In Amitia v. Nationwide Mutual Insurance Company, the court addressed both statutory bad faith under 42 Pa.C.S. § 8371 and contractually based bad faith.  The court dismissed emotional distress allegations and the request for compensatory and/or consequential damages sought under the bad faith statute because neither is specifically recoverable under that law.  It did, however, refuse to dismiss the bad faith statutory claims entirely because the claim rested on many allegations of bad faith actions and not merely on the two offered by the insurer as being unfounded.

The insured in this case was unable to return to work due to serious injuries sustained in an automobile accident.  He also pleaded various forms of emotional distress, which apparently had a physical manifestation, as a result of the insurer’s handling of the claim and underlying UIM arbitration.  The insurer eventually paid the policy benefits for underinsured motorist and income loss coverage, but the insured filed suit on several counts, including bad faith for the way the claim was handled.  The insurer moved for dismissal.

The court dismissed the emotional distress allegations as asserted under the statutory bad faith claim because these types of damages for emotional distress are not covered by the statute, citing two state cases for that principle.  However, the Court added, without similar citation to authority, that such emotional distress claims “are instead covered by the punitive damages.” It is not wholly clear from the opinion whether this is so because emotional distress damages can go into the total compensatory damages under a breach of contract theory (see below), which increases the base number from which punitive damages can be multiplied; and/or whether this form of harm can be considered the kind of physical harm to be weighed in the U.S. Supreme Court’s punitive damage factors.

The court also dismissed the request for “other compensatory and/or consequential damages” under the bad faith claim because the statute does not provide for such damages.  The court did note, however, that this dismissal would have no practical effect because committing a common law bad faith breach of the contractual duty of good faith can still result in an award of compensatory damages, as was done in the Birth Center case.

The court denied dismissal of the statutory bad faith count because it found that the claim rested on more than thirty allegations which, if taken as true as required under a Rule 12(b)(6) motion, would constitute bad faith.  The allegations include failure to conduct a timely and thorough investigation, failure to evaluate the insured’s claim fairly, and failure to promptly evaluate and pay the claim.  There was also alleged bad faith in refusing to settle and in the conduct of the underlying UIM arbitration.

As to the breach of the contractual duty of good faith, the court determined that a breach of contract claim could continue even though the insurer had paid all policy benefits due.  The insured is not seeking policy benefits but, rather, is seeking compensation for emotional distress caused by non-payment or delayed payment, and the manner in which that occurred.  Quoting Pennsylvania’s Supreme Court, the federal court observed that “Emotional distress damages may be recoverable on a contract where . . . the breach is of such a kind that serious emotional disturbance was a particularly likely result.” The insurer allegedly was aware of the insured’s physical and financial condition and thus could reasonably foresee such emotional distress so the court could not dismiss the claim.

Date of Decision:  January 15, 2009

Amitia v. Nationwide Mut. Ins. Co., No. 3:08cv335, 2009 U.S. Dist. LEXIS 2840 (M.D. Pa. Jan. 15, 2009)(Munley, J.)

In a non-precedential Third Circuit Opinion, Jurinko v. The Medical Protective Company, the case involved the assignment of a bad faith claims to the patients of the insured doctor.  The case had gone to trial, and the insureds had obtained an excess verdict against the doctor for medical malpractice, and he assigned his claims against the carrier in lieu of making the excess payment.  On the assigned claims against the insurer, the patients received a jury verdict of $1,658, 345 and punitive damages of $6,250,000.  The trial court upheld the jury award, and then molded the verdict concerning attorney’s fees, costs and interest.

The case’s factual history reveals a story of settlement recommendations by judges, and the doctor’s own defense counsel (appointed by the carrier), that far exceeded anything the carrier was willing to pay toward settlement; and in fact, throughout the course of settlement discussions and recommendations, the carrier’s offer to contribute toward a settlement never rose above $50,000 (on a $200,000 policy), and where the insured’s potential exposure was evaluated by the judges and/or defense counsel at numbers between $750,000 and $2,000,000.  The doctor himself had wanted to settle.

Astonishingly, the carrier’s own adjuster testified that he acted unreasonably and irresponsibly in settlement negotiations” and that he denied the doctor an effective defense by appointing the same lawyer to represent that doctor, and a co-defendant doctor (against whom plaintiffs asserted crossclaims should have been asserted, but could not be because of a conflict).  Counsel denied that the purported conflict had any real effect, as there eventually was separate counsel and he could argue reliance on the other doctor at trial.

The bad faith aspect of the claim is discussed elsewhere on this site.

On the issue of punitive damages, the court first found that the insurer’s conduct was sufficiently outrageous to support the jury’s conclusion of outrageous conduct warranting punitive damages.  Next, the Court conducted a constitutional analysis of the punitive damage award, following the U.S. Supreme Court’s three guideposts in State Farm v. Campbell of the "(1) the degree of reprehensibility of the defendant's misconduct; (2) the disparity between the actual or potential  harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the [factfinder] and the civil penalties authorized or imposed in comparable cases." 

Reprehensibility is measured “by considering whether the harm caused was physical as opposed to economic; the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others; the target of the conduct had financial vulnerability; the conduct involved repeated actions or was an isolated incident; and the harm was the result of intentional malice, trickery, or deceit, or mere accident.” There was no issue of physical harm or health issues.  There was evidence of the insured doctor’s financial vulnerability, and recidivist behavior solely by reference to repeated bad conduct in the case at hand, which has less force than if the recidivism involves other parties, and only amounted to minimal evidence of reprehensibility.  The conduct was intentional.

In evaluating the punitive damages ratio compared to compensatory damages, the Court measured it as 3.13:1 and not over 6:1, because it included attorneys’ fees and costs into the compensatory damage number.  It looked to the U.S. Supreme Court principles that the ratio should seldom be more than single digits, that an award beyond 4:1 may push the limit and a substantial compensatory damage award reduces the need for a higher punitive damage award, where a matching sum may reach the constitutional limit.  The Court then cited a series of cases with substantial compensatory damage awards where the 1:1 ratio was found most appropriate, and found that the guideposts favored a reduced award.  Finally, the relevant civil penalties under the Unfair Insurance Practices Act also militated against the size of the award.  It reduced the punitives award to a 1:1 ratio.

Date of Decision:  December 24, 2008

Jurinko v. The Medical Protective Company, Nos. 06-3519 & 06-3666, 2008 U.S. App. LEXIS 26263 (3d Cir. December 24, 2008) (Scirica, J.)

In Webb v. Discover Property & Casualty Insurance Company, the insured instituted suit against the insurer contesting, among other things, the validity of the forms used by the insurer for the rejection of underinsured motorist coverage.   The complaint, which was brought in the Court of Common Pleas, Luzerne County, Pennsylvania, included a bad faith claim, wherein the insured sought punitive damages.  

The insurer removed the case to the United States District Court for the Middle District of Pennsylvania. According to the insurer, because the insured sought punitive damages, the  claim satisfied the $75,000.00 “amount in controversy” threshold and therefore, removal was appropriate.  The insured disagreed and filed a motion to remand the case to state court.     

The court held that if an insured makes an appropriate claim for punitive damages, the amount in controversy requirement is generally met “because it cannot be stated to a legal certainty that the value of the plaintiff’s claim is below the statutory minimum.” Because the insured in this case made a valid claim for punitive damages under its bad faith cause of action, the Court opined that it could not find, to a legal certainty, that the value of the insured’s claims are below the statutory threshold and, therefore denied the insured’s motion to remand.  

Date of Decision: November 24, 2008

Webb v. Discover Prop. & Cas. Ins. Co., No. 3:08cv1607, 2008 U.S. Dist. LEXIS 95431 (M.D. Pa. Nov. 24, 2008)(Munley, J.). 

 

J.M.A.