Legal Updates for Coverage and Bad Faith - Special Alert

Edited by Allison Krupp, Esquire

Pennsylvania Superior Court vacates trial court’s $21M bad faith verdict, ruling in favor of insurer and finding that plaintiff failed to show clear and convincing evidence of bad faith.   

Berg v. Nationwide Mut. Ins. Co., 2018 PA Super 82 (Pa. Super. April 9, 2018)

This significant case arose from a 1996 motor vehicle accident and the plaintiff’s subsequent claim for property damage to her vehicle. No one was injured in the accident. The Superior Court, quoting the trial court’s recitation of the underlying facts, explained that Nationwide’s first damage estimate concluded that the vehicle should be totaled. The trial court determined that Nationwide “vetoed this appraisal” and that a second estimate found that the vehicle could be repaired. The repair process took four months, and the car was then returned to the plaintiff. After the plaintiff had paid all of the lease payments, the trial court found that Nationwide “suddenly changed its mind, totaled the car, and paid Summit Bank $18,000 to settle the claim and obtain ownership of the Jeep.” The plaintiff subsequently filed suit for breach of contract, negligence, fraud, conspiracy, violations of the Unfair Trade Practices and Consumer Protection Law (UTPCPL), and statutory bad faith. That litigation continued for 16 years and, ultimately, proceeded to a jury trial on the fraud, conspiracy and UTPCPL claims. The jury rendered a verdict in favor of Nationwide on everything except the catchall provision of the UTPCPL, for which it awarded the plaintiff $295. There was then a bench trial on the claim for treble damages under the UTPCPL and the bad faith claim. Trial Judge Stallone entered a directed verdict in favor of Nationwide on the bad faith claim and denied the plaintiff’s request for treble damages. The plaintiff appealed, and the Superior Court initially determined that she had waived all appellate issues by failing to serve the trial court with a copy of her Pa.R.A.P. 1925(a) statement. A divided Supreme Court later reversed and remanded the case. After remand, the Superior Court concluded that the trial court had erred by entering a directed verdict in favor of Nationwide on the bad faith claim and remanded the case back to the trial court, where a second trial was held on the bad faith before Judge Sprecher. Judge Sprecher heard testimony from four damage witnesses but otherwise relied on transcripts from the prior proceedings. In 2014, he found in favor of the plaintiff on the bad faith claim and ordered Nationwide to pay $18 million in punitive damages and $3 million in attorneys’ fees. Nationwide appealed to the Superior Court, which vacated the trial court’s verdict and remanded the case for entry of judgment in favor of Nationwide. Judge Stabile drafted the Majority Opinion, and Judge Ott joined; Judge Stevens dissented.

In reaching its decision, the Superior Court considered the Pennsylvania Supreme Court’s recent decision in Rancosky v. Washington Nat’l Ins. Co., 170 A.3d 364 (Pa. 2017), in which it held, in part, that proof of an insurance company’s motive of self-interest or ill-will is not a prerequisite to prevailing in a bad faith claim, although such evidence is probative of the second prong of the bad faith test. The Superior Court also considered that the “clear and convincing evidence standard is the highest standard of proof for civil claims.”

On appeal, the plaintiff argued—and the trial court found—that Nationwide had acted in bad faith by repairing the vehicle rather than declaring it a total loss. While the parties agreed that the repair shop had performed poor work on the vehicle, they disputed Nationwide’s role in and knowledge of that repair work. The Superior Court conducted a thorough review and provided a detailed summary of the underlying record, concluding that: (1) the record does not support the trial court’s finding that the repair shop issued a repair estimate only after Nationwide vetoed its total loss appraisal; (2) the record contains no evidence that the vehicle was damaged beyond repair; (3) the record contains no evidence that Nationwide had actual knowledge of the vehicle’s condition upon its return to the plaintiff; and (4) Nationwide’s conduct subsequent to its knowledge of the vehicle’s condition—including its conduct during the subject litigation—was not a bad faith effort to cover up its alleged prior misdeeds. The court considered that the trial court had engaged in a limited and “highly selective analysis” of the facts and “drew the most malignant possible inferences from the facts it chose to consider.” It also considered that the trial court had ignored pertinent claim log entries, speculated on certain matters, erroneously characterized the evidence, and inappropriately considered the length of the litigation and amount of attorneys’ fees expended by Nationwide. The court noted that the plaintiff had the right to zealously prosecute her case, just as Nationwide had the right to defend itself if it believed its employees had not acted in bad faith, and that a court “cannot arbitrarily impose a time limit on the time and resources an insurer spends in defending a bad faith action.”

Finally, the Superior Court devoted a considerable portion of its opinion to discussing the trial court’s “failure to limit [its] analysis to the facts of this case and applicable law.” The trial court’s opinion included multiple sections regarding the insurance industry in general, the psychology of choosing an insurer and insurance policy, insurers’ cost containment concerns, advertisements used by insurers, and the relative wealth and power of an insurer when compared to its insured. The Superior Court noted that a court must base its decisions on the facts and merit of the case before it, not its general perception of a party or industry. The court acknowledged the high standard governing its review and commented that it had not reached its decision lightly.

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