Superior Court Issues A Sweeping Insurance Bad Faith Decision
On April 17, 2012, the Superior Court of Pennsylvania handed down a sweeping decision that broadly interprets insurance bad faith under Section 8371. In Berg v. Nationwide Mutual Insurance Company, the Superior Court emphasized that “bad faith” in Pennsylvania is actually quite broad, and it found that evidence that the insurance company paid defense counsel just under $1 million dollars was evidence that supported bad faith.
In Berg, the Plaintiffs alleged that Nationwide had “repaired” a vehicle, knowing that it still had structural damage. The Superior Court also said that Plaintiffs alleged that Nationwide paid “$922,654.25 to defend the lawsuit, allegedly pursuant to a documented litigation strategy to deter the filing of small value claims.” The trial court had granted Nationwide’s motion for a directed verdict. It relied on longstanding, but narrow, definitions of bad faith from early cases.
The Superior Court reversed and it did so in fairly dramatic fashion. In doing so, the Superior Court took on the narrow definitions of bad faith from early cases and emphasized that the duty of good faith by insurers is broad, noting that:
"section 8371 concerns ‘the duty of good faith and fair dealing in the parties’ contract and the manner in which an insurer discharged … its obligation to pay for a loss in the first party claim context."
In addition to emphasizing the broad nature of bad faith, the Court also held that the trial court had abused its discretion by precluding the Plaintiffs from introducing evidence–including attorneys bills--that Nationwide had a strategy of deterring small claims through such excessive spending. If there was any doubt that the Superior Court squarely rejected a narrow definition of bad faith, it is dispelled by the following rationale:
“For purposes of the Bergs’ section 8371 claim, whether Nationwide ultimately paid the benefits due under the policy is not the relevant inquiry; instead the dispute is whether Nationwide acted in bad faith in its dealings with the Bergs.”
There is significant potential for this case to affect insurance bad faith litigation. If attorneys for policyholders sense that the insurance company is adopting a scorched earth strategy, they could well demand the same attorneys fee information. Also, it should eliminate any doubt that Section 8371 is very broad and that goal of the statute was to eliminate bad faith in an insurance carriers dealings with their policyholders.
--Andrew J. Kennedy, litigation attorney at the Colkitt Law Firm, P.C. Phone: 724-463-3570. Email: firstname.lastname@example.org