Legal Update for Insurance Services
PA Supreme Court: Berg Is Dead After 24 Years But Its Issues Remain Very Much Alive
On August 25, 2020, the Pennsylvania Supreme Court published its long-awaited decision in Berg v. Nationwide Mutual Insurance Company. For all who follow Pennsylvania bad faith law, Berg has been a closely watched case throughout its tortured history. Despite the anticipation surrounding the decision, it turned out to be anticlimactic.
One of the unique things about Berg was that it was a property damage-only case involving an underlying dispute of $12,000, which resulted in a $21 million bad faith verdict. The case started with an accident 24 years ago and involved Nationwide’s “Blue Ribbon Repair Service,” a managed repair program available to Nationwide insureds. In essence, the underlying facts involve the initial body shop advising the vehicle should be totaled and Nationwide having the vehicle moved to a different shop that ultimately made the repairs. It is undisputed that the repairs were improper, and eventually Nationwide totaled the vehicle after the insured continued to make lease payments for many months. It was alleged that Nationwide knew the repairs were unsafe, but only initially authorized the repairs.
The original litigation devolved into disputes concerning institutional discovery. In fact, the Supreme Court Opinions in Support of Affirmance (OISA) noted that the Bergs took an extraordinary burdensome approach to discovery, serving over 100 subpoenas to governmental entities throughout the country, including Native American tribes. They also served 110 interrogatories, 22 deposition notices, 125 requests for production of documents and 131 requests for admissions. In fact, the discovery judge noted that the “delay stemming from Plaintiff’s pre-trial practice cannot be excused.”
Eventually, in 2007, the principal case was tried. The trial court entered judgment in favor of the insureds on unfair trade practices, fraud and civil conspiracy counts, but directed the verdict in favor of the insurer on the bad faith count. The insureds appealed, and the trial court determined that the insureds waived the appeal as they failed to personally deliver a copy of a required document—the Statement of Errors Complained of on Appeal—to the trial judge. The Superior Court affirmed the trial court’s decision on the procedural ground without a published opinion. In October 2010, a divided Pennsylvania Supreme Court held that the plaintiffs did not waive the appeal. Following the Supreme Court’s decision allowing the appeal, despite the procedural error, the Pennsylvania Superior Court decided the substantive issues and in April of 2012 filed an opinion which vacated the verdict for the plaintiffs and remanded the case for a new trial.
Then-Judge Donohue, in her decision for the Superior Court, noted that the trial court was incorrect in finding that an allegation of improper repair by the Blue Ribbon Repair Service did not preclude an insured from prevailing in a bad faith cause of action given the allegations that the proper amount was not paid to repair the vehicle. Judge Donohue also determined that potential “bad faith” could be premised on an insured’s violations of the Unfair Trade Practices and Consumer Protection law, as well as the Motor Vehicle Physical Damage Appraisal Act, and that a jury’s finding that the insurer had violated that act could consider the violation as evidence of bad faith. Thus, the Superior Court held that the trial judge’s directed verdict on bad faith was improper. Additionally, the Superior Court held that evidence of an insurer’s aggressive litigation strategy, designed to deter filing of small value claims, could be evidence of bad faith.
From there, the case was retried by a different judge in 2014. Eventually, the trial court issued its $21 million ruling. In 2018, the Superior Court vacated the judgment, finding after an exhaustive review of the trial record that the findings of fact and conclusions of law set forth by the trial judge were not supported by the record. The plaintiffs appealed to the Pennsylvania Supreme Court.
After much delay, the Supreme Court issued its decision on August 25, 2020. Because then-Justice Donohue decided the case as a Superior Court judge, she recused. The only agreement that the remaining six justices could reach was to dismiss the plaintiffs’ appeal. Beyond the per curiam order dismissing the appeal, which leaves intact the Superior Court’s ruling for the defendant, four justices wrote or joined opinions. Justice Wecht published an Opinion in Support of Reversal (OISR) in which Justice Mundy joined, and Chief Justice Saylor published an Opinion in Support of Affirmance (OISA) in which Justice Baer joined.
Accordingly, the net result is that the Superior Court’s Order stands and the Berg judgement remains vacated. Thus, the Superior Court opinion and its analysis of Pennsylvania bad faith law remains the law of Pennsylvania. Please note that while neither the OISA nor the OISR are precedential, nor binding authority, both will be cited in the future. It should also be noted that both opinions stand in complete contrast to Pennsylvania’s overall vision of bad faith law.
Opinion In Support of Affirmance
Chief Justice Saylor in the OISA begins with a discussion of judicial bias and the fact that the trial judge did not hear from many live witnesses at trial but, instead, relied on the first trial’s transcripts. As to judicial bias, the OISA was very critical of the trial judge’s anti-insurance rhetoric and found it “very troubling” that the trial judge’s analysis was “so prolifically out of step with the judicial role” insofar as the trial judge “align[ed] himself personally with the interest of insurance consumers.” The OISA agreed with the Superior Court about the “lopsidedness of the trial court’s findings relative to the actually record.” at 2. The OISA also went through many critical facts not supported by the record, including the central issue as it pertains to bad faith; that Nationwide knew the vehicle was not repairable and repaired it anyway. The OISA points out that this proposition is wholly unsupported by the record and goes to great lengths to establish why.
As to pre-litigation bad faith, the OISA found that, while Nationwide’s conduct may have been unprofessional in some instances, the record did not support any bad faith refusal to pay the claim, thus a bad faith judgment was not warranted.
Another key issue involves an insurer’s duty pursuant to a Managed Repair Service Program. The OISA disagrees with the OISR in that it finds the duty to properly repair falls on the repair company, not the insurer. The OISA recognized that such programs not only benefit the insurer, but also the repair facility and the consumer. It points out that any potential duty to supervise does not arise out of a contract, but may arise out of the negligence, yet that the negligence count was dismissed prior to trial.
The final key point of the OISA concerns post-litigation conduct and whether such conduct can give rise to bad faith. Please note that the OISR supports cementing post-litigation conduct into bad faith hornbook law. The OISA advocates for a rule that “evidence of post-litigation conduct is generally inadmissible in bad faith litigation.” It points out that “the insurer relies heavily on its attorneys using common litigation strategy and tactics to defend [itself]” and recognizes ‘the chilling effect on zealous advocacy fostered by penalizing the defendant for litigation decisions.’” Id at 5. Furthermore, the OISA notes the availability of other measures to address inappropriate litigation conduct pursuant to the Pennsylvania Rules of Civil Procedure, such as attorney sanctions, and I would assume adverse evidentiary inferences.
Opinion in Support of Reversal
On the other hand, Justice Wecht’s OISR gives deference to the trial judge and finds, unlike the OISA, that the record does support the bad faith findings and gives several examples of the trial court’s opinion’s alleged consistency with the record.
Note that the OISR disagrees that post-litigation conduct cannot amount to bad faith and agrees with the trial judge that Nationwide’s failure to disclose expert reports, redacting reports, the failure to disclose full attorneys fees until just before the bad faith trial, and redacting log entries that predate the beginning of litigation are evidence of bad faith to be considered by the trial judge.
As to Managed Repair Programs, the OISR would hold that, under such programs, an insurer has an obligation to ensure that the repairs are properly conducted. This “recognizes that an insurer while electing to repair ‘is not only bound to put the property in substantially the same state or as good as it was before the [loss], but the insurer cannot avail itself of any relieving circumstances unless such repairs make the property as serviceable as it was before the loss.’” Berg, 220 WL 5015642 Opinion in Support of Reversal at 17.
The OISR points out many cases in which an insurer was found, in essence, to be a guarantor of work. However, those cases involve situations where an insurer exercises its policy option to actually repair or replace. While I don’t confess to be an expert on Nationwide’s Blue Ribbon Repair Service, the programs with which I am familiar give the insureds the option of having their vehicle or home repaired through a managed repair program. Such voluntary programs are not an exercise of the mandatory repair option pursuant to the subject policy.
The OISR was very critical of Nationwide’s litigation strategy, noting “Nationwide spent 19 years fighting this case rather than to settle, choosing to send a message to the Plaintiff’s Bar about Nationwide’s willingness to spare no expense litigating small claims.” Id at 21. This, of course, ignores the fact that there was no breach of contract claim and only a claim for bad faith, which the Superior Court found there was no evidence of record to support.
The 2018 Berg Superior Court opinion is clear that there must be an evidentiary basis for bad faith in order for a bad faith judgment to be entered. The Supreme Court appears ideologically split between those Justices looking to expand bad faith liability and those looking to keep control over bad faith liability and litigation.
What I am sure of is that the Berg case, after 24 years, is finally dead. But the issues inherent in Berg are very much alive. Both the OISA and OISR, despite having no precedential value, will be cited often. There will soon be another case in front of the Supreme Court dealing with managed repair networks, post-litigation bad faith and the bad faith evidentiary standard.
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