Horseshoes, Hand Grenades, and Bad Faith Claims

The Philadelphia County Court of Common Pleas has awarded an insured consequential damages, even though it also denied the same insured's bad faith claim.

In Prime Medica Associates v. Valley Forge Insurance Company, a jury awarded the insured, Prime Medica, $4,000,000 on its claim again Valley Forge. Following the jury trial, the court granted Valley Forge's Motion for Remittitur and reduced the award to $2,049,000, the pertinent policy limits less a $1,000 deductible.

The court also held a bench trial to determine whether Valley Forge had acted in bad faith regarding Prime Medica's claim. As explained by the court:

This court found this to be a very difficult decision in that it believed that the carrier had not acted appropriately. At the same time, the court wrestled with the conclusion that the carrier put forth a reasonable basis for its decision to deny coverage. After much soul searching, this court denied plaintiff’s bad faith claim.

Addressing the parties' cross-appeals in anticipation of review by the PA Superior Court and, apparently, accounting for the fact that some portion of the policy limits award consisted of consequential damages, the court faced "a difficult and important issue - - that is, whether in a first-party insurance claim, the insured-plaintiff is to be denied the right to obtain consequential damages." Though Valley Forge argued that the law required that no such damages were permissible, the court asserted:

This court submits that this should not be so. Here, this court, somewhat reluctantly did not find bad faith. But, the court agreed with the jury that the carrier was negligent and plain wrong in its decision, thereby causing damages to the insured. Under these conditions consequential damages should be recoverable. A comprehensive study of this carrier’s conduct leads to a conclusion that the carrier was so close to acting in bad faith that it was teetering with one leg hanging over the bad faith abyss. This court submits that there exists no appropriate policy reason to deny this plaintiff in this case the right to sue for consequential damages.

The undersigned hopes that the Superior Court will agree and will say so.

I expect that Prime Medica hopes for the same.

Note also that this is an interesting late notice/prejudice case and is worth following through the appellate courts for this reason as well.