On July 22, 2015, the Pennsylvania trial court in Berg v. Nationwide Mut. Ins. Co., Civ. Action No. 98-813 (Pa. Common Pleas, Jul. 22, 2015) filed a supplemental opinion under Pa. R.A.P. 1925(a) in connection with the appeal of its June 23, 2014 bad faith decision. As some will likely recall, in 2012 the case was remanded by the Superior Court of Pennsylvania to the trial court for a new non-jury trial on the insured-plaintiffs’ claim under Pennsylvania’s bad faith statute, 42 Pa. C.S.A. § 8371. In June of last year, the trial judge ruled against Nationwide on the bad faith claim and awarded $18 million in punitive damages and $3 million in attorney fees and court costs to the plaintiffs. Nationwide filed an appeal of this decision on April 27, 2015, arguing that, inter alia, the trial court erred in concluding that Nationwide had violated Pennsylvania’s bad faith statute and abused its discretion in awarding attorneys’ fees and punitive damages. The appeal is currently pending in the Superior Court of Pennsylvania, an intermediate appellate court.

By way of background, the dispute arose out of an auto accident in September of 1996 in which the Bergs’ 1996 Jeep Grand Cherokee sustained extensive damage. The Jeep was insured under an automobile policy issued by Nationwide covering losses “caused by collision or upset.” The Bergs took the Jeep to a facility participating in Nationwide’s “Blue Ribbon” repair program. Based on the testimony of the manager of the Blue Ribbon repair facility and Nationwide’s claims representatives, the trial court found that an initial appraisal of the vehicle by the Blue Ribbon facility existed declaring the Jeep a $25,000 total loss due to a twisted frame. According to the trial court, this estimate was then vetoed by Nationwide and a second repair estimate was completed, stating that the Jeep could be repaired for $12,300. After approximately four months of repairs at a second facility, the Jeep was returned to plaintiffs. Expert testimony and inspection reports at trial indicated that the Jeep was never repaired sufficiently. Nationwide totaled the Jeep 28 months after the accident and obtained title to the vehicle. 

Berg is a cautionary tale. The scathing opinion filed last month by Judge Jeffrey Sprecher should serve as a useful reminder to carriers underwriting risks, handling claims, and litigating cases in the Commonwealth of Pennsylvania. While bad faith cases in general, and the Berg case in particular, are very fact-specific, two important takeaways are:

An insurer’s conduct must demonstrate that the claim is being evaluated individually and on its own merits

The trial court in Berg held that Nationwide failed to promptly process, adjust, and resolve the Bergs’ claim when it overruled the initial appraisal that declared the Jeep totaled (which would have cost Nationwide another $12,500) and, then, over the course of approximately 19 years spent over $3 million to defend its position that the vehicle was repairable when the evidence demonstrated that not only was it not repairable but that it was given back to the Bergs in an unsafe condition. According to the trial court, Nationwide did not alert the insureds to the extensive problems with the Jeep until forced to do so in discovery in the litigation. The trial court determined that Nationwide’s actions demonstrated that Nationwide was looking out for its own economic considerations, trying to limit its potential liability, and operating in a manner designed to “send a message.”

The Berg opinion reinforces that insurers should handle each claim fairly and make decisions based on the particular facts and circumstances of that specific claim. Insurer representatives should also communicate openly and honestly with their insureds. Additionally, good judgment should be exercised in evaluating potential settlement. It is important for claim handlers to avoid exhibiting conduct that can be construed, even with 20-20 hindsight, as the carrier placing its own interests above the interests of the policyholder.

Post-litigation conduct may be relevant evidence of bad faith

The Berg court found that Nationwide acted in bad faith during litigation of the case by: (1) engaging in a “scorched earth” litigation strategy guided by its claims handling philosophy (in place at the time of the handling of the Jeep claim through 2002) to reduce the average claim payment and to continue its “defense-minded” reputation; (2) refusing to attempt to settle the case after receiving an inspection report informing it of repair defects in the Jeep in 1998; (3) concealing the existence of the inspection report for years; and (4) concealing and refusing to produce the report and other discoverable materials to plaintiffs until ordered by the court to do so.

Berg reinforces that insurers and their counsel, at least in some states – including Pennsylvania – must remain mindful of their conduct after litigation commences because it may be relevant and usable as evidence of bad faith, potentially making an already bad situation worse.

Nationwide’s appellate brief is due in September, and a decision by the Pennsylvania Superior Court on the appeal is expected early next year.