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Pennsylvania Superior Court Confirms No Such Thing as “Institutional Bad Faith” (PA)

April 8, 2020

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<p style="text-align: justify;">The Superior Court of Pennsylvania recently rejected claims of institutional bad faith against an insurance company.<span class="Apple-converted-space">  </span>In <em><a href="">Wenk v. State Farm Fire and Casualty Company, et al</a>,</em> the Superior Court affirmed the trial court’s judgment for State Farm on the issue of bad faith after the plaintiffs’ failed to present clear and convincing evidence under 42 Pa.C.S. § 8371.</p>
<p style="text-align: justify;">The underlying incident involved homeowners Jeffrey Wenk and Lee Ann Wenk (“Appellants”), who hired a contractor to remodel their home.<span class="Apple-converted-space">  </span>During the remodel, the contractor poured gasoline within the framework of the home to destroy a bee’s nest.<span class="Apple-converted-space">  </span>As a result, the wooden structure was contaminated and Appellants submitted a claim to their insurance company, State Farm, to repair the damage.</p>
<p style="text-align: justify;">FireDEX, a State Farm-approved contractor, was hired to perform the repairs to the home.<span class="Apple-converted-space">  </span>As FireDEX conducted the work, Appellants perceived numerous deficiencies and requested that State Farm hire an engineer to address their concerns.<span class="Apple-converted-space">  </span>When State Farm declined to do so, Appellants obtained their own engineer who identified deficient aspects of the work performed and provided recommendations for remediations.<span class="Apple-converted-space">  </span>Although State Farm initially declined to accept those recommendations, it did eventually review FireDEX’s work and engaged an engineer who confirmed that some of the work was deficient.<span class="Apple-converted-space">  </span>However, the two engineers did not agree as to what remedial structural changes were ultimately necessary to return Appellants’ home to its original condition. <span class="Apple-converted-space"> </span></p>
<p style="text-align: justify;">Appellants eventually ordered FireDEX to stop work on their home and hired another contractor, a company owned by one of Appellants’ parents, to conduct the job.<span class="Apple-converted-space">  </span>As such, State Farm questioned the fairness and reasonableness to the new contractor’s estimate, charges, and expenses.<span class="Apple-converted-space">  </span>Appellants then filed a lawsuit against State Farm and FireDEX for breach of warranty, breach of contract, violations of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”), and international infliction of emotional distress.<span class="Apple-converted-space">  </span>Additionally, Appellants brought forth a claim of bad faith against State Farm only.<span class="Apple-converted-space">   </span></p>
<p style="text-align: justify;">The trial court entered judgment in State Farm’s favor on the bad faith and UTPCPL claims.<span class="Apple-converted-space">  </span>On appeal, the Superior Court affirmed the judgment on the bad faith issue.<span class="Apple-converted-space">  </span>Specifically, the Superior Court determined that Appellants failed to present clear and convincing evidence that State Farm acted in bad faith under 42 Pa.C.S. § 8371.<span class="Apple-converted-space">  </span>Based on the record, the Superior Court determined that Appellants failed to show that State Farm did not have a reasonable basis for denying benefits under the policy and did not know or recklessly disregard a lack of reasonable basis when it denied the claim.<span class="Apple-converted-space"> </span></p>
<p style="text-align: justify;">Additionally, the Superior Court reiterated that there is no separate cause of action of institutional bad faith in Pennsylvania. <span class="Apple-converted-space">  </span>Section 8371 only authorizes specified actions by the trial court “if the court finds that the insurer has acted in bad faith toward the insured.”<span class="Apple-converted-space">  </span>42 Pa.C.S. §8371.<span class="Apple-converted-space">  </span>As such, when the trial court was presented evidence of State Farm’s policies and procedures, it was not improper to consider that evidence as it applied to Appellants’ claim but not as a separate claim concerning institutional bad faith.<span class="Apple-converted-space">  </span>As a result, the Superior Court determined that Appellants failed to establish a nexus between State Farm’s business policies and the specific claims the Appellants asserted in support of bad faith.</p>
Thanks to Zhanna Dubinsky for her contribution to this post.  For any questions, please contact <a href="">Vincent Terrasi</a>.


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