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$20,000 Theft Claim Results in $1,000,000 + Bad Faith Award

Following a bench trial in which bad faith was found against an insurer that denied its insured’s theft and vandalism claims, the Court of Common Pleas of Lehigh County recently ordered the insurer to pay $900,000 in punitive damages and $186,879 in attorney fees, plus $3,595 in court costs and $7,427 in interest. See Unterberg v. Mercury Ins. Co. of Florida, Court of Common Pleas of Lehigh County, No. 2016-C-806 (Oct. 15, 2020).

In Unterberg, the insureds’ car was stolen and then recovered with considerable damage. The insureds sought comprehensive coverage. The insurer denied coverage on the basis that there was insufficient evidence that the vehicle had been stolen. The insureds sued their insurer for breach of contract and bad faith. Following a bench trial, the Court entered judgment in favor of the insureds on their breach of contract claim after finding that the insureds sustained a loss covered by their insurance policy, and the insurer breached the parties’ insurance contract by denying the claim. The parties stipulated to breach of contract damages totaling $21,220.48. The court also entered judgment against the insurer for statutory bad faith after finding that the insurer had no reasonable basis for denying either the theft or the vandalism claim, and that the insurer either knew or recklessly disregarded its lack of reasonable basis in denying the claims. The amount of § 8371 damages was to be determined following a separate hearing.

After a damages hearings, the Court found that the insureds were entitled to an award of statutory damages pursuant to § 8371. The Court first calculated statutory interest on the $21,220.48 claim from November 3, 2015 (the date of loss for the vehicle) to be $7,427.39. The Court also awarded $186,879.50 in attorney fees using the lodestar method set forth in Birth Center, which requires the consideration of the factors set forth in Pa.R.C.P. 1717. Additionally, the Court awarded $3,595.35 in court costs.

The Court also awarded punitive damages. In determining the size of the punitive damages award, the Court considered the three factors outlined in Hollock: 1) the character of the act, 2) the nature and extent of the harm, and 3) the wealth of the defendant. The Court identified several instances in which it considered the insurer’s conduct to be “flagrant, deceitful and reprehensible.” The Court further found that the insurer’s unfounded denial of the insureds’ claim forced the insureds to shoulder the economic loss of their vehicle. Lastly, the Court considered the wealth of the insurer. Upon consideration of the foregoing factors, the Court awarded $900,000 in punitive damages.

Next, the Court determined that its $900,000 punitive damages award was warranted and proper after analyzing the following guideposts: 1) the degree of reprehensibility of the defendant’s conduct, 2) the disparity between the harm or potential harm suffered by the plaintiff and his punitive damages award, and 3) the difference between the punitive damage award and the civil penalties authorized or imposed in comparable cases. In finding that its $900,000 punitive damages award was “warranted and proper,” the Court held that the insurer’s conduct, while reprehensible, only resulted in a small compensatory award, so a larger ratio was to deter the insurer’s conduct. The Court had calculated total compensatory damages to be $219,122.72 by adding attorney fees, interest, and costs to the $21,220.48 breach of contract award. Based on this calculation of compensatory damages, the Court maintained that its punitive damages award was appropriate because it was still “well within” the single-digit ratio requirement of the U.S. Supreme Court and not disproportionate to the actual harm or the civil penalties of civil cases.