In Zappile v. Amex Assurance Company, the Pennsylvania Superior Court reversed the trial court’s $75,000 judgment entered against the insurer following a non-jury trial on a bad faith claim made by the insureds.  The bad faith claim arose after the insured was struck by an automobile while walking his dog.  He was diagnosed with a torn rotator cuff and underwent arthroscopic surgery.  The insured settled his claim against the tortfeasor for the $15,000 policy limits.  The insured then made a claim against his own automobile insurance policy, for first party benefits, which were paid to the limits of coverage.  The insured then made a claim for underinsured motorist benefits.  The insured had total stacked coverage of $150,000 for three insured vehicles.  He demanded the policy limits.  The insurer, however, offered $32,000.  The case went to arbitration and the insured was ultimately awarded $95,000.  The insured then filed a bad faith claim.  The trial court found that the insurer acted in bad faith by failing to make a partial payment for excess wage loss claims, undervaluing the claim, thereby forcing it to arbitration, never raising the offer and telling trial counsel that plaintiff would not accept anything less than $150,000 to settle. 

On appeal, the Superior Court first found that the insured’s expert’s trial testimony was factually and legally incorrect.  The expert testified on several occasions that a UIM claim is not an adversarial situation and implied that there is some form of heightened duty to a “first party” claimant as opposed to a third party adversarial claimant.  The Superior Court specifically rejected the notion of a higher duty to a first party claimant and held that the duty of the insurer is the same no matter what the party status.  Next, the court held that the insurer’s failure to make a partial payment of undisputed amounts was not bad faith.  In making this determination, the court found that Pennsylvania law does not recognize a duty to make partial payments.  The court found that the insured’s failure to pay a $4,000 portion of a $150,000 demand, in and of itself did not constitute bad faith and as a general rule, the failure of an insurer to cut out certain portions of a general damages claim, especially where the insurance contract makes no representation that such a procedure will be followed, does not constitute bad faith. 

In addition, the court also reversed the trial court’s finding that the insured instructed defense counsel not to evaluate the claim as the insured would accept nothing less than the policy limits.  The court found that although the insurer never officially raised it’s offer, the insured never officially reduced his demand.  Therefore, there was no bad faith as it could not be said that the insured kept coming down while the insurer never went up.  Finally, the insurer’s desire to review medical records from a subsequent accident of the insured and other actions which caused a delay in the arbitration was not evidence of bad faith.   

Overall, although the court did find that the insurer undervalued the insured’s claim, there was no evidence that this was done out of some ill-will or that the insured’s actions had no reasonable basis.  For that reason, the court reversed the judgment of bad faith against the insurer. 

Date of Decision: June 8, 2007

Richard Zappile and Stephanie Zappile, H/W v. AMEX Assurance Company, Superior Court of Pennsylvania, No. 1274 EDA 2006, 2007 Pa. Super. LEXIS 1580 (Pa. Super. 2007) (Klein, J)