Insurance Coverage and Bad Faith

The Superior Court of Pennsylvania, on Friday, October 17, 2025, affirmed a finding of bad faith against Erie Insurance Exchange, but vacated the trial court’s award of attorney’s fees and interest. In Dina Devincenzo‑Gambone & Anthony Gambone v. Erie Insurance Exchange, __ A.3d __, 2025 Pa. Super. 235 (2025), the Superior Court clarified that insurers cannot withhold any portions of UIM benefits where such benefits are resolved through binding arbitration that includes resolution of the availability of stacking under the insured’s automobile insurance policy. It further reaffirmed that insureds that prove bad faith under § 8371 may recover attorney’s fees incurred in pursuing their rights under their insurance policy and the bad‑faith statute, and reaffirmed the application of the lodestar approach in calculating awards of attorney’s fees. Finally, the Superior Court clarified that, under § 8371, recoverable interest is to be calculated from the date that the insured made its claim based upon the insurance policy’s terms and may be awarded only as simple interest.

Dina Devincenzo‑Gambone was involved in an automobile accident on February 24, 2004, and thereafter, on May 2, 2006, notified Erie Insurance Exchange (“Erie”), who insured her vehicle, of her intent to seek UIM coverage under her insurance policy. After settling with the tortfeasor, Gambone filed her UIM claim in the Court of Common Pleas of Philadelphia County on August 3, 2011. Gambone and Erie agreed to submit the claim to binding arbitration, although Gambone and Erie disputed whether this agreement included an agreement that the arbitrator could make a binding determination regarding the availability of stacking under Gambone’s insurance policy. On August 31, 2016, the arbitrator awarded Gambone $300,000 after concluding that the stacking provisions of Gambone’s insurance policy applied. Upon the award, Gambone dismissed the litigation against Erie. In turn, on September 23, 2016, Erie tendered $250,000 to Gambone. It withheld the remaining $50,000, however, claiming a dispute as to the application of the policy’s stacking provisions. On September 29, 2016, Erie filed a petition to modify the arbitration award in the Court of Common Pleas of Montgomery County. Erie tendered the remaining $50,000 when the trial court denied its petition.

In response to Erie’s petition, Gambone filed a complaint in the Court of Common Pleas in which she alleged that Erie acted in bad faith pursuant to § 8371 by unreasonably withholding the $50,000. The trial court ruled in favor of Gambone, and awarded her $1,754,188.24. The award consisted of $659,007.90 in interest, $217,100 for attorney’s fees, $986.22 in court costs, and $877,094.12 in punitive damages. The award of attorney’s fees was broken out into an award of $100,000 for fees incurred between May 1, 2006 and August 31, 2016 (the fees associated with litigating Gambone’s UIM claim), and $117,100 for fees incurred for the period beginning on September 1, 2016 (the fees associated with litigating Gambone’s bad‑faith claim). The trial court denied Erie’s subsequent motion for judgment non obstante verdicto.

As to the bad‑faith claim, Erie argued that an insurer does not act in bad faith by withholding a portion of an arbitration award because the issue of stacking remains unresolved, and that, in light of this, it had a reasonable basis to withhold the $50,000 from Gambone because it never agreed that the arbitrator’s stacking determination would be binding. The Superior Court, however, concluded that the evidence supported the trial court’s finding that Erie had agreed to binding arbitration on the issues of stacking and damages. Gambone’s counsel testified that Gambone only agreed to dismiss the UIM claim based upon an agreement that the arbitration decision would be binding, and the arbitrator testified that it was his understanding that the parties asked him to decide the stacking issue. Erie’s litigation specialist, likewise, testified that Erie asked the arbitrator to make decision regarding stacking as part of his binding award. In light of the agreement to binding arbitration that included resolution of the stacking issue, combined with the fact that Erie never reserved its right to appeal the arbitration decision or reject his stacking determination, Erie acted in bad faith by participating in the binding arbitration and then seeking to challenge the arbitration award only after Gambone dismissed her UIM claim.

In disputing the trial court’s award of attorney’s fees, Erie argued that § 8371 only permitted recovery of attorney’s fees associated with an insured’s litigation of her bad‑faith claim and that, therefore, the trial court erred in awarding Gambone $100,000 in attorney’s fees for succeeding on the UIM claim. Erie further argued that, in calculating the award of $117,100 in attorney’s fees for Gambone’s litigation of her bad‑faith claim, the trial court improperly applied the rate‑times‑hours method and that Gambone’s evidence lacked the necessary detail to support the award. The Superior Court held that § 8371 permitted insureds to recover attorney’s fees incurred in pursuing their rights under the insurance policy as well as for pursuing bad‑faith claims. But, the trial court erred in calculating the $100,000 award because it improperly allowed the contingency fee agreement between Gambone and her UIM counsel to create a ceiling on the fee award. Trial courts must use the lodestar approach in calculating awards of attorney’s fees, and, in doing so, they may consider contingency fee agreements. But, these agreements cannot create a ceiling for fee awards, and the trial court must still give adequate consideration to the factors under Pa.R.C.P. 1717. Here, the trial court failed to do so. Turning to the fee award of $117,100, the Superior Court concluded that it could not review the trial court’s award because the trial court failed to support its award with any explanation or analysis. Its “broad‑brush approach” in stating that it considered the factors under Rule 1717 did not meet the requirement that courts thoroughly scrutinize the reasonableness of fee awards and explain their reasoning for such awards.

In its final assignment of error, Erie argued that the trial court erred in calculating interest from May 2, 2006, the date upon which Gambone asserted her UIM claim and in awarding compound interest. Rather, it argued that § 8371 required that interest be calculated from the date that the insured asserted its bad‑faith claim, and only provided for simple interest. Section 8371 permits insureds, upon proving bad faith, to recover interest “on the amount of the claim from the date the claim was made by the insured,” but does not define the term “claim.” Looking to the dictionary, the Superior Court defined “claim” as referring to the moment when the insured makes a request to the insurer for payment based upon the terms of the insurance policy. This definition also furthered the intent of § 8371 by deterring insurers from refusing to cover losses in bad faith. Given this definition, the Superior Court held that the trial court properly calculated recoverable interest from May 2, 2006. The trial court erred, however, in awarding compound interest because § 8371 did not expressly provide for compound interest and compound interest may only be awarded where such is provided by agreement or statute.

Accordingly, while the Superior Court affirmed the finding of bad faith against Erie, it vacated the trial court’s awards of attorney’s fees and interest.