June 26, 2014

Pennsylvania judge awards $18 million in punitive damages to punish insurer for spending too much in defense fees

The Legal Intelligencer reports that a Pennsylvania judge has awarded $18 million in punitive damages in a long-running insurance bad faith case.  According to the article, the plaintiffs sued Nationwide for failing to properly repair their vehicle after an auto accident.

It sounds like the actual damages were slight and the harm was purely economic, but the judge apparently concluded that Nationwide acted in bad faith and engaged in malice by paying $1 million or more in attorney fees to its defense counsel, instead of just paying this small claim.  That doesn't seem like a proper basis for liability or punitive damages.  The question should be whether Nationwide's handling of the claim was reasonable, not how much Nationwide spent defending the subsequent litigation.  In California, case law prevents courts from imposing punitive damages based on a defendant's litigation conduct.