Insurers often delay and deny payment even when a claimant is rightfully entitled to that money. As such, courts may award interest for the loss of the use of money that plaintiffs suffer. Interest that accrues prior to a judgment being entered is referred to as prejudgment interest.

Tennessee statutes allow for the awarding of prejudgment interest. The statute states:

Prejudgment interest, i.e., interest as an element of, or in the nature of, damages, as permitted by the statutory and common laws of the state as of April 1, 1979, may be awarded by courts or juries in accordance with the principles of equity at any rate not in excess of a maximum effective rate of ten percent (10%) per annum; provided, that with respect to contracts subject to § 47-14-103, the maximum effective rates of prejudgment interest so awarded shall be the same as set by that section for the particular category of transaction involved. In addition, contracts may expressly provide for the imposition of the same or a different rate of interest to be paid after breach or default within the limits set by § 47-14-103.1

Consistent with the statute, the maximum allowable interest is 10% per annum. The current judgment interest rates can be found here.2

It is well settled in Tennessee law that the decision to award statutory interest is within the discretion of the trial court—the Tennessee Supreme Court has so held on several occasions.3 The Tennessee Supreme Court has further stated that the award of prejudgment interest is not considered a penalty imposed upon the defendant but is allowed in accordance with the principles of equity.4

Finally, in interpreting the language of T.C.A. §47-14-123, the court in Otis held that the plain meaning of the statute limits the award of equitably awarded prejudgment interest to 10% per annum per year, stating that “to interpret the statute to mean compound interest is authorized constitutes a forced construction that impermissibly extends the intent of the legislature.”5 The case was remanded with an instruction to calculate interest at simple interest with a 10% per annum cap.
1 T.C.A. §47-14-123.
2 Tennessee Judgment Interest Rates
3 Spencer v. A-1 Crane Serv., Inc., 880 S.W.2d 938 (Tenn. 1994); Otis v. Cambridge Mut. Fire Ins. Co., 850 S.W.2d 439 (Tenn. 1992).
4 Otis, at 447; (citing In re Estate of Davis, 719 S.W.2d 526 (Tenn.App.1986)).
5 Id.