Litigants often turn their attention to prejudgment interest only toward the end of a lawsuit. They are often weary, overextended (in terms of their financial and other obligations), and in a rush to conclude the matter. Many only address the issue as an afterthought. Such an attitude can prove to be an expensive mistake because many jurisdictions grant courts wide discretion in calculating prejudgment interest. Thus, lawyers and experts who understand the financial concepts involved can provide substantial value to their clients when attention turns to the calculation of prejudgment interest.1
An expert working on prejudgment interest should first ascertain how the relevant jurisdiction views the issue. In the United States, no single set of rules guides prejudgment interest. Instead, different rules apply depending on the jurisdiction and perhaps the cause of action under which the plaintiff seeks recovery. Many states have prescribed simple rules. For example, some states set a fixed prejudgment interest rate by statute; others tie the rate to an established index. (See Philips and Freeman, 2001, for a survey across the states.) In these instances, the courts must decide only the length of the prejudgment period.2
Litigants and their experts face a different situation under federal law, which has no mandated prejudgment interest rate or index. Instead, federal courts have long recognized prejudgment ...