Pennsylvania Superior Court Reverses Verdict In Favor of Plaintiff in Bad Faith Case

In the case of Watchward Worldwide v. Erie Insurance Exchange, No. 1221 WDA 2022 (Pa. Super. Jan. 9, 2021 Bowes, J. Kunselman, J., and Collins, J.) (Op. by Colins, J.), the Pennsylvania Superior Court vacated a lower court judgment in favor of the Plaintiff in an insurance breach of contract and bad faith claim after finding that the carrier was entitled to judgment in its favor as a matter of law on all claims presented.

In this case, the insured filed an insurance claim for loss of electronic data as a result of a computer hacking incident. At the time, the insured was covered by the carrier under a property damage and liability insurance policy that included coverage for the reproduction or replacement of electronic data.

When the insured filed a claim with the carrier for a loss caused by the deletion of its electronic data, the carrier denied the coverage claim on the grounds that the policy did not cover the loss because the electronic data that was destroyed was not on the insured’s computers and on the grounds the cost of replacing the data lost was less than the insured’s $2,500.00 deductible.

At trial, the carrier moved for a nonsuit at the end of the Plaintiff’s case based upon the defenses noted above. The jury entered a verdict in favor of the insured. The carrier then filed post-trial motions which were denied.

A non-jury trial on the Plaintiff’s bad faith claim was then scheduled. Prior to the date of that trial, the parties agreed to proceed by way of argument based upon trial evidence and written submissions along with some additional testimony. The trial court then issued its non-jury verdict on the bad faith claim finding that the carrier had acted in bad faith based upon its denial of coverage. The trial court awarded the Plaintiff $20,000.00 in punitive damages and $50,000.00 in attorneys' fees and costs.

The trial court then denied post-trial motions filed by both parties with respect to the bad faith verdict. The case was then appealed up to the Superior Court.

The Pennsylvania Superior Court ruled that the carrier’s interpretation of its own policy was correct in terms of a finding that no coverage was due to the insured under the case presented. More specifically, the Superior Court noted that the Plaintiff’s evidence did not prove that the Plaintiff’s loss exceeded the policy’s $2,500.00 deductible. As such, the Superior Court found that Erie did not breach its contract when it denied the request for insurance benefits under the policy.

Given that the Superior Court found that the contract had not been breached, the Superior Court also found that the carrier was entitled to judgment in its favor on the bad faith claims. The court otherwise also noted that, although a different aspect of the carrier’s denial of the claim presented may have been erroneous, the carrier’s decision in this regard was reasonable under the circumstances presented.

Accordingly, the bad faith claim failed because the Plaintiff was not able to show, by clear and convincing evidence, that the carrier had no reasonable basis for denying the claims presented.

In the end, the Superior Court ruled that the carrier was entitled to judgment in its favor on all claims presented. As such, the lower court judgments entered in favor of the Plaintiff were vacated and the case was remanded with instructions for the trial court to enter judgment notwithstanding the verdict in favor of the carrier.

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