Insurance bad faith practitioners in Pennsylvania are intimately familiar with the case of Berg v. Nationwide Mutual Insurance, in which the trial judge awarded punitive damages in the amount of $18 million and attorney fees of $3 million in June 2014. The Pennsylvania Superior Court vacated the judgment in June 2018, and the case was then appealed to the Pennsylvania Supreme Court. The Supreme Court granted the petition for appeal.

On its face, the Supreme Court’s acceptance of a case involving a substantial bad faith award has the potential to dramatically impact Pennsylvania’s bad faith landscape. However, the issues that the Supreme Court has agreed to consider on appeal suggest that the appeal may be limited in scope, and therefore, in impact.

The Road to the Pennsylvania Supreme Court

The Berg matter began more than two decades ago. It arose from a 1996 car accident that caused damage to Daniel and Sharon Berg’s leased Jeep Grand Cherokee. The insurance company determined that the vehicle was repairable rather than a total loss, paying approximately $12,000 in repairs. Daniel Berg alleges that the Jeep was beyond repair, and that the insurance company knew that the Jeep was returned to him in an unsafe and uncrashworthy condition.

Despite the allegations, he continued to drive the vehicle for several years claiming throughout that he was endangered by its condition, though the vehicle was not involved in any subsequent accidents, and he did not sustain any personal injuries. After Berg initiated litigation against the insurance company—and after Berg’s lease on the Jeep had concluded—the insurance company purchased the Jeep.

The case went to trial in December 2004. The jury found that the insurance company violated the Unfair Insurance Practices and Consumer Protection Law, and awarded Berg $295. Ten years later, following appellate practice, a nonjury trial on the bad faith claim proceeded in the Berks County Court of Common Pleas. On June 21, 2014, the trial court found in favor of Berg on the bad faith claim, and ordered the insurer to pay $18 million in punitive damages and $3 million in attorney fees.

On appeal, the Superior Court vacated the judgment and remanded the case for entry of judgment in favor of the insurance company. The Superior Court held that “the trial court engaged in a limited and highly selective analysis of the facts and drew the most malignant possible inferences from the facts it chose to consider.”

Limited Consideration and Implications

Berg filed a petition for appeal to the Pennsylvania Supreme Court. The Supreme Court granted the petition, limited to certain issues. Specifically, the Supreme Court has granted the appeal on the following issues, as submitted and framed by Berg:

• Does an appellate court abuse its discretion by reweighing and disregarding clear and convincing evidence introduced in the trial court upon which the trial court relied to enter a finding of insurance bad faith?
• Did the Superior Court abuse its discretion by reweighing and disregarding clear and competent evidence upon which the trial court relied to support its finding of insurance bad faith [pursuant to the standard set forth in Rancosky v. Washington National Insurance, 170 A.3d 364 (Pa. 2017)?
• Does an insurer that elects under an insurance contract to repair collision damage to a motor vehicle, rather than pay the insured the fair value of the loss directly, have a duty to return the motor vehicle to its insured in a safe and serviceable condition pursuant to national insurance standards, and pursuant to its duty of good faith and fair dealing?

The first two questions both relate to the appellate court’s standard of review and whether the Superior Court abused its discretion in “reweighing and disregarding” certain evidence. While the Supreme Court may review the evidence itself and discuss the merits of the bad faith claim, the court may also resolve these questions simply by addressing the abuse of discretion standard. It remains to be seen whether the first two questions on appeal will lead to any significant pronouncements from Pennsylvania’s highest court regarding insurance bad faith law.

The third question that will be heard by the Supreme Court on appeal is very fact-specific. Again, while it is certainly possible that the court will discuss bad faith more broadly, the issue before the court is framed as the narrow issue of whether an insurance company has a duty to repair vehicles to a safe condition. Attorneys hoping—or perhaps fearing—more sweeping holdings from the Supreme Court regarding bad faith may be disappointed by the court’s response to this question.

Perhaps most interesting are the issues that the Supreme Court will apparently not consider on appeal, at least based upon the March 29 order granting the appeal. For example, the Supreme Court will not address the appropriate measure of punitive damages. As the Berg case arose from a $12,000 property claim and a $295 jury verdict, the $18 million punitive damage award was surprising and raises questions regarding its constitutionality. However, the Supreme Court apparently will not consider whether the award was appropriate in light of the compensatory damages and will not provide guidance on what the multiplier should be for the purpose of awarding punitive damages.

Notably, the issues on appeal were raised and framed by Berg as the petitioner. The issues will undoubtedly be re-stated by the insurer in its briefing, and the Supreme Court may ultimately rephrase the questions in its opinion. Based upon the order granting for the petition for appeal, it appears that the Supreme Court’s opinion may be less far-reaching than initially anticipated, as there is no indication from the court that it will consider critical issues such as the appropriate measure or calculation of punitive damages in an insurance bad faith case.

Daniel J. Twilla, a member of Burns White, maintains a practice that focuses on insurance bad faith, insurance coverage and commercial litigation. He is co-chair of the firm’s insurance practice and extracontractual practice group.

Kathleen P. Dapper is an associate with the firm in its Philadelphia-area office. She focuses her practice on handling insurance coverage and extracontractual matters where she represents insurers in a variety of bad faith and coverage disputes. She also works with clients as part of the firm’s transportation and logistics practice group.