The Pennsylvania Supreme Court, in a precedent-setting 8-2 decision, has upheld a $3 million award against Erie Insurance Exchange for bad faith handling of an auto injury claim.
In its ruling earlier this week, the high court supported the finding that the plaintiff did not need to "prove malice, vindictiveness, or wanton disregard of the rights of others," which can be a requirement in fraud cases, in order to recover punitive damages for bad faith.
The Supreme Court decision rejected an appeal by the Erie, Pa.-based insurer, which contested a 2004 ruling by Pennsylvania's Superior Court. That court found in part that in order to recover punitive damages, a policyholder need not prove anything more than bad faith.
Action by the Supreme Court ends a case that began in 1992 when Jean A. Hollock, a resident of Luzerne County, Pa., was struck from behind by another motorist, causing a cubital tunnel injury that left her with impaired motor control of hand and arm.
According to court documents, Erie at first paid her medical expenses, but when she tried to collect on an uninsured motorist coverage claim, the adjuster lied to her attorney, saying her coverage limit was $250,000 when it was actually $500,000. The company made a settlement offer of $30,000 after having her put under surveillance by a private detective, the documents noted.
The case went to an arbitrator, who found for Ms. Hollock, awarding $865,000–or 29 times the settlement offer. Ms. Hollock then sued for bad faith, and a Luzerne County Court of Common Pleas judge, following a non-jury trial, awarded attorneys' fees of $278,825 and punitive damages of $2.8 million.
Trial Judge Peter Olzewski Jr. said Erie's conduct was "reckless," noting that Erie was given a variety of evidence supporting Ms. Hollock's claim, which it ignored, and was "disingenuous" and used a ruse to put her under surveillance.
He wrote in his decision that he was "appalled by the deliberate indifference and, in some instances, blatant dishonesty, exhibited by Erie and its employees," adding that Erie supervisors sanctioned "deceit," indicating a corporate belief that it was "acceptable to tell a little lie so long as no one really gets hurt."
Attorney Timothy P. Law, with the Philadelphia office of Anderson Kill & Olick, filed a friend of the court brief on behalf of the non-profit San Francisco group United Policyholders, supporting Ms. Hollock. He called the ruling new and precedent setting.
According to Mr. Law, although the the Pennsylvania Supreme Court has dealt with bad faith issues in the past, the latest ruling clarified matters, and "makes the litigation conduct of an insurance company part of a bad faith action and subject to the duty of good faith and fair dealing."
According to the Pennsylvania Insurance Department Web site, there have been no recently concluded market conduct examinations of Erie.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.