SNR Denton, US, LLP on Berg v. Nationwide Mutual Insurance Co.: Pennsylvania Court Finds Amount Insurer Paid to Defend Coverage Case Admissible Evidence of Bad Faith

SNR Denton, US, LLP on Berg v. Nationwide Mutual Insurance Co.: Pennsylvania Court Finds Amount Insurer Paid to Defend Coverage Case Admissible Evidence of Bad Faith

William Barker & Ronald Kent   By William T. Barker & Ronald D. Kent, Partners, SNR Denton

Berg v. Nationwide Mutual Insurance Co., 2012 PA SUPER 88, 2012 Pa. Super LEXIS 169, held that Nationwide could be held liable for bad faith in administering its auto damage direct repair program, in part based on violations of an unfair claims practice statute that itself provides no private right of action.  It also held that the amount Nationwide spent litigating about the Bergs claim was admissible evidence of bad faith.  This commentary examines the case and criticizes the latter holding.

As the commentary explains, the court's primary holdings are consistent with generally recognized bad faith principles:

On an insured's auto damage claim, it is the insurer's obligation, subject to the applicable deductible, to pay the cost of repairing the car to its preloss condition; if that cannot be done or is unduly expensive, then the car is a total loss, and the insurer must pay the car's preloss actual cash value (less the deductible).  If the trier of fact believed the evidence described by the superior court, the Berg's car was a total loss, Nationwide knew that, and it schemed to pay only the cost of an inadequate repair instead of the greater actual cash value.  That would certainly qualify as a "frivolous or unfounded refusal to pay proceeds of a policy."

But allowing admission of Nationwide's expenditures in the claim litigation allowed consideration of litigation conduct, as opposed to conduct in adjusting the claim.  As the commentary explains:

While the duty of good faith continues during coverage litigation, courts almost everywhere other than Pennsylvania hold that it does not limit the right of an insurer to litigate vigorously with its insured, in whatever ways are permissible for any other litigant.  Thus, courts outside Pennsylvania ought to reject Berg's holding on admissibility of insurer litigation costs on that ground alone.

The commentary describes the reasons and authority for the general rule.  It then examines Pennsylvania's deviation from that rule.  Finally, it argues that even under the deviant principles accepted by Pennsylvania, its rule ought not to have been extended to allow admissibility of Nationwide's litigation costs to prove bad faith, but notes that it might have been admissible for other purposes.

William T. Barker is a member of SNR Denton's Insurance Litigation & Coverage Practice Group and practices in the firm's Chicago office.  He has a nationwide practice in the area of complex commercial insurance litigation, including coverage, claim practices, sales practices, risk classification and selection, agent relationships, and regulatory matters. He is the co-author, with Ronald D. Kent of THE NEW APPLEMAN INSURANCE BAD FAITH LITIGATION, SECOND EDITION and with Charles Silver of the forthcoming PROFESSIONAL RESPONSIBILITIES OF INSURANCE DEFENSE COUNSEL; he has written over 100 published articles on insurance and litigation subjects.  He has been described as "[t]he leading lawyer commentator" on the relationships between insurance and civil procedure.  Charles Silver & Kent Syverud, The Professional Responsibilities of Insurance Defense Lawyers, 45 Duke L.J. 255, 257 & n.4 (1995).  He is an Adviser to the American Law Institute project on Principles of the Law of Liability Insurance.  He is a member of the EDITORIAL BOARD OF THE NEW APPLEMAN ON INSURANCE LAW LIBRARY EDITION and THE NEW APPLEMAN INSURANCE LAW PRACTICE GUIDE.  He is Editorial Board Director and Senior Contributing Editor of INSURANCE LITIGATION REPORTER and a member of the Board of Editors of DEFENSE COUNSEL JOURNAL.

Ronald D. Kent heads the Litigation Department in SNR Denton LLP's Los Angeles office. He is also Co-Chair of the Firm's National Insurance Litigation and Coverage Practice and is a member of the firm-wide Policy & Planning (Management) Committee. Since 2005, he has been named each year as a leading trial lawyer nationally and in California, based on peer and client evaluations, by Chambers USA: America's Leading Lawyers, the highly respected independent attorney rating organization. Mr. Kent has extensive experience representing major insurance companies on a wide variety of matters, including fraud and bad faith actions, class action and multiple plaintiff litigation, defense of toxic tort and other environmental claims, insurance coverage actions and general business disputes. Mr. Kent has tried matters in state and federal courts throughout California, and in other states, and has successfully handled in excess of 70 arbitrations to final resolution. In addition, he has briefed and argued numerous appellate matters in the California Supreme Court, nearly all California district courts of appeal and the Ninth Circuit Court of Appeals. Mr. Kent is the co-author of the second edition of New Appleman Insurance Bad Faith Litigation.

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