SEPTEMBER 2006 BAD FAITH CASES SUPREME COURT LETS LOWER COURT RULING STAND FOR $2.8 MILLION PUNITIVES AWARD ON BAD FAITH CLAIM, TEN TIMES GREATER THAN COMPENSATORY DAMAGES (Supreme Court)

In Hollock v. Erie Insurance Exchange, the Supreme Court had granted an appeal to address two important issues:  (1) whether Pennsylvania’s Bad Faith statute encompasses conduct that occurs during the bad faith litigation itself; and (2) whether an award of punitive damages 10 times those of the compensatory damages is permissible.  The Trial Court had awarded punitive damages of $2.8 million, approximately ten times the compensatory damages award.  The compensatory damages substantially consisted of fees and costs incurred in the bad faith litigation.  Further the punitive damages award was itself based in large part on the carrier’s conduct during the bad faith litigation itself.

The case eventually came before an en banc Superior Court panel which upheld the trial court’s rulings.  More than two and one-half years after Pennsylvania’s Supreme Court accepted an appeal of the Superior Court’s decision, it dismissed the carrier’s appeal as improvidently granted. The Supreme Court Majority’s Order dismissing the appeal did not address these  issues nor state why the appeal was dismissed.  In dissenting from the dismissal, Chief Justice Cappy, joined by Justice Castille, wrote a lengthy dissenting statement, in which he would have vacated the punitive damage award for considering factors that occurred during trial, with instructions to adhere the U.S. Supreme Court’s ruling in State Farm v. Campbell.

For a discussion of Chief Justice Cappy’s statements concerning conduct during bad faith litigation, see “Categories, Litigation Conduct Claims”.

Date of Decision: August 22, 2006

Hollock v. Erie Ins. Exch., 2006 Pa. LEXIS 1544, No. 67 MAP 2005 (Pa. 2006) (Per Curiam) (order of dismissal) (dissenting statement)