Split decision by Pennsylvania Supreme Court highlights bad faith issues to be litigated in the future
An evenly divided Pennsylvania Supreme Court dismissed the appeal of a two decade old insurance bad faith action, upholding the lower court’s ruling that the insurer did not act in bad faith. But in doing so, the court’s opposing opinions highlight unresolved and emerging issues in Pennsylvania bad faith law.
In Berg et al. v. Nationwide Mut. Ins. Co., Inc., the Pennsylvania Supreme Court addressed whether Nationwide acted in bad faith in a 1996 first party claim involving property damage to a vehicle. The court’s 3-3 split on whether to uphold the Pennsylvania Superior Court’s finding that no bad faith occurred led to the dismissal of the insured’s appeal. Chief Justice Saylor’s opinion supported affirming the Superior Court’s ruling that the evidence did not support a finding of bad faith; while Justice Wecht’s opinion supported reversal and a finding of bad faith. Although neither opinion is binding precedent, the opinions identify issues that likely will arise in future Pennsylvania insurance coverage litigation.
First, the opinions raise the question of whether an insurance company’s conduct during litigation can be used as evidence of bad faith. Chief Justice Saylor’s opinion endorses the position that an insurer’s conduct in litigation can be used as evidence of bad faith only in claims involving the insurer’s bad faith failure to settle a lawsuit against its insured. In contrast, Justice Wecht cites Pennsylvania Superior Court authority to support the position that litigation conduct can be used as evidence of bad faith conduct in any context. Chief Justice Saylor’s opinion signals that this issue is ripe for decision by the Supreme Court in a future case.
Second, Justice Wecht’s opinion could be cited to argue that the duty of good faith extends beyond the insurer’s decision to provide benefits owed under an insurance policy and applies to the insurer’s conduct in performing duties assumed under the policy. Justice Wecht stated that when an insurance company undertakes a responsibility to repair property damage, the insurer assumes a duty to ensure that the repairs are made with due care. The insurer’s obligation is not limited to solely paying for the repairs. Therefore, under the facts of the Berg case, Justice Wecht stated that Nationwide’s conduct in failing to ensure that the Bergs’ vehicle was repaired properly could be considered as evidence of bad faith. There could be broad ranging implications if this position is adopted as Pennsylvania law and extended to other actions an insurer takes while performing its contractual duty to provide coverage. This is another fertile ground for future litigation of bad faith in Pennsylvania.
Third, the opinions raise the issue under the bad faith standard established in Rancosky v. Washington Nat’l Ins. Co., 170 A.3d 364 (Pa. 2017) regarding an insurance company’s reckless disregard of duties owed to the insured. Under Rancosky, bad faith can be established by an insurer’s reckless disregard of an obligation to provide benefits owed under an insurance policy. However, Justice Wecht’s opinion endorses an expansion of this view, that bad faith also can be established by a reckless disregard of duties owed under the law, such as in the Berg case, duties under the Pennsylvania Motor Vehicle Physical Damage Appraiser Act.
The opinions in Berg provide a window into the Pennsylvania Supreme Court’s views on unresolved and emerging issues of Pennsylvania bad faith law. These issues are sure to come up again in bad faith lawsuits in Pennsylvania and may make their way back to the Supreme Court in the near future.