Hollock v. Erie Insurance ExchangeHollock v. Erie Insurance Exchange
Dissenting Opinion
dissenting.
As I do not agree that this case should be summarily dismissed without an opinion on the merits of the claims presented, I am compelled to dissent.
I believe this case presents important issues regarding whether the trial court may consider the conduct of an insurer during the litigation of a bad faith claim brought pursuant to 42 Pa.C.S. § 8371, the formulation of an award of punitive dаmages where there is a finding of bad faith vis-á-vis a claim made under a policy of insurance, and the standard of review an appellate court should utilize in reviewing an appeal of an award of punitive damages. By failing to confront these questions today, we simply delay the task and allow the lower courts to continue to follow, what I bеlieve is, an incorrect application of this statutory claim. The current case presents an excellent vehicle to consider all aspects of these issues. The trial court developed a complete record with well-articulated findings as to the conduct of Appellant, Erie Insurance Exchange, on the initial prоcessing of the insurance claim, and during the course of the litigation on the bad faith suit. The trial court admitted that the conduct of Appellant during the litigation formed, in part, the basis of the award of punitive damages under § 8371. To assist review of this claim there is a published en banc decision of the Superior Court, squarely addressing the questions.
In 1990, the Pennsylvania Legislature established a statutory remedy familiarly known as the “bad faith” statute. The statute, at 42 Pa.C.S. § 8371, is found under the subchapter heading, SPECIAL DAMAGES, and is titled, Actions on Insurance policies; it provides:
In an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith toward the insured, the court may take all of the following actions:
(1) Award interest on the amount of the claim from the date the claim was made by the insured in an amount equal to the prime rate of interest plus 3%.
(2) Award punitive damages against the insurer.
(3) Assess court costs and attorney fees against the insurer.
1990, Feb. 7, P.L. 11, No. 6, § 3, effective July 1,1990.
In the case at bar, Appellee, Jean Hollock, brought an action under § 8371 against Appellant. For purposes of this dissenting statement, based on the conclusions of the lower courts, and the parameters of the limited grant of allocatur, we accept that Appellant acted in bad faith
On appeal, the Superior Court affirmed. The Superior Court rejected Appellant’s argument that the trial court erred in considering the conduct of the insurer during the course of the litigation of a bad faith claim as relevant to a finding of bad faith on thе underlying insurance matter, and as a factor in the subsequent award of punitive damages. In reaching its conclusion the Superior Court discussed its previous decisions in O’Donnell v. Allstate Ins. Co.,
The insured in Ridgeway obtained a judgment on a bad faith claim and then encountered difficulty in securing payment on the judgment. The insured instituted a second bad faith claim asserting the actions of the insurer in failing to satisfy the judgment on the initial bad faith claim. The Supexior Court rejected this second action as beyond the scope of the bad faith statute, which it found limited to protecting an insured from bad faith denials of coverage.
In the instant case, the Superior Court found that O’Donnell and Ridgeway were sufficiently distinguishable from one another on the scope of the duty of an insurer towards its insured. Hollock,
I take issue with the conclusion of the Superior Court in extending the insurer’s duty to act in good faith throughout the litigation on the bad faith claim, and within the award of punitive damages.
Because a bad faith claim is a creature of statute, the question of the extent of an insurer’s duty to an insured is one that must be resolved under the rules of statutory interpretation. The following rules dictate our analysis on this issue.
1 Pa.C.S.A. § 1921 Legislative intent controls.
(a) The object of all interpretation, and construction of statutes is to ascertain and effectuate the intention of thе General Assembly. Every statute shall be construed, if possible, to give effect to all its provisions.
(b) When the words of a statute are clear and free from all ambiguity, the letter of it is not to be disregarded under the pretext of pursuing its spirit.
(c) When the words of the statute are not explicit, the intention of the General Assembly may be ascertained by considеring, among other matters:
(1) The occasion and the necessity for the statute.
(2) The circumstances under which it was enacted.
(3) The mischief to be remedied.
(4) The object to be attained.
(5) The former law, if any, including other statutes upon the same or similar subjects.
(6) The consequences of a particular interpretation.
(7) The contemporaneous legislative history.
(8) Legislative and administrative interpretations of such statute.
1972, Dec. 6, P.L. 1339, No. 290, § 3, imd. effective.
Thus, we begin with pertinent words of the statute:
In an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith toward the insured, the court may take all of the following actions....
42 Pa.C.S. § 8371 (emphasis supplied).
The obvious problem in looking at the words is the lack of clarity on the question of where the line should be drawn on the scope of the “action arising under an insurance policy” when assessing whether the insurer acted in bad faith. Is the scope of conduct limited to the conduct of the insurer on the underlying policy as Appellant argues, or does it extend to the entire litigation that resulted from the initial claim under the insurance рolicy, as the Superior Court found. As either interpretation can be supported by the words of the statute, the words are not clear and free from all ambiguity, and thus, we turn to consideration of the factors set forth in 1 Pa.C.S.A. § 1921.
The occasion and necessity for the statute is the starting point. 1 Pa.C.S.A. § 1921(c)(1). Although the statute was enacted ten years later, it is assumed by most commentators to have been drafted in response to the decision of this court in D'Ambrosio v. Pennsylvania National Mut. Cas. Ins. Co.,
The circumstance for the legislation was the revelation that this Court considered the enactment of the Unfair Insurance Practices Act as the global response from the Legislature in providing a remedy .for all policyholders involving unfair trade practices arising between an insurer and insured. D'Ambrosio
Related statutory provisions on the same subject are of course found in the Unfair Insurance Practices Act. 1 Pa. C.S.A. § 1921(c)(5). A review of the Unfair Insurance Prаctices Act reveals that it was intended to create administrative oversight of the insurance industry for the protection of the public as a whole, with provision for civil penalties to be imposed on insurance companies and agents for violating the act by the Insurance Commissioner. 40 P.S. §§ 1171.7, 1171.9 and 1171.11. Pertinent to the issue before us herein, the Unfair Insurаnce Practices Act displays a focus on the conduct of the insurer and the insured in the context of insurance policies. Absent a contract between the parties, there would not be a reason to implement the Unfair Insurance Practices Act. This point is of importance as the scope of the two pieces of legislation is in harmony on the question of the boundaries of the relationship between the insurer and insured wherein the insurer owes a duty to the insured. The boundary is clearly a policy of insurance, for without that feature there is no relationship between the insurer and the insured.
Finally, the only remaining point of statutory construction relevant to this particular сase is 1 Pa.C.S.A. § 1921(c)(6), “the consequences of a particular interpretation.” The interpretation currently endorsed by the Superior Court, and sub silentio by this Court, is one that expands the concept of duty flowing from insurer to insured past the point of their contractual
Specifically, a bad faith lawsuit is established when the insured proves a breach of the duty of good faith in fair dealing that the insurer owes the insured when processing or settling a claim under a policy of insurance. The relationship between the parties is defined by the insurance policy. Once that policy has been terminated, the claim paid, or the claim denied the relationship is over. In its simplest terms, the duty to act in gоod faith has been dissolved once the insured and insurer become adversaries in a bad faith suit. To find otherwise extends the duty of the insurer to an untenable limit. When a patient files a malpractice action against his physician, the doctor/patient relationship has been severed; when a client dismisses his attorney and files a malpractiсe action the attorney/client relationship is severed. Innumerable examples of this nature exist and do not need to be listed herein. When the relationship has been severed, there can no longer be a duty to act in good faith flowing from one to another; the actions of the parties must be measured by a different instrument.
In fact, the lаw currently provides other means for regulating the civility and professionalism of parties during the course of litigation. The rules of civil procedure, the disciplinary process, and the contempt powers of the courts, have always been sufficient instruments to harness the behavior of the litigants. The bad faith statute was not intended to replace or duplicate these very adequate tools.
Thus, based upon the statutory construction analysis above, I conclude the Legislature intended that only the acts of the insurer on the underlying denial of benefits on the insurance policy at issue are relevant to a finding of bad faith. The conduct of the insurer during the course of the litigation on the bad faith claim itself is not relevant to the conduct in dealing with claims under a policy of insurance. In my opinion, once the insurer is asked to defend an action under the statute, there can no longer be a relationship with its insured subject to a duty to act in good faith; adequate means exist to control the behavior of the insurer, or any party, during the litigation. Because I would find that the Superior Court erred in affirming the finding of bad faith, insofar as that conclusion considered the conduct of the insurer during the course of the litigation itself, I would reject the decision of the Superior Court on that point.
For the reasons stated above, I would prefer this Court to address the issues presented on their merits rather than summarily dismiss the appeal; as to the merits, I would affirm the judgment of bad
Accordingly, I dissent.
Notes
. Although this Court has not spoken to the definition of "bad faith" the Superior Court has consistently held that bad faith under the statute is established on a showing that the insurer breached its duty to act in good faith and fair dealing with its insured by any frivolous or unfounded refusal to pay the poliсy through some motive of self-interest or ill will. See O’Donnell v. Allstate,
. In reaching its ultimate conclusion, the court recognized that the Pennsylvania Rules of Civil Procedure provide exclusive remedies for discovery abuses, and that the insured failed to access those remedies. Id. at 909 (citing Pa.R.C.P. No. 4011(a), (b)).
. Appellee argues that this issue has been waived. The waiver assertion is without merit. While the precise statement of the issue before us has been altered, the wording of an issue as it winds its way through the appellate process may change, as it must, to acknowledge the differing levels of review between the trial, intermediate, and final appellate stages of a case. This alteration in language does not, and cannot be, a valid basis upon which to argue waiver so long as the legal issue remains the same.
. A conclusion that a particular word or phrase in a statute is not clear and free from all ambiguity does not signify that the entire statute is ambiguous.
. Richard L. McMonigle, Jr., Insurance Bad Faith in Pennsylvania § 2:08, 6th ed. 2005.
. The Unfair Insurance Practices Act at 40 P.S. § 1171.1, et seq., was enacted to regulate trade practices in the insurance industry; targeting unfair methods of competition among insurance companies and unfair and deceptive practices in the industry, see, 40 P.S. § 1171.2 Declaration of Purpose.
. As noted previously, the trial court set forth extensive findings of fact and conclusions of law as to the bad faith conduct of Appellant in its handling of the insurance claim at issuе. Given those findings, the judgment of bad faith can and should be supported. I would however, affirm that judgment on different grounds and expressly reject the concept that the conduct of the insurer during the course of the litigation in a bad faith claim is at all relevant to a finding of bad faith.
. Because of the current posture of this case, I will forgo a discussion on the merits of the State Farm test.
Lead Opinion
ORDER
The appeal is hereby dismissed as having been improvidently granted.