April 2012 Bad Faith Update
The Superior Court of Pennsylvania broadly interprets insurance bad faith under 42 Pa.C.S. § 8371 and determines that the amount of money spent on legal fees can be used as evidence of bad faith.
In Berg v. Nationwide Mutual Insurance Company, 2012 PA Super 88 (Super. Ct. 2012), the Superior Court emphasized that “bad faith” in Pennsylvania is actually quite expansive, and it held that evidence that the insurance company paid defense counsel just under $1,000,000.00 was competent evidence to support a claim of bad faith toward the insured. Insurance bad faith occurs when an insurance company fails to put the interests of their insured’s ahead of its own interests and does not live up to its obligation of “good faith and fair dealing.” Some examples of bad faith are the failure to properly investigate a claim, pay on a claim with obvious liability and damages or to deny coverage when the insurance company should provide it.
Berg involved a property damage dispute where the plaintiffs (insured’s of Nationwide) claimed that Nationwide had attempted to repair their vehicle but after the repair the vehicle was still structurally unsafe. As a result, the plaintiffs sued Nationwide alleging bad faith, inter alia. During the lawsuit, the plaintiffs claimed that Nationwide paid $922,654.25 to attorneys to defend the lawsuit, pursuant to a litigation strategy to deter the filing of small value claims by its insured’s. Essentially, the plaintiffs claimed that Nationwide assumed that their insured’s would not sue them over its denial of small value claims, like many property damage claims, because the cost of the lawsuit to the plaintiffs would outweigh any recovery.
In it’s holding the Superior Court took on the constricted definitions of past bad faith cases and stressed that the duty of good faith by insurers is broad, not limited, finding that: “section 8371 concerns the duty of good faith and fair dealing in the parties contract and the manner in which an insurer discharged in its obligation to pay for a loss in the first party claim.”
Most significantly, the Court also held that the trial court had abused its discretion by precluding the Plaintiffs from introducing evidence, including the $922,654.25 in attorney’s fees and costs, as evidence that Nationwide had a strategy of deterring small claims through such excessive spending. The Superior Court directly rejected any limited definition of insurance bad faith, by holding that: “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.”
This holding has the potential of changing the landscape of insurance bad faith litigation and is nightmarish for any insurance company who is willing to steal from its insured’s. In the future, any attorney involved in bad faith litigation will have the ability to demand production of the insurance company’s attorney’s fee information. Indeed, the Court here has reaffirmed and revived insurance bad faith in Pennsylvania and delivered a significant victory for all consumers in the Commonwealth. For those of you who are wondering how much the original property damage claim was? ….. $295.00 for the repair of the Bergs’ 1996 Jeep Cherokee! To read the full decision, please click here.