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The Supreme Court of Colorado viewed a case named Munoz v. American Family Mutual Insurance Company on September 10, 2018. In this case, the court considered whether an insured motorist is entitled to receive prejudgment interest when he or she settles an uninsured motorist claim (UM claim) after filing a lawsuit and proceeding to judgment.

The appeals court holds that, under the clear language of the prejudgment interest law, an insured motorist is entitled to prejudgment interest only after an action is introduced, the plaintiff has claimed damages and interest within the complaint, there is proof of damages by a jury or court, and judgment has been entered. However, Munoz did not meet all of these conditions, and so the Supreme Court found he is not entitled to prejudgment interest and the court affirmed the court of appeals.

Joel Munoz was injured in a car accident with an uninsured motorist, and afterwards he filed a UM claim with his current insurer, American Family Insurance Company. During the negotiations of the settlement, Munoz asked American Family to include prejudgment interest in its offer, but the company refused to do so. American Family disputed that because prejudgment interest is necessary only after a judgment, it would not view interest in settlement negotiations.

American Family decided to offer Munoz $10,008 to settle his claim, which did not include prejudgment interest. Munoz agreed to accept the offer but asked American Family once again to add prejudgment interest. He suggested that he would sue if they refused again. American Family did not consider that an honest acceptance, and they never resolved the argument. Munoz decided to sue, and in his complaint, he argued that American Family had breached its contract by refusing to pay everything he was entitled to under the uninsured motorist policy, which he believed included prejudgment interest.

Munoz also argued that American Family did not have “a reasonable basis” to deny him this specific benefit, and that the company had actually acted in bad faith by “compelling him to litigate his claims to recover his full benefits.” By filing a motion for determination of law, Munoz asked the court to determine whether an insurance company should pay prejudgment interest on money from a settlement. He disputed that American Family was required to pay the prejudgment interest on its settlement offer, and that prejudgment interest is an element of damages.

The trial court disagreed with this argument, and it determined that American Family did not have to include prejudgment interest in any settlement offer because the claim did not result in a judgment from litigation. Munoz then appealed the trial court’s decision, but the appeals court agreed with the trial court. It held that insurance companies are not required to pay prejudgment interest during a settlement. It was concluded that a court’s power to award prejudgment interest exists only “if a plaintiff has lawfully requested prejudgment interest, there is a jury verdict or court finding that the plaintiff has damages, and a judgment is entered.”

Munoz decided to file a petition for certiorari, which was granted. In examining whether Munoz is entitled to prejudgment interest, the court turned to applicable law. According to section 13-21-101, there are certain conditions that need to be met in order for a party to receive prejudgment interest, and Munoz did not meet these conditions, and so he is not entitled.

The conditions that must be met include: an action must be brought, the plaintiff must claim damages and interest within the complaint, there must be a finding of damages by a jury or the court, and a judgment must be entered. All of these must be met for prejudgment interest to be awarded. A pre-claim settlement does not meet any of these four conditions.

Even though Munoz had filed an action and asked for damages and interest in his complaint, which would technically meet the first two requirements, he did so only to know whether he was entitled to prejudgment interest on the settlement instead of to obtain a judgment on his underlying claim. The conclusion stands that Munoz did not meet the requirements for entitlement to prejudgment interest.

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