a substantial risk of adding 10% annual interest to the final judgment if the plaintiff achieves a better result at trial.
• Increased Exposure: Misjudging the value of a case or the likelihood of a plaintiff’s success can lead to a drastically higher financial exposure due, in part, to the accumulating interest. This risk can drive defendants to settle within policy limits or for higher amounts than they might otherwise consider.
• Strategic Impact on Litigation: The threat of prejudgment interest encourages defendants to engage in good-faith settlement discussions and can influence decisions on whether to proceed to trial, appeal a verdict, or pursue alternative dispute resolution.

In essence, Civil Code § 3291 serves as a powerful incentive for efficiency and fairness in the personal injury legal system, compelling both sides to carefully weigh the risks and benefits of litigation versus settlement.