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Pennsylvania Supreme Court Split Ends 24-Year Insurance Bad Faith Battle

Posted: 08/27/2020
Industries: Insurance

On August 25, 2020, the Pennsylvania Supreme Court split 3-3, with one Justice recused, on an appeal from a trial court’s insurance bad faith decision imposing $18 million in punitive damages and $3 million in attorney’s fees which had been reversed by an intermediate appellate court. Berg v. Nationwide Mut. Ins. Co., Inc., No. 33 MAP 2019 (Pa. Aug 25, 2020). The dispute traces back to a car accident on September 4, 1996, and subsequent issues about whether the insured’s car was a total loss and whether the insurer acted appropriately in having the car repaired. Over the more than 20-year life of the dispute, the litigation shifted focus from a claim about a single Jeep to the insurer’s claims handling practices and conduct in litigation.

The case went through three trials, the first in 2004 where a jury determined that the insurer was liable for $295 in damages for violating Pennsylvania’s Unfair Trade Practices and Consumer Protection Law, and the repair facility was liable on the same theory for $1,925. In 2007, the trial court conducted a bench trial on the insurance bad faith claim, and granted a directed verdict to the insurer. In 2012, the Pennsylvania Superior Court reversed the trial court’s decision on the bad faith claim and remanded the matter for a new trial on that issue. On remand, the parties agreed that a new trial judge could rely on the transcribed testimony from the two prior trials, and the new judge received additional testimony and evidence on the bad faith claim. In June 2014, the trial judge found that the insurer had engaged in bad faith and entered judgment in favor of the insured for $18 million in punitive damages and $3 million in attorney’s fees. On appeal, the Pennsylvania Superior Court reversed and granted judgment notwithstanding the verdict in favor of the insurer, finding that the insurer did not act in bad faith. The Pennsylvania Supreme Court granted discretionary review in March 2019.

The Justices supporting reversal focused on what they believed was heavy deference that should have been afforded to the trial judge as the finder of fact. They articulated that the insured established that the insurer’s duty was not merely to pay for repairs, but to restore the vehicle to a safe and serviceable condition. They believed they were obligated to affirm the decision of the trial court that the insurer manipulated the appraisal process, put the insured at risk by failing to oversee the repair process, and engaged in a litigation strategy designed to price them out of court and send a “message of deterrence” to the plaintiff’s bar that they would aggressively pursue litigation. These Justices believed that the insurer’s litigation was appropriately considered in determining whether the insurer acted in bad faith, noting a “scorched earth” litigation strategy, attorney fees and litigation costs far in excess of the amount of the original claim, several discovery violations, and conduct similar to that for which the insurer was found before to have acted in bad faith but failed to change its policies. These Justices would have adopted the trial court’s finding that the insurer’s litigation strategy was “a substantial and continuing harm upon the civil justice system.”

The Justices supporting affirmance noted that there was an outstanding issue of judicial bias on the part of the trial judge that had not been addressed by the Superior Court, but which they found “colorable” and believed impacted their ability to defer to the trial judge’s findings. These Justices articulated that they found some of the trial court’s findings “clearly erroneous and against the weight of the evidence,” most importantly the finding that the Jeep was not repairable. These Justices concurred with the Superior Court that the insured had failed to prove a bad faith claim for failure to provide a benefit, focusing on pre-litigation conduct. Regarding post-litigation conduct, these Justices argued in favor of Pennsylvania adopting what they believe is the majority approach in other jurisdictions, that post-litigation conduct is inadmissible in insurance bad faith litigation, other than refusal to settle within policy limits. These Justices also viewed both sides as engaging in unnecessary litigation tactics, and believed it was inappropriate for the trial court to lay such issues solely at the feet of the insurer.

While this case is an outlier in terms of the length and breadth of a bad faith claim, it highlights the potential conundrum for insurers facing difficult claims and litigation decisions. Insurers are well advised to regularly review claims processes and litigation strategy with an eye toward developing trends across the country. While the Berg case may finally be put to rest after a lengthy run in the courts, the Pennsylvania Supreme Court’s split decision reflects that there are still many open issues in insurance bad faith litigation.

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