By Kevin L. Connors, Esquire

“The journey is the thing.”, citing from Homer, author of both The Odyssey and The Iliad.

A recent Decision by the United States District Court for the Western District of Pennsylvania, decided on August 26, 2016, takes us on an odyssey through a bad faith claim, ultimately resulting in a safe harbor for Insurers.

The case stemmed from the Plaintiff, Marc Homer, having filed a Federal Diversity Action against Nationwide Insurance, alleging insurance bad faith and violations of the Unfair Trade Practice and Consumer Protection Law (UTPCPL).  The Plaintiff alleged that Nationwide was liable for bad faith, and the Plaintiff claimed that Nationwide had engaged in bad faith litigation tactics during an underinsured motorist Trial.

Nationwide, in turn, moved for dismissal of the Federal lawsuit, on grounds that Homer could not rely on litigation conduct as the basis for an insurance bad faith claim under Pennsylvania law, and that the case was insufficiently pled to satisfy the elements of a UTPCPL claim.

The Honorable Nora Barry Fischer, in her Honor’s August 26, 2016 Memorandum Opinion, noted that the case appeared to be one of first impression with respect to litigation conduct and insurance bad faith.

Although Judge Fischer ultimately granted Nationwide’s Motion to Dismiss, it is nevertheless necessary that we journey through the factual background and procedural history, to make sense of this pilgrimage towards closure and consequence.

Homer was injured in a motor vehicle accident in 2008.  His injuries included a traumatic head injury, impaired cognition, and neck and back problems.

The other driver involved in the motor vehicle accident was insured for $25,000.00, with Homer settling with that driver’s insurance carrier for $24,500.00.

Driving his mother’s car, insured through Nationwide, the policy provided for $500,000.00 in underinsured motorist benefits.

Not surprisingly, Homer demanded that the $500,000.00 be tendered, to compensate him for the injuries that he sustained in the accident, claiming that the Tortfeasor was underinsured.

Not surprisingly, Nationwide did not agree with Homer’s assessment of the value of his UIM claim, offering $12,500.00 to settle the UIM claim, which offer was rejected by Homer, with the case then proceeding to Trial in the Allegheny County Court of Common Pleas.

During the Trial, a binding “high-low” Settlement Agreement was entered into by the Parties, under which Homer would receive a minimum Verdict of $100,000.00, and a maximum Verdict of $300,000.00, dependent upon the Jury’s final Verdict.

The Agreement also contained other provisions, to include that all claims for bad faith occurring prior to the date of the execution of the Agreement, to include all claims litigated in the UIM Trial, would be barred and discharged under the Agreement.  This would not be true for any bad faith actions or omissions occurring after the Agreement was executed.

The Agreement was executed on June 1, 2015.

The very same day that the Agreement was executed, Nationwide introduced videotaped testimony of two medical Experts into evidence, with their testimony being referenced by Nationwide’s Counsel during closing arguments on June 2, 2015.

Homer claimed that Nationwide knew that the medical Experts were biased, and Homer, thus claimed that Nationwide committed bad faith by offering their testimony at Trial, and by relying upon that same testimony during closing arguments.

Now for the kicker.

On June 2, 2015, the Jury returned a Verdict in favor of Homer for $1,610,000.00.  Nationwide immediately filed a Motion to Mold the Verdict, seeking to reduce the Verdict to the $300,000.00 agreed to under the Binding Agreement, further seeking to dismiss any bad faith claims alleged to have occurred before the Verdict was rendered.

The Plaintiff objected to Nationwide’s Motion, arguing that the Agreement should only reflect the dismissal of bad faith occurring prior to June 1, 2015, not inclusive of alleged bad faith actions or omissions occurring on or after June 1, 2015.

The Allegheny Court of Common Pleas ruled in favor of Homer, and against Nationwide, with Homer then filing the Federal Diversity Action, alleging that Nationwide had acted in bad faith, with Nationwide moving to dismiss the Plaintiff’s Complaint.

Exploring the legal standards necessary for a Complaint to survive a Motion to Dismiss, the Court then considered the elements of an insurance bad faith claim in the context of whether the Plaintiff or Nationwide should prevail.

Referring to 42 Pa. Cons. Satat. § 8371, the Court noted that bad faith is defined as a “frivolous or unfounded refusal to pay the proceeds of a policy.” Romano v. Nationwide, 646 A.2d 1228 (Pa. Super. 1994).

Moreover, the standard that a Plaintiff must meet under Pennsylvania law is a relatively high one for bad faith:

To succeed in a bad faith claim, the Insured must present clear and convincing evidence that “the Insurer did not have a reasonable basis for denying benefits under the policy and that the Insurer knew of or recklessly disregarded its lack of a reasonable basis in denying the claim.”  O’Donnell v. Allstate Ins., 734 A.2d 901 (Pa. Super. 1999).

Bad faith in the context of insurance litigation has been defined as “any frivolous or unfounded refusal to pay proceeds of a policy.”  To constitute bad faith, it is not necessary that the refusal to pay be fraudulent.  However, mere negligence or bad judgment is not bad faith.  To support a finding of bad faith, the Insurer’s conduct must be such as to “import a dishonest purpose.”

It also must be shown that the Insurer breached a known duty (i.e., good faith and fair dealing), through some motive of self-interest or ill will.  Adamski v. Allstate, 738 A.2d 1033 (Pa. Super. 1999).

The list of citations are legion for the above principals.

In arguing that his Motion to Dismiss should be granted, Nationwide took the position that there was no precedent under Pennsylvania law for litigation tactics to serve as a basis for a bad faith claim.  Homer countered that Pennsylvania Courts have found that an Insured’s conduct during the course of litigation can support a finding of bad faith.

Judge Fischer concluded that Pennsylvania Case Law does not yield a hard and fast rule regarding what types of litigation tactics might serve as the basis for an insurance bad faith claim.  Typically, Discovery abuses do not rise to the level of bad faith, while using litigation in a bad faith effort to evade a duty owed under a policy is actionable under Section 8371.

Finding that none of the cases cited by the Parties relating to Expert witnesses were analogous or dispositive to the issue in Homer, Judge Fischer then patrolled rulings in other jurisdiction, noting that four approaches were marshalled in other jurisdictions, to include:

  • Some jurisdictions have a blanket prohibition on introducing evidence of litigation conduct to show an Insurer’s bad faith;
  • Another approach, adopted in California, allows for the introduction of unreasonable settlement behavior that occurs after suit has been filed, while prohibiting the admission of litigation conduct, techniques, and strategies;
  • A more permissive approach, allowed in West Virginia, permits the introduction of litigation strategies and techniques as long as the Insurer knowingly encouraged, directed, and participated in and/or ratified the alleged wrongful conduct; and,
  • A fourth approach, which appears to be the majority approach, allows evidence of litigation conduct to be admissible as evidence of bad faith in “rare cases involving extraordinary facts.” Sinclair v. Zurich American Insurance, 0129 F. Supp. 3d 1252 (D.N.N. 2015).

The fourth approach allows for the possibility that particularly egregious litigation conduct might constitute bad faith, but places significant emphasis on the interest of Insurers in defending themselves, the responsibility of their Attorneys to zealously represent them, the risk of confusion to the Jury, and the ability of Courts and Rules of Civil Procedure to remedy most litigation abuses.

Considering which approach might be adopted by the Pennsylvania Supreme Court, Judge Fischer believed that the Pennsylvania Supreme Court would adopt the fourth approach, that evidence of litigation conduct can be admissible as evidence of bad faith, but only in “rare cases involving extraordinary facts.”

In Homer, Judge Fischer explained that this approach most effectively balances an Insurer’s interest in being able to defend itself, and it allows Courts, through application of Rules of Civil Procedure, to handle most litigation abuses.

Concluding that Pennsylvania precedents are more consistent with the fourth approach, as outlined in Sinclair, that evidence of litigation conduct is admissible as evidence of bad faith, but only in “rare cases involving extraordinary facts.”  Judge Fischer was unable to conclude that Nationwide’s reliance upon its medical Experts constituted bad faith, or an abuse of litigation tactic.  The same conclusion was drawn with regard to Nationwide’s closing argument at Trial.

For those reasons, Judge Fischer concluded that there was no actual basis for asserting bad faith in the context of either Nationwide’s use of its medical Experts for Trial evidence, or in terms of its closing argument before the Jury.

Judge Fischer also concluded that there was no basis for concluding that Nationwide’s filing of its Motion to Mold the Verdict, to the $300,000.00 agreed to under the Parties’ Binding Agreement, constituted bad faith, nor did Nationwide’s decision to file a Motion to Dismiss Plaintiff’s bad faith Complaint.

Not unlike Odysseus in Homer’s Odyssey, Judge Fischer nailed a bulls eye in molding the Verdict, and denying Plaintiff’s bad faith claims.

ConnorsO’Dell LLP

Trust us, we just get it!

It is trust well spent!

Defending liability-based lawsuits throughout Pennsylvania, on behalf of insurance carriers, third-party administrators, and self-insured businesses and corporations, our 100+ years of cumulative experience defending our clients against negligence and occurrence-based liabilities, empowers our Casualty Practice Trial Group attorneys to be entrusted to create the factual and legal leverage to expeditiously resolve lawsuits and claims, in the course of limiting/reducing/extinguishing our clients’ potential liabilities under Pennsylvania’s common law, trial practices, and rules of civil procedure.

With every member of our trial practice group being AV-rated, our partnership with the Pennsylvania Defense Institute and the Counsel on Litigation Management magnifies the lens through which our professional expertise imperiously demands that we remain dynamic and exacting advocates for our clients, the same being businesses, corporations, insurance carriers, seeking our trial and litigation acumen, to navigate the frustrating and liability-intensive minefield pervasive throughout Pennsylvania trial practice and procedure.

Questions concerning tort and/or contract liability that might arise in the context of casualty claims can be directed to Kevin L. Connors at kconnors@connorsodell.com (Phone: 610-524-2100 Ext. 112).