Bad faith claims: deference to trial court factual findings

Berg v. Nationwide Mut. Ins. Co., 189 A.3d 1030 (Pa. Super. 2018), allocatur granted March 29, 2019, appeal docket 33 MAP 2019

This case, involving a claim that Nationwide acted in bad faith in handling an insured’s claim by refusing to total her vehicle damaged in a 1996 car crash, comes before the Supreme Court for a second time.  In this iteration, the Supreme Court will decide whether the Superior Court erred in taking the extraordinary step of vacating the trial court’s judgment in favor of the insured and entering judgment for Nationwide, based on a determination that the trial court’s factual findings were not supported by the evidence.

On September 4, 1996, Sharon Berg (“Sheryl Berg”) was driving her vehicle with collision coverage insured by Nationwide Mutual Insurance Company, Inc. (“Nationwide”) when she was involved in a collision. To summarize the lengthy procedural history: Nationwide originally rejected the appraisal to total Berg’s vehicle; the second appraisal resulted in Nationwide’s approval of repairing the jeep; it took four months to repair the jeep; Bergs asserted that the car was not crash worthy and the repairs were defective; once Berg paid off the lease in 1998, Nationwide totaled the car and paid the bank $18,000 to settle the claim and obtain ownership; repair costs were ultimately double the original replacement cost; and the parties have been involved in bad faith litigation for 16 years, in which Nationwide has paid in excess of one hundred times the original vehicle replacement in litigation fees.

In a lengthy opinion that critically examined the trial court’s factual findings, the Superior Court panel majority vacated the trial court’s judgment based on its conclusion that the trial court was highly selective in its analysis of the facts in order to draw “the most malignant possible inferences.” Slip Op. at 60.

The Superior Court, mindful of the deference due the trial court’s factual findings, nonetheless concluded:

We understand that our standard of review requires us to defer to findings supported in the record and draw reasonable inferences in favor of Plaintiffs. Nonetheless, our case law provides that bad faith claims are fact specific [Citation omitted], must be proven by clear and convincing evidence, and that the fact finder must consider “all of the evidence available” [Citation omitted]. After an exhaustive review of the very large record in this case, we believe we have no choice but to vacate the judgment. We have quoted extensively from the record in an effort to provide full context for our decision. We observe that the trial court’s opinions, while very lengthy, cite infrequently to the record.

…

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. We do not believe our appellate standard of review, circumscribed as it is, requires or even permits us to affirm the trial court’s decision in this case. This is especially so given Plaintiffs’ burden of proving their case by clear and convincing evidence.

Slip Op. at 59-61.

Former Justice Stevens, specially assigned to the Superior Court, argued in dissent that the applicable standard of review requires affirmance  of the trial court’s factual findings where as here there is sufficient evidence in the record to support those findings. The majority “usurp[ed] the fact-finding power of the trial court by its own interpretation of the factual and testimonial evidence,” Justice Stevens argued. Dissent Slip Op. at 1. Specifically, he concluded that there was sufficient evidence to support the trial court’s determinations: (1) that Nationwide acted in reckless disregard in not inspecting the repairs due to their motivation of monetary gain, (2) that  Nationwide’s continuous refusal to comply with discovery requests to produce an unredacted claims log is a sign of bad faith; and (3) that Nationwide’s aggressive litigation strategy was designed to deter filing small claims, as highlighted by the matter’s twenty-two year saga.  Dissent Slip Op. at 6-7, 10. Finally,  the dissent supported its point using the majority’s own words:

The majority vacates the judgment “because the record does not support many of the trial court’s critical findings of fact.” [Citation omitted]. In doing so, however, the Majority tacitly admits that other critical findings of the trial court are supported by clear and convincing evidence.

Dissent Slip Op. at 10.

The Supreme Court granted allocatur to examine the following issues:

  1. [D]oes 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?
  2. [D]id 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 Nat’l Ins Co., 170 A.3d 364 (Pa. 2017)]?
  3. 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?