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.
