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Steve W. Kinion, Esq.
(217) 525-0700 x108


Under all state laws, the judicial branch has the authority to award prejudgment and post-judgment interest on judgments. When an administrative agency, whose function is regulatory in nature, is asked to award prejudgment and post-judgment interest for one of its own decisions, it cannot do so without statutory authority. This article explores whether an administrative order issued by an insurance regulator can trigger the payment of interest. The exploration will examine the statutory authority to award interest, whether a statutory violation enables an agency to award pre and post-judgment interest, and the constitutional issues involved. It will do so by analyzing the issue under Illinois law, and then examine an on-point decision issued by the Supreme Court of California.

Suppose a fact pattern wherein a business owner files a complaint against an insurer with the Illinois Insurance Director. The basis of the complaint is that the insurer overcharged the owner on an insurance policy by an amount of $100,000. The owner's insurance coverage began on January 1, 2009 and ended on January 1, 2010. In 2010, the owner learned of the overcharge and demanded from the insurer a premium refund. The insurer refused on the basis that a refund was not due. The business owner filed a complaint with the insurance regulator, alleging the overcharge was a violation of a statute that prohibits unfair and discriminatory rates for risks with similar exposures. After an administrative hearing, the insurance director decided that the insurer did overcharge the business owner and ordered a premium refund. The administrative order, issued on December 31, 2011, found a statutory violation that the insurer applied an unfair and discriminatory rate, but did not make a finding that the insurer breached the insurance contract. The business owner not only wants the refund, but also demands prejudgment interest dating from January 1, 2009 to the date of the administrative order, and post-judgment interest dating from December 31, 2011 to the present. The insurance director amended the administrative order to award the interest even though the enabling statute for issuing orders does not contain the authority to levy interest.

The insurer filed for administrative review, arguing that the insurance director does not have the authority to levy the interest. The director's pleadings in response present three arguments. First, the basis of awarding the interest is the business owner's insurance policy, which is a written instrument. The Illinois Interest Act allows the levying of prejudgment interest on written instruments. Second, the administrative order is the equivalent of a judgment. Third, if the trial court decides that the administrative order is not a judgment, then interest is due for violating the statute that prevents unfair and discriminatory rates -- a statute enacted to protect insureds like the business owner.

Pre and Post-Judgment Interest

Under common law, judgments do not bear interest. Today, the award of interest for a judgment is allowed by statute in all states and at the federal level.[1] Prejudgment interest is allowed on the theory that an injured party should be fully compensated for his or her loss. It is the compensation allowed by law as additional damages for lost use of money due as damages during the lapse of time between the accrual of the claim and the date of judgment.[2]

The business owner's argument for the awarding of prejudgment interest is that the premium overcharge is based on a contract of insurance. The Illinois Interest Act allows a creditor to receive 5 percent prejudgment interest for all money due on any bond, bill, promissory note, or other instrument of writing.[3] An insurance policy is an instrument of writing for purposes of the Illinois Interest Act.[4] In order to collect prejudgment interest, the business owner must satisfy two requirements. First, the insurance policy/written instrument must establish a debtor/creditor relationship. Second, the written instrument must contain a specific due date.[5]

The purpose of post-judgment interest is to compensate a successful plaintiff for being deprived of the compensation for its loss between the times of the entry of the judgment awarding the compensation until the payment of the judgment by the defendant.[6] Knowing that the Illinois Interest Act applies to insurance policies, the next question is whether the administrative decision is a judgment. If it is, then once a judgment is obtained, Illinois law mandates that every judgment shall bear interest.[7]

An Administrative Decision is not a Judgment

In order to decide in favor of the business owner, the Illinois trial court must place an administrative decision on par with a judgment. Both 'administrative decision' and 'judgment' have distinct definitions. As noted by the Illinois Supreme Court, 'We have previously held that 'judgment' has a well-settled definition as a legal term: 'it is a court's official decision with respect to the rights and obligations of the parties to a lawsuit.''[8] Illinois' administrative review statutes define 'administrative decision' to mean any decision, order or determination of any administrative agency rendered in a particular case, which affects the legal rights, duties or privileges of parties and which terminates the proceedings before the administrative agency. [9] These definitions clearly make a distinction between entities which issue judgments and administrative decisions. The Illinois Supreme Court made no reference to administrative agencies when defining 'judgment,' and the Illinois General Assembly made no provision for the courts when legislating who can issue administrative decisions.

Illinois appellate court decisions also affirm the fact that an administrative decision is not a judgment. Board of Educ., Springfield Public Schools, Dist. No. 186, Sangamon County v. McCoy[10] directly addresses the question of whether an administrative decision can be a judgment from which post-judgment interest accrues. In this case, District 186 wrongfully dismissed Linda McCoy, a teacher. Ms. McCoy requested an administrative proceeding to retain her job, and the administrative hearing officer issued a report in favor of McCoy's reinstatement. A controversy arose concerning the amount of damages to be awarded, and hearings were held in the Sangamon County Circuit Court to resolve the conflict. The trial court allowed post-judgment interest from the date of the hearing officer's report, but denied prejudgment interest for the time prior to the report. Ms. McCoy subsequently appealed raising a number of issues, one of which was the denial of prejudgment interest, and the Board of Education cross-appealed challenging the award of post-judgment interest from the date of the hearing officer's report. The appellate court reversed the trial court's decision to allow post-judgment interest from the date of the administrative decision. In its decision the appellate court wrote,

Finally, we turn to the second element in the Board's cross-appeal, the matter of interest. It will be recalled that the trial court allowed interest from the date of the hearing officer's report. This was erroneous. Interest is allowed only on a judgment (Ill.Rev.Stat.1983, ch. 110, par. 2-1303). The report was not a judgment. The judgment arose upon the order of the circuit court made and entered on June 23, 1983. Interest, if any, accrued from that date. [11]

This case shows that if there is to be any calculation of either pre or post-judgment interest involving an administrative order, the date on which interest begins to accrue is the date of a judicial order if the case proceeds to administrative review. Further confirmation that an administrative decision is not a judgment is found in the Illinois appellate court's decision in Palumbo Bros., Inc. v. Wagner, Director of Revenue.[12] Here the appellate court reversed its previous decision that an administrative decision is a judgment. The earlier decision was Cook v. Dept. of Revenue,[13] where the appellate court determined that a final assessment of tax liability issued by the Illinois Department of Revenue under the Retailer's Tax Act was a judgment even though the final assessment was subject to review under the Administrative Review Law.[14] The Cook court noted that the Administrative Review Law described an administrative decision as a judgment in the definition of 'administrative decision' in 735 ILCS 5/3- 101, and concluded that the final assessment is a judgment. The next year the appellate court reversed Cook. In Palumbo Bros., the same question arose of whether an administrative order, i.e. a final assessment of a tax liability, is a judgment. In reversing Cook, the appellate court wrote,

We note that the Cook opinion states that 'a final assessment is a judgment or its procedural and substantive equivalent.' However, Cook cites no authority for this proposition. The Cook opinion cites section 3-101 of the Administrative Review Law for the proposition that an administrative decision is a judgment, but section 3-101 does not stand for this broad proposition.[15]

Both the Board of Educ., Springfield Public Schools and Palumbo Bros., cases clearly stand for the maxim that that an administrative order is not the equivalent of a judgment.

For the purpose of awarding interest, the California Supreme Court has directly said that an administrative decision is not a judgment. In American Federation of Labor and Congress of Industrial Organizations v. Unemployment Insurance Appeals Board,[16] the California Supreme Court granted review to decide a narrow question of first impression: whether an administrative law judge may award interest on a payment of retroactive unemployment insurance benefits. The court noted that '[n]owhere does the Unemployment Insurance Code grant the administrative law judges, or the Board, the express authority to award interest on an administrative benefit award.'[17]

Can a Statutory Violation Qualify as a Means to Award Prejudgment Interest?

An alternative argument to support the business owner's demand for interest is whether the statute the insurer violated qualifies as a written instrument under the Interest Act. The insurance director's argument is that the business owner is within the class of persons protected by the statute which prohibits unfair and discriminatory rates. Furthermore, the insurance policy issued to the business owner contains language that the insurer will abide by the laws of the state and that the policy will conform to state law. Hence, the insurance director argued that compliance with the statute is embodied in the policy and the statute itself is a written instrument.      

The Illinois Supreme Court has addressed whether a statute qualifies as a written instrument for purposes of the Illinois Interest Act. In Kouzoukas v. Retirement Board of Policemen's Annuity and Benefit Fund of City of Chicago[18], the Illinois Supreme Court faced a question of first impression concerning whether the Illinois Pension Code[19] qualified as a written instrument for purposes of awarding prejudgment interest under Section 2 of the Interest Act.[20] Here a Chicago police officer, Maria Kouzoukas, sought administrative review of a decision denying her disability benefits made by the Retirement Board of the Policemen's Annuity and Benefit Fund of the City of Chicago. Ms. Kouzoukas filed a complaint for administrative review seeking reversal of the denial. In the complaint she also sought prejudgment interest under Section 2 of the Interest Act.[21] The circuit court reversed the Retirement Board's decision and also awarded prejudgment interest. The appellate court affirmed the circuit court's decision. The Supreme Court affirmed the reversal of the Retirement Board's decision, but reversed the award of prejudgment interest.

The Illinois Supreme Court recognized that the Pension Code is a written agreement between parties, but that the Pension Code makes no provision for prejudgment interest. The Supreme Court then analyzed the question of whether the Pension Code qualifies as a written instrument under the Interest Act. The Court was required to do so because different districts within the appellate court had decided that a pension agreement was written into the Pension Code, and the pension agreement was an instrument in writing within the meaning of the Interest Act. The Supreme Court analyzed the Interest Act and held, '[s]tatutes permitting the recovery of interest are in derogation of common law and, thus, must be strictly construed.'[22] In viewing the Interest Act in the prism of strict construction, the Illinois Supreme Court wrote,

Section 2 of the Interest Act permits the recovery of prejudgment interest, despite the lack of express agreement of the parties, whenever moneys come due on any bonds, bills, promissory notes, or other instrument of writing. Our appellate court has long construed the term 'other instrument of writing' in section 2 to include a variety of written documents, such as contracts, leases, and insurance policies¦ However, bonds, bills, and promissory notes, like contracts, leases, and insurance policies, are instruments evincing transactions of a business and commercial nature which create a debtor- creditor relationship€¦We agree with the court in Bassett v. Pekin Police Pension Board that 'provisions of the Pension Code have little in common with bonds, bills, promissory notes, or other instruments of indebtedness.' Id. (internal citations omitted)

As a result of this analysis, the Illinois Supreme Court reversed the award of prejudgment interest. The same analysis applies to the insurance code. Even though the insurer agreed in the policy to abide by the laws of Illinois, those laws do not create a debtor-creditor relationship between the business owner and the insurer.

It is important to note that in its opinion the Illinois Supreme Court considered the language of the Illinois Constitution that pertains to pensions. This language says,

Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.[23]

In considering the constitutional language, the Supreme Court wrote, '¦we do not interpret Article III to mean that a pension agreement under the Pension Code is a contract in the traditional sense of that term. We conclude, therefore, that public pension funds do not share sufficiently similar characteristics with the instruments in section 2 [of the Interest Act].'[24] The Kouzoukas decision makes clear that even in the instance of the state constitution clearly describing membership in a pension system as a contractual relationship, an attempt to argue that a statute qualifies as a written instrument for purpose of levying prejudgment interest is a futile one.

Treating an Administrative Decision Like a Judgment Violates the Separation of Powers

State constitutions vest judicial powers in the courts.[25] In Illinois, finding that an administrative order is the equivalent of a judgment would violate the separation of powers doctrine in Article VI, §1 of the state constitution. If this question were before an Illinois court at any level, a court should rely on judicial decisions that clearly state that the power to adjudge, determine and render a judgment is beyond all question a judicial act, and can only be employed by judicial authority.[26]

There are significant policy reasons for limiting an agency's authority to levy damages beyond what is prescribed in a statute. When an administrative agency awards damages not prescribed in a statute, such award violates the separation of powers clause unless the power to make the award is reasonably necessary to accomplish the agency's legitimate regulatory purposes and incidental to its primary regulatory purposes. However, such authority has its limitations. For example, if a statute allows an agency to award treble damages this would likely violate the separation of powers doctrine and pose a risk of producing arbitrary, disproportionate results that magnify, beyond acceptable risk, the possibility of arbitrariness inherent in any scheme of administrative adjudication.[27]


An administrative agency has no inherent powers because any authority it has is derived from statutes. Even though the word 'judicial' may be used at times to describe administrative orders, such use is typically for convenience. Only when a statute specifically authorizes an insurance department, or any other state regulatory agency, to levy pre and post- judgment interest, may the department do so.

[1] For federal statutes, 28 U.S.C. 1961 governs civil and bankruptcy adversary judgment interest; 18 U.S.C. 3612 (f)(2) governs criminal judgments or sentences; and 40 U.S.C. 3116 governs deficiency judgments in condemnation proceedings.

[2] 44B Am. Jur. 2d Interest and Usury § 39 (2012).

[3] 815 ILCS 205/2.

[4] Couch v. State Farm Ins. Co., 666 N.E.2d 24, 27 (Ill. App. Ct. 1996).

[5] Adams v. American International Group, Inc., 791 N.E.2d 26, 30 (Ill. App. Ct. 2003).

[6] 44B Am. Jur. 2d Interest and Usury § 40 (2012).

[7] 735 ILCS 5/12-109 and 735 ILCS 5/2-1303.

[8] People ex rel. Dept. of Public Aid v. Smith, 818 N.E.2d 1204, 1209 (2004).

[9] 735 ILCS 5/3-101.

[10] 463 N.E.2d 1308 (Ill. App. Ct. 1984)

[11] Id. at 1313.

[12] 688 N.E.2d 837 (Ill. App. Ct. 1997)

[13] 666 N.E.2d 893 (Ill. App. Ct. 1996)

[14] 735 ILCS 5/3-101 et seq.

[15] Palumbo Bros., Inc., 688 N.E.2d at 843.

[16] 920 P.2d 1314.

[17] Id.

[18] 917 N.E.2d 999 (Ill., 2009).

[19] 40 ILCS 5/1-101 et seq.

[20] 815 ILCS 205/2.

[21] Any party seeking prejudgment interest in an administrative review action must file a complaint under a law allowing administrative review asking for this relief. Failing to present any issue to a trial court for an administrative review action may prevent the court from asserting jurisdiction over the matter due to the very limited time periods in most states for filing for review.

[22] 917 N.E.2d at 1017.

[23] Ill. Const. Art. 13, § 5.

[24] Kouzoukas, 917 N.E.2d at 1017.

[25] Examples of state constitutional provisions are Del. Const., Art. 4, § 1; Ill. Const., Art. 6, § 1; Iowa Const., Art. 5, § 1; Texas Const., Art. 5, § 1.

[26] People v. Hammond, 925 N.E.2d 1185, 1194 (Ill. App. Ct. 2009) (citing Agran v. Checker Taxi Co., 105 N.E.2d 713, 715 (Ill. 1952)).

[27] 2 Cal. Jur. 3d Administrative Law § 590 (2013).