What is "Prejudgement Interest" related to in insurance policies?

Prejudgment interest refers to the interest that accrues on damages from the time of the incident until a judgment is made in a legal case. In the context of insurance policies, this means that if an insured party suffers a loss and files a claim, they may also be entitled to interest on the amount of damages during the period leading up to the resolution of their claim in court. This serves to compensate the claimant for the time delay in receiving their rightful compensation, ensuring they are not disadvantaged while awaiting a judgment.

By awarding prejudgment interest, insurers acknowledge the time value of money and recognize that the claimant's losses may be ongoing while the case is pending. Hence, understanding prejudgment interest is essential for both policyholders and insurers, as it affects the total amount that might be recovered in a claim after a court decides the outcome.