Princeton Insurance Company recently agreed to pay $20 million to settle a bad faith claim related to a dram shop lawsuit brought against their insured. In the underlying lawsuit, a highway construction flagman sued Princeton’s insured, a tavern, after he was struck by a car driven by the tavern’s patron. The accident left him a quadriplegic. Princeton did not settle that lawsuit for the tavern’s policy limit of $1 million, and a jury subsequently awarded more than $75 million to the flagman (the award was later cut in half by the trial judge).

Subsequent to the verdict, the tavern assigned its rights to pursue a bad faith lawsuit against Princeton to the flagman, who filed suit against Princeton. In that suit, the plaintiff claimed that Princeton had actual knowledge of the extent and nature of the flagman’s injuries, the fact that he would be an enormously sympathetic plaintiff, and the tavern’s lack of any defense. Additionally, the plaintiff alleged that despite knowing that an enormous verdict against the tavern was practically guaranteed, Princeton acted in bad faith by refusing to make any settlement offer.

A mediation before a former federal magistrate judge ensued and resulted in a $20 million settlement. It represents the largest reported settlement to date in a Pennsylvania bad faith case.