Recent Automobile Property Damage Bad Faith Decision Out of Superior Court

In its recent April 17, 2012 decision in the Berg v. Nationwide Mutual Insurance Company, No. 12 MDA 2008, 2012 Pa. Super. 88 (Pa. Super. April 17, 2012 Donahue, Olson and Strassberger JJ) (Opinion by Donahue, J.), the Pennsylvania Superior Court addressed bad faith issues in the context of an underlying automobile insurance property damage matter. Ultimately, the Superior Court vacated a directed verdict in favor of the carrier on a bad faith claim under the bad faith insurance statute, 42 Pa. C.S.A. §8371, and remanded the case for a new trial in that regard.

By way of background, the Claimants’ vehicle was involved in a motor vehicle accident and sustained extensive damages. At the time of the accident, the Claimants were insured under an Nationwide automobile insurance policy. The Claimants elected to take the vehicle to repair facility that participated in Nationwide’s “Blue Ribbon Repair Service Program.”

After about four months of repairs, the Claimants’ vehicle was returned to them. Accordingly to the Claimants, thereafter, the Claimants received a telephone call from a former employee of the repair facility to advised them of possibly structural repair failures on the Jeep.

The Claimants then sued the repair facility and Nationwide essentially alleging that the Defendants knew or should have known that the repair work was not properly completed. The Claimants more specifically alleged against Nationwide that, after four months of attempted repairs, the carrier returned the vehicle to its insureds and represented to the insureds that the repairs have been successfully completed, even though the carrier’s representatives allegedly had actual knowledge that the repairs had failed and that the vehicle’s frame was structurally unsound. The Claimants also asserted that Nationwide utilized a litigation strategy emphasizing a lack of cooperation with its policy holders by retaining legal counsel and engaging in aggressive efforts in handling cases of a minimal value in order to create a “defense-minded” perception of the carrier in the legal community.

According to the Opinion, after the first phase of a bifurcated trial, a jury found that both the repair facility and Nationwide had violated the catchall provision of the Uniform Trade Practices and Consumer Protection Law (UTPCPL). However, the jury found in favor of the repair facility and Nationwide on common law fraud and conspiracy claims.

Thereafter, at phase two of the trial on the bad faith claim, which was a bench trial, the court entered a directed verdict in favor of the Defendant carrier.

On appeal, the Superior Court found that it was reversible error to grant a directed verdict on the issue of statutory bad faith after the jury found that the insurers’ conduct violated the catch-all provision under the UTPCPL in the first phase of the trial.

The Superior Court also found that it was reversible error for the trial court to have concluded that this lawsuit, stemming from a first party collision claim, was not ‘an action arising under an insurance policy.’ Rather, the Superior Court took a wider view of the facts of the case to find that the failure of the carrier to promptly handle the collision claim could have amounted to bad faith under the circumstances presented.

The Pennsylvania Superior Court also found that it was reversible error to preclude evidence, in an non-jury phase of a bifurcated trial, that the carrier had paid $922,654.25 to its attorneys to defend this lawsuit over a failed collision claim which evidenced the Claimants sought to rely upon to prove its allegation that the carrier had implanted a strategy to deter contingency-fee lawyers from representing Claimants with small value claims by making the litigation too expensive.

Lastly, the Court also found that it was reversible error for the trial court to deny the Claimants’ request for an in camera inspection by the Court of the claims file entries that had been redacted by the carrier during discovery under a claim of attorney/client privilege. The Superior Court directed the trial court to conduct an in camera review of all disputed documents to resolve claims of privileged once the case was remanded.

In a dissenting opinion, Judge Strassburger joined the majority opinion in all respects except for the requirement opposed upon the trial court to complete an in camera review. Judge Strassburger thought that there were other more appropriate or less burdensome ways to handle that discovery dispute.

Anyone desiring a copy of this opinion may click on this link.