The Illinois Supreme Court recently resolved a split between the districts of the Illinois Appellate Court concerning whether a pension applicant who succeeds on administrative review is entitled to prejudgment interest. In Kouzoukas v. Retirement Board of the Policemen’s Annuity and Benefit Fund of the City of Chicago, 234 Ill.2d 446 (2009), the Illinois Supreme Court held that prejudgment interest is not available in such cases.
The Illinois Code of Civil Procedure provides for post-judgment interest (interest on any judgment beginning when the judgment is entered until the judgment is paid), but does not contain any provision for prejudgment interest. (735 ILCS 5/2-1303) In the past, some Illinois courts have awarded prejudgment interest to successful pension applicants based on Section 2 of the Illinois Interest Act, which states, “Creditors shall be allowed to receive at the rate of five (5) per centum per annum for all moneys after they become due on any bond, bill, promissory note, or other instrument of writing …” (emphasis added) (815 ILCS 205/2).
The Illinois Supreme Court began its analysis with the general rule that prejudgment interest is available only when authorized by the agreement of the parties, by statute, or on equitable grounds. The court noted that the Illinois Pension Code constitutes a written agreement between the parties, but that it does not provide for prejudgment interest. The court also noted there was no basis for an equitable award of prejudgment interest, such as purposely denying a claim the Board knew was meritorious. Therefore, the court concluded, “[I]f prejudgment interest is to be awarded, it must be because a statute authorizes it.” Kouzoukas argued that the Interest Act authorized prejudgment interest, relying on a 1990 appellate court decision.
In Fenton v. Board of Trustees of the City of Murphysboro Police Pension Fund, 203 Ill.App.3d 714 (5th Dist. 1990), the Fifth District of the Appellate Court held “the terms and conditions of the pension fund are written in the Illinois Pension Code, … the pension agreement is an ‘other instrument of writing’ under the interest statute.” Based on this analysis, the court held the pension applicant was entitled to prejudgment interest when he prevailed on administrative review of his pension application.
The Illinois Supreme Court rejected the Fenton court’s analysis, noting that statutes permitting the recovery of interest must be strictly construed. Based on this standard, the court determined that the Interest Act does not apply to the Illinois Pension Code. In reaching this conclusion, the court compared the Illinois Pension Code to the documents specifically mentioned in Section 2 of the Interest Act: bonds, bills, promissory notes, or other instruments of writing (including contracts, leases, and insurance policies). The court determined that these types of documents involve transactions of a business or commercial nature, and the provisions of the Illinois Pension Code have little in common with those documents.As a result of the Kouzoukas holding, pension funds are no longer required to pay prejudgment interest when a denial of benefits is overturned on administrative review.