Brainard v. Trinity Universal Ins. Co

In Brainard v. Trinity Universal Ins. Co., 216 S.W.3d 809, 816 (Tex. 2006), a case in which prejudgment interest was recoverable under Section 304.104, Brainard argued that prejudgment interest should be applied to the entire amount of damages found by the jury and that the settlement credits should not be applied until the date the parties moved for judgment. The Supreme Court held that the settlement credit should be applied as of the date the claimant received the settlement payment. Id. at 816-17. It reasoned that if the claimant was awarded compensation other than for the lost use of money, it would be a windfall to the claimant and a penalty for the defendant, and not interest. Id. at 816. The court also reaffirmed that "the proper way to apply credits in the calculation of prejudgment interest" is by applying the "'declining-principal' formula," whereby settlements are credited on the date they are received. Brainard, 216 S.W.3d at 816. Under the declining-principal formula, settlement payments are applied "'first to accrued prejudgment interest as of the date the settlement payment was made, then to 'principal,' thereby reducing or perhaps eliminating prejudgment interest from that point in time forward.'" Id.