Years ago I took over a file which had been in litigation on a claim petition for over a decade. While the case went up and down through the system, maximum rate indemnity benefits that had not yet been paid continued to accrue interest. By the time the Commonwealth Court ordered the payment of benefits some 12 years after the date of injury, the calculation of interest became a serious issue. The difference between the simple interest and compound interest was nearly $125,000.00. Naturally, I argued that simple interest was appropriate but there were no clear cut modern cases which were determinative of the issue. Fortunately or unfortunately, we never got to litigate the issue as the case was settled.
A couple years ago I learned about a TPA who took the position that they had to pay both simple and compound interest which resulted in a payment of 20% interest on accrued benefits. Its rationale was that in the old days when the Bureau did interest calculations, the Bureau provided both a compound interest calculation and a simple interest calculation.
Finally we now have clarification – we are to use a simple interest calculation only. In Tobler v WCAB (Verizon Pennsylvania, Inc.) which was decided by the Commonwealth Court on July 9, 2015, the court addressed this age old issue and held that simple interest is appropriate. The court held that compound interest is generally eschewed and is permitted only where explicitly provided for in a statute or contract. Since Section 406.1(a) of the Act does not specifically require compound interest, simple interest is the appropriate calculation.
Interestingly the Court also alluded to the fact that our 10% interest rate is a generous one.
If you have to calculate interest on deferred compensation, feel free to utilize the interest calculators on our website at www.cml-law.net.