By: Andrew Kennedy, Attorney at the Colkitt Law Firm and UP volunteer
For anyone representing policyholders in bad faith cases against insurance companies, the June 2014 case Berg v. Nationwide Mutual Insurance Company is remarkable.
Here are my initial takeaways:
1. The $21 million award is historic.
According to The Legal Intelligencer, which first reported the case on June 24, 2014, the Berks County Court of Common Pleas awarded $18 million in punitive damages and $3 million in attorneys fees against the insurer. In reviewing old cases, this appears to be the largest punitive award against an insurance company under Pennsylvania's bad faith law, which was first enacted in 1990. The next closest I found was $6.2 million.
This was not a jury award. It was an award by a trial court judge. The size of the award shows that the trial judge was incensed at the conduct of the insurance carrier.
2. Spending $3 million to defend a small collision claim backfired.
The amount that the insurance company spent on its defense was a major issue for the trial court. The Legal quoted the Court opinion, saying: "Simply put, what plaintiff, and more importantly, what lawyer in his right mind, will compete with a conglomerate insurance company if the insurance company can drag the case out 18 years and is willing to spend $3 million in defense expenses to keep the policyholder from getting just compensation under the contract?" Sprecher said. "Its message is (1) that it is a defense-minded carrier, (2) do not mess with us if you know what is good for you, (3) you cannot run with the big dogs, (4) there is no level playing field to be had in your case, (5) you cannot afford it and what client will pay thousands of dollars to fight the battle, (6) so we can get away with anything we want to and (7) you cannot stop us. So, the millions spent on defense backfired and was used to support the bad faith award against the insurance company.
The trial court was persuaded that punitive damages were warranted against the insurance company because it knowingly returned a vehicle to its policyholders that had a structural defect. Again, the Legal quoted the Court, saying: "Fortunately, no one was killed or injured; but Nationwide knew there could be a subsequent accident when it permitted the vehicle to be returned with hidden structural repair failures," Sprecher said. "This, by definition, is a reckless indifference to its insured. Nationwide was willing to risk the Bergs' lives to save itself money on a collision claim."