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

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

April 8, 2020

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The Superior Court of Pennsylvania recently rejected claims of institutional bad faith against an insurance company. In <a href="https://www.wcmlaw.com/wp-content/uploads/2020/04/Wenk-v.-State-Farm-Fire-and-Casualty-Company-et-al.pdf">Wenk v. State Farm Fire and Casualty Company, et al</a>, 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.
The underlying incident involved homeowners Jeffrey Wenk and Lee Ann Wenk (“Appellants”), who hired a contractor to remodel their home. During the remodel, the contractor poured gasoline within the framework of the home to destroy a bee’s nest. As a result, the wooden structure was contaminated and Appellants submitted a claim to their insurance company, State Farm, to repair the damage.
FireDEX, a State Farm-approved contractor, was hired to perform the repairs to the home. As FireDEX conducted the work, Appellants perceived numerous deficiencies and requested that State Farm hire an engineer to address their concerns. 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. 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. However, the two engineers did not agree as to what remedial structural changes were ultimately necessary to return Appellants’ home to its original condition. 
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. As such, State Farm questioned the fairness and reasonableness to the new contractor’s estimate, charges, and expenses. 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. Additionally, Appellants brought forth a claim of bad faith against State Farm only. 
The trial court entered judgment in State Farm’s favor on the bad faith and UTPCPL claims. On appeal, the Superior Court affirmed the judgment on the bad faith issue. 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. 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. 
Additionally, the Superior Court reiterated that there is no separate cause of action of institutional bad faith in Pennsylvania. 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.” 42 Pa.C.S. §8371. 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. 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.
Thanks to Zhanna Dubinsky for her contribution to this post. For any questions, please contact <a href="mailto:vterrasi@wcmlaw.com">Vincent Terrasi</a>.

Wade Clark Mulcahy LLP

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

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