In Berg v. Nationwide Mut. Ins. Co., the Superior Court reversed the trial court’s grant of a directed verdict to the carrier on the insured’s bad faith claim. This was a first party claim against an insurer under Pennsylvania’s bad faith statute, among other claims.
The suit stemmed from faulty repairs to the insured automobile conducted by the carrier’s preferred repair facility. There was a bifurcated trial, the first part being Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) claims before a jury, and the second the issue of treble damages under the UTPCPL and statutory bad (42 Pa.C.S. § 8371) before the judge. The jury found for the insured on the UTPCPL claims, and for the auto repairer and the carrier on the fraud claims and conspiracy claims. The jury awarded $1,925 against the car repair shop and $295 against the insurer.
In the second phase, after a 4 day trial, the trial judge granted a directed verdict to the carrier on statutory bad faith claim and the insured appealed. The crux of the insured’s claim was that the carrier acted in bad faith by “interfering with a total loss appraisal on their vehicle and later returning it to them despite known structural deficiencies that left it in a potentially dangerous condition.” Part of the trial court’s rationale for declining to find for the insured was that such a claim does not “arise under an insurance policy.” The lower court also found that there was no ultimate denial of a benefit. The Superior Court specifically found that such a claim does in fact arise under the insured’s policy with respect to its contractual duties, including good fair and fair dealing, and the carrier’s failure to effectuate a “prompt, fair, and equitable” settlement in the face of a clear statutory and contractual duty.
The Superior Court also found that the violation of other statutes can be used as evidence of violation of the bad faith statute because bad faith conduct may be “defined by reference to violations of statutes related to insurance practices.” Thus, in this case, the jury’s finding that the carrier violated Pennsylvania’s UTPCPL should have been considered as evidence of bad faith, and weighed under the clear and convincing evidence standard applicable to the bad faith statute, rather than the judge ruling on the issue as a matter of law. The Superior Court relied upon its earlier decision in Romano v. Nationwide Mutual Fire Ins. Co., 646 A.2d 1228 (Pa. Super. 1994), which earlier case permitted consideration of violations of Pennsylvania’s Unfair Insurance Practices Act (UIPA) as evidence of bad faith, stating that “a plaintiff seeking damages for an insurer’s bad faith conduct under section 8371 may, in addition to other available methods, attempt to prove bad faith by demonstrating that the insurer has violated one or more provisions of related Pennsylvania insurance statutes or regulations, even if those provisions do not provide for private rights of action.”
The Superior Court also cited additional factors to consider. The carrier had the insured’s car sent to a different repair shop after the initial choice found that the insured’s car could not be repaired. Further, the manner in which the carrier discharged its duty of good faith during the pendency of the carrier’s insurance claim was subject to a bad faith analysis because of allegations that it was the carrier’s practice to vigorously defend small claims regardless of merits to discourage others from bringing suit. In this case, the trial court would not admit evidence that the insurer paid over $900,000 to defend this claim, which the plaintiff argued in the context of being part of the litigation defense strategy in allegedly deterring the bringing of small claims. The appellate court permitted evidence in connection with the carrier’s legal billing in the case, focusing on the concept of claims handling, and tying the payment amount to the claims handling.
Further, the appellate court found that the lower court erred in not doing an in camera review on documents that were alleged to be privileged and had been redacted.
Date of Decision: April 17, 2012
Berg v. Nationwide Mut. Ins. Co., No. 12-MDA-2008, 2012 PA Super 88, Superior Court of Pennsylvania (Pa. Super. Ct. Apr. 17, 2012) (Donohue, J.)