Civil Code section 3291 provides that if the plaintiff in a personal injury action makes a Code of Civil Procedure section 998 offer to compromise which the defendant does not accept, 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 998 offer until the judgment is satisfied. But what does “the judgment” include for purposes of calculating prejudgment interest in a personal injury action?  In a recently published decision, Bean v. Pacific Coast Elevator Corporation, Division One of the Fourth District Court of Appeal provided some answers to this question.

Bean involved a collision-related personal injury action in which the plaintiff (Bean) was rear-ended by an employee of Pacific Coast Elevator Corporation while stopped at a red light.  Bean suffered serious injuries as a result of the accident and sued Pacific Coast.  A jury found Pacific Coast negligent and awarded Bean nearly $1.3 million in compensatory damages.  The trial court then awarded Bean approximately $35,000 in costs.  When it came time to calculate the prejudgment interest, the trial court ordered that such interest should be calculated based on the combined total of the $1.3 million damages award and the $35,000 costs award.

The Court of Appeal reversed, concluding that it was error to award prejudgment interest on the costs. In reaching this conclusion, the court cited Lakin v. Watkins Associated Industries (1993) 6 Cal.4th 644, where the Supreme Court held that prejudgment interest under Civil Code section 3291 must be calculated based solely on damages attributable to personal injury (as opposed to, say, damages awarded for property damage or punitive damages).  The Bean court explained that the logic of Lakin supports the conclusion that prejudgment interest may not be awarded on costs, since costs are not “damages attributable to personal injury.”

The Bean court also cited Hess v. Ford Motor Co. (2002) 27 Cal.4th 516 to support its conclusion.  In Hess, the Supreme Court held that Civil Code section 3291 prejudgment interest is not included in the judgment for purposes of calculating post-judgment interest.  Just as the Hess Court had rejected the notion that prejudgment interest is “part of the judgment,” the Bean court rejected the notion that costs are part of the judgment.  Instead, explained the Court of Appeal, costs are incident to a judgment.  And if costs are not “part of the judgment,” then it follows that under Civil Code section 3291, prejudgment interest may not be awarded on costs.

Going forward, judgment debtors should be sure costs are excluded when calculating prejudgment interest under Civil Code section 3291.