$21 Million Dollar Bad Faith Award Erased by Pennsylvania Superior Court (Update: Reargument Granted and Decision Vacated on May 31, 2018)

In its decision in the case of Berg v. Nationwide Mut. Ins. Co., Inc., No. 713 MDA 2015 (Pa. Super. April 9, 2018 Ott, Stabile, J.J., and Stevens, P.J.E.) (Op. by Stabile, J.) (dissenting Op. by Stevens, P.J.E.), the Pennsylvania Superior Court vacated a $21 million dollar judgment entered by a Berks County trial court judge and remanded the case for the entry of judgment in favor of the carrier in a property damage bad faith cause of action.  

As noted in the Opinion, this case has been up and down the appellate ladder over the past two decades.  This matter arose out of a property damage claim relative to the insured’s Jeep Grand Cherokee. 

According to the Opinion, this bad faith suit initially began with the filing of a Writ of Summons back in January of 1998, over twenty (20) years ago.  

The insured's Jeep Grand Cherokee was allegedly damaged in a motor vehicle accident as a result of which there were no personal injuries.  

The Plaintiffs’ causes of action against the carrier included breach of contract, negligence, fraud, conspiracy, violations of the Unfair Trade Practices and Consumer Protection Law (UTPCPL), and insurance bad faith.  

Back in 2004, the case proceeded to a jury trial and the jury entered a verdict in favor of the Defendants on all causes of action except the catch all provision of the UTPCPL.   The jury awarded the Plaintiff $1,925.00 in damages against one Defendant and $295.00 against the carrier Defendant for the UTPCPL violation.  

Thereafter, a second phase of the trial began in the form of a bench trial on the UTPCPL treble damages and bad faith.   That bench trial was in 2007 and resulted in a directed verdict in favor of the carrier.   That result was appealed and the case went to the Supreme Court before being remanded back to the trial court for another bad faith trial.  

The second bad faith bench trial took place in approximately June of 2014 before Judge Jeffrey K. Sprecher.   Judge Sprecher issued a verdict in favor of the Plaintiffs on their bad faith claim and ordered the carrier to pay $18 million in punitive damages and $3 million dollars in attorney’s fees.  

This bench trial verdict is the subject of the appeal in the above cited latest decision in the Berg case and, as stated, resulted in the Superior Court vacating that $21 million dollar bench trial verdict and entering judgment in favor of the carrier under the standard of review applicable to non-jury cases.  

In the Pennsylvania Superior Court’s detailed 61 page Opinion, the appellate court reviewed the current status of bad faith law in Pennsylvania and affirmed that clear and convincing evidence of bad faith conduct on the part of the carrier is required to support such a claim.  

The Berg court restated the basic law that “[I]n order to recover in a bad faith action, the Plaintiff must present clear and convincing evidence (1) that the insurer did not have a reasonable basis for denying benefits under the policy and (2) that the insurer knew or recklessness disregarded its lack of a reasonable basis.”  See Berg at p. 10 [citation omitted.].  

Here, the appellate court found many of the factual findings of the trial court were not supported by the record presented.  

In Berg, the basic issue raised by the Plaintiff was that the carrier allegedly acted in bad faith by repairing the Plaintiff’s Jeep rather than declaring the Jeep a total loss and compensating Plaintiffs for its value at the time of the loss.  The insured also asserted that faulty repairs were made to the Jeep and that the carrier should have been aware of such faulty repair work. 

The appellate court found that neither the Plaintiff nor the trial court had cited any legal authority supporting the conclusion that a carrier’s duty of good faith and fair dealing requires an inspection of repairs prior to returning a vehicle to an insured.  The court noted that, even if there were such a duty recognized under Pennsylvania law, the evidence in this case did not rise above a showing of negligence, and, therefore, the evidence did not support a finding of bad faith by clear and convincing evidence.  

Relative to the trial court’s findings of bad faith, the appellate court noted that it had the authority to reverse such findings when the trial court’s “critical factual findings are either unsupported by the record or do not rise to the level of bad faith.”  See Berg at p. 38 [citations omitted] .  

The Superior Court went on, at length, to describe the trial court’s findings as being devoid of merit at times and in reliance upon facts and opinions outside of the record at other times.  

The appellate court also faulted the trial court to the extent that the trial court based its findings of bad faith upon alleged discovery violations by the carrier during the course of the litigation.    The court noted that a trial court’s findings of bad faith based upon discovery violations amounted to a clear error.  See Berg at p. 48. 

The appellate court in Berg noted that, while it is true that a finding of bad faith under §8371 may be based upon an insurer’s conduct before, during, or after litigation, the courts of Pennsylvania have refused to recognize that a carrier’s discovery practices constitute grounds for a bad faith claim under §8371, absent the use of discovery to conduct an improper investigation.   Berg at p. 48-49 [citations omitted].  

 The Superior Court in Berg explained that §8371 is designed to provide a remedy for alleged bad faith conduct by a carrier in its capacity as an insurer for breach of its fiduciary duty to an insured by virtue of the parties’ insurance policy, and not as a legal adversary in a lawsuit filed against it by an insured.  Berg at p. 49.   The court went on to note that discovery violations are  to be separately governed under the exclusive provisions of the Pennsylvania Rules of Civil Procedure.   Id.  

The appellate court also rejected the trial’s findings of bad faith on the basis of allegations that the carrier allegedly hoped to overwhelm Plaintiffs with its superior resources and that the carrier had allegedly adopted a scorched earth policy towards this litigation.  Id. at 50.    The appellate court found that there was no basis in the record to support this finding by the trial court judge.   

The appellate court also found that the trial had incorrectly found that the carrier had engaged in bad faith on the basis of evidence of the extended length of this litigation.   In this regard, the Superior Court in Berg stated that “Plaintiffs had the right to prosecute their case zealously within the bounds of the law, just as [the carrier] had the right to defend itself if it believed its personnel did not act in bad faith.  We cannot arbitrarily impose a limit on the time and resources an insurer spends in defending a bad faith action.”   Berg at p. 52.  

As stated, in the end, the Superior Court in Berg vacated the judgment of the trial court primarily because of the appellate court’s finding that the record did not support many of the trial court’s critical findings of fact.   The Superior Court in Berg felt that it had no choice but to vacate the trial court’s judgment after an exhaustive review of the record before the appellate court. 

In concluding its Opinion, the majority in Berg disagreed with the dissenting judge’s assertion that the majority was improperly substituting its own findings for those of the trial court under the applicable standard of review.   The appellate court reiterated that the “trial court engaged in a limited and highly selective analysis of the facts and drew the most malignant possible inferences from the facts it chose to consider” all of which, in the eyes of the Superior Court supported a vacation of the verdict.   Berg at p. 60.  

Anyone wishing to review the Majority Opinion in Berg may click this LINK

The Dissenting Opinion can be viewed HERE.

UPDATE:  On May 31, 2018, the Pennsylvania Superior Court granted the Plaintiff's request for reargument and vacated this decision.