JANUARY 2008 BAD FAITH CASES PENNSYLVANIA SUPREME COURT VACATES ORDER GRANTING ATTORNEY’S FEES FOR REVERSE BAD FAITH (Pennsylvania Supreme Court)
In Old Forge School District, et al. v. Highmark, Inc., et al. the Pennsylvania Supreme Court was asked to decide whether the Commonwealth Court abused its discretion in awarding fees to Highmark for the alleged “vexatious” conduct of the Plaintiffs/Appellants, instituting litigation challenging Highmark’s insurance rates and reserves. Appellants, policyholders, filed petitions with the Commonwealth Court seeking review of the Insurance Commissioner’s refusal to provide retroactive insurance rate relief. Appellees Highmark and Hospital Service Association of Northeastern Pennsylvania (“NEPA”) each filed preliminary objections on the basis that the Court lacked subject matter jurisdiction and the Appellants failed to exhaust their statutory remedies. In addition, NEPA filed a Motion for attorneys fees against all Appellants, except Old Forge School District, on the basis that the litigation constituted “vexatious” conduct (the “Motion”). The Commonwealth Court granted NEPA’s Motion. NEPA ultimately agreed to withdraw the Motion as part of a settlement agreement. Soon thereafter, however, Highmark moved for attorneys’ fees. The Commonwealth Court granted Hallmark’s motion for the same reasons it had granted NEPA’s Motion. The Court stated that the awarding of fees was appropriate because Appellants had been told, repeatedly, that insurance rates and the amount of reserves are a part of the regulatory process under the Insurance Commissioner’s discretion and are not the proper subject of adversary litigation. On appeal, Appellants argued that pursuant to the “Thunberg” test, a lawsuit is filed for vexatious reasons if: “(1) the suit was filed without sufficient ground in either law or in fact; and (2) the suit served the sole purpose of causing annoyance.” Also, Appellant policy holders argued that the suit was not vexatious as they had asserted legitimate legal theories. The Supreme Court held that the Commonwealth Court’s decision to impose attorneys’ fees was untenable because the Court did not articulate its reasoning according to the Thunberg test. Further, the Supreme Court remanded case and directed the Commonwealth Court to reevaluate the issues based upon one of its recent decisions whereby the Supreme Court held that the courts, and not the Insurance Department, were empowered to adjudicate claims challenging insurers’ excess reserves.