Stuck in the 80s – Florida Statute 627.4265, a Legal Anachronism

The year was 1983. "Every Breath You Take" topped the Billboard Hot 100. Return of The Jedi topped the box office and Ronald Reagan was the President of the United States. Perhaps you were a child at the time watching Fraggle Rock or an adult concerned about Cold War tensions. Even if you are not old enough to remember the 1980s, the influence of the decade on modern culture is undeniable. For some, 1980s nostalgia is so overwhelming they get "stuck in the 80s."

Laws, likewise, can be "stuck in the 80s." Fla. Stat. §​ 627.4265 was enacted in 1983. Fla. Stat. §​ 627.4265 provides:

Payment of settlement.—In any case in which a person and an insurer have agreed in writing to the settlement of a claim, the insurer shall tender payment according to the terms of the agreement no later than 20 days after such settlement is reached. The tender of payment may be conditioned upon execution by such person of a release mutually agreeable to the insurer and the claimant, but if the payment is not tendered within 20 days, or such other date as the agreement may provide, it shall bear interest at a rate of 12 percent per year from the date of the agreement; however, if the tender of payment is conditioned upon the execution of a release, the interest shall not begin to accrue until the executed release is tendered to the insurer.

Fla. Stat. §​ 627.4265. The statute incentivizes insurance companies to pay no later than 20 days after reaching a written settlement. If the insurance company is late, the payment bears interest either from the date of the settlement agreement or the date of the execution of a release if the payment is conditioned upon a release.

The part of the statute that stands out for most readers in 2018 is "it shall bear interest at a rate of 12 percent per year." Considering Florida's judgment interest rate is 5.53 percent at the time of writing this article, §​ 627.4265 must be punitive in nature, correct? Isn't it true that §​ 627.4265 is intended to do more than compensate a claimant for the time value of money? I suggest that the answer to both questions is "no."

In 1983, at the time §​ 627.4265 was enacted, 12 percent was the Florida statutory interest rate. Fla. Stat. 55.03 (1981) set forth:

A judgment or decree entered on or after October 1, 1981, shall bear interest at the rate of 12 percent a year unless the judgment or decree is rendered on a written contract or obligation providing for interest at a lesser rate, in which case the judgment or decree bears interest at the rate specified in such written contract or obligation.

Id. See also Haskell v. Forest Land & Timber Co., 426 So. 2d 1251, 1253 (Fla. 1st DCA 1983) (Recognizing that the statutory interest rate at the time was 12 percent).

However, in 1994, the Florida legislature amended §​ 55.03 and tied the statutory interest rate to the discount rate, the minimum interest rate set by the Federal Reserve for lending to other banks. In relevant part, the statute provides:

On December 1 of each year beginning December 1, 1994, the Comptroller of the State of Florida shall set the rate of interest that shall be payable on judgments or decrees for the year beginning January 1 by averaging the discount rate of the federal reserve bank of New York for the preceding year, then adding 500 basis points to the averaged federal discount rate . . .

Fla. Stat. 55.03 (1994).

Since 1995, Fla. Stat. §​ 55.03 has been through multiple changes. However, from 1994 to present, the Florida judgment interest rate has continued to be tied to the discount rate. The current version provides, in relevant part:

On December 1, March 1, June 1, and September 1 of each year, the Chief Financial Officer shall set the rate of interest that shall be payable on judgments or decrees for the calendar quarter beginning January 1 and adjust the rate quarterly on April 1, July 1, and October 1 by averaging the discount rate of the Federal Reserve Bank of New York for the preceding 12 months, then adding 400 basis points to the averaged federal discount rate . .

Fla. Stat. §​ 55.03 (2011). While §​ 55.03 escaped the 1980s, it left §​ 627.4265 behind.

Section 627.4265 is not punitive. It is simply described as "Payment of settlement." If the 12 percent rate was meant to be punitive, then the Florida legislature arguably would have described §​ 627.4265 similar to 627.427. ("Payment of judgment by insurer; penalty for failure"). The rules of statutory construction dictate that we not ignore this difference because words are not superfluous.

However, the actual text of Section 627.4265 is not ambiguous and rules of statutory construction also dictate that "legislative intent is determined first and foremost from the statute's text." Raymond James Fin. Servs., Inc. v. Phillips, 126 So. 3d 186, 190 (Fla. 2013) citing Heart of Adoptions, Inc. v. J.A., 963 So. 2d 189, 198 (Fla. 2007). As it reads now, 12 percent means "12 percent." Period.

Given the historical context, § 627.4265 was meant to compensate claimants for the time value of money at the statutory interest rate of the time. It was not meant to be punitive. At the current statutory interest rate, the fixed 12 percent rate in §​ 627.4265 has the effect of a penalty. The Florida legislature should free §​ 627.4265 from the 1980s by making the interest rate fluid and linked to §​ 55.03.