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Legal Updates for Coverage and Bad Faith

Edited by Allison L. Krupp, Esq.

PA Supreme Court to Review Superior Court’s Decision Overturning Trial Court’s Multi-Million Dollar Bad Faith Award

By James P. Shay, Esq.

In a significant development, the Pennsylvania Supreme Court has announced that it will hear arguments on appeal in the decade-old case of Berg v. Nationwide Mutual Insurance. The high-profile, $21 million bad faith verdict issued against Nationwide in Berg has been tossed on appeal by the Superior Court twice before; first in April 2018 and again on reconsideration in May 2018.

Berg is a motor vehicle collision repair case in which the insureds took their damaged Jeep Grand Cherokee to a facility recommended under Nationwide’s “Blue Ribbon Repair Program.” The Bergs argued that Nationwide acted in bad faith by reversing an initial appraiser’s recommendation that the vehicle be totaled before unilaterally redirecting it to a second facility for repair. The Bergs claim the vehicle was returned to them with an unsound structural frame because Nationwide wanted to avoid paying for a new vehicle. The trial judge issued a directed verdict for Nationwide. The Superior Court later reversed the directed verdict and granted the Bergs a second chance to try their bad faith case, leading to the $21 million bad faith verdict. The Superior Court then reversed the trial judge’s verdict on appeal, and the Bergs argued on reconsideration that the panel did not apply the correct evidentiary standard. In denying reconsideration, the Superior Court found that the facts could not possibly support statutory bad faith under the alternative evidentiary standard.

In granting allocator, the Supreme Court has confirmed it will review three specific issues:

1. Does an appellate court abuse its discretion by reweighing and disregarding clear and convincing evidence upon which the trial court relied to enter a finding of insurance bad faith?

2. Did the Superior Court abuse its discretion by reweighing and disregarding clear and competent evidence upon which the trial court relied to support its finding of insurance bad faith under the standard set forth in Rancosky v. Washington?

3. Does an insurer that elects under an insurance contract to repair collision damage to a motor vehicle, rather than pay the insured the fair value of the loss directly, have a duty to return the motor vehicle to its insured in a safe and serviceable condition pursuant to national insurance standards and pursuant to its duty of good faith and fair dealing?

The third issue could have an especially powerful effect on the interests of insurers with direct repair programs. Pennsylvania courts have traditionally resisted a bad faith cause of action against an insurer under 42 Pa. C.S.A. § 8371, where the claim arises from allegedly negligent work of a third-party contractor recommended by the insurer through a direct repair program. A ruling in favor of the insureds could create fact-based precedent for pursuing an insurer for bad faith conduct based on a participating vendor’s failure to return the property to an insured in “safe and serviceable condition.” Such a precedent could reach not only auto collision claims but also property damage cases where mitigation is performed by an approved third-party vendor that is specifically recommended to the insured by the insurer.


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