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Insurance Bad Faith Practice leads to $18 million Punitive Damage Award

A Pennsylvania state court has found Nationwide Insurance Co. engaged in bad faith in handling its insured’s first party auto insurance claim and in its litigation tactics when the dispute led to a lawsuit.  The court’s forty page opinion catalogues the types of specific conduct that evidences bad faith in violation of Pennsylvania Insurance Bad Faith Statute ( 42 Pa. C. S. A. § 8371), which warrants an imposition of punitive damages to deter insurers from engaging in such conduct.

The insurance claim arose from a September 4, 1996 collision in which another vehicle struck plaintiff Sheryl Berg’s 1996 Jeep Grand Cherokee.  The Jeep spun around four times and hit a pole resulting in a bent frame and other “severe” damage according to Nationwide’s claim file notes.  Six days later, Nationwide’s authorized repair shop under its Blue Ribbon Repair Program inspected the Jeep and prepared an appraisal declaring the vehicle a $25,000 total loss.  Ten days later, and under Nationwide’s directive (see below), a revised appraisal report was prepared by the same shop indicating the Jeep could be repaired for $12,300.  The repair process took over four months, and the Jeep continued to have problems after it was returned to the Bergs.

In October 1997, the Bergs learned from a former employee of the repair shop, which was a participant in Nationwide’s Blue Ribbon Repair Program, that there were structural repair problems with the Jeep posing safety risks, and in January 1998, the Bergs brought suit against the repair shop and Nationwide.  In April 1998, in a pre-complaint deposition, the Bergs learned for the first time about the first appraisal declaring the Jeep a total loss due to the badly twisted frame.

The trial was bifurcated with the first phase consisting of a jury trial on Plaintiffs’ claims for common law fraud, conspiracy and liability under Pennsylvania’s Unfair Trade Practices and Consumer Protective Law (the “Unfair Trade Practices Act”).  The jury found the repair shop and Nationwide liable under the Unfair Trade Practices Act and awarded compensatory damages to the Bergs of $1,925 against the repair shop and $295 against Nationwide. The second phase was a bench trial that began on June 5, 2007 on the issues of treble damages under the Unfair Trade Practices Act. The trial court granted Nationwide’s motion for directed verdict because the court found that the repair shop that operated under the Blue Ribbon Program was not a direct repair shop for Nationwide. The Bergs appealed.

In 2012, the Superior Court reversed the trial court’s entry of a directed verdict (44 A. 3d 1164).  Among other things, the Superior Court concluded that “whether processing claims for loss through a third party repair facility or through a direct repair program, insurers must at all times act in good faith vis-à-vis their insureds.” (44 A. 3d at 1173). The jury’s finding of violation of the Unfair Trade Practices Act amounted to “some evidence” supporting the Bergs’ claim of insurance bad faith which precluded entry of a directed verdict.

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