Pennsylvania Superior Court Affirms $2 Million Bad Faith Verdict

April 18, 2015

In Davis v. Fidelity Nat’l Title Ins. Co., No. 672 MDA 2014 (Pa. Super. Mar. 18, 2015) (Non-Precedential), the Superior Court of Pennsylvania upheld a Lackawanna County judge’s verdict of $2,062,746.89 for insurance bad faith–approximately $1.5 million of which was for punitive damages.

The cases lengthy factual history is simplified as follows: Davis sought to develop townhomes on 1.86 acres of land. During the development process, a neighboring property owner claimed to be the rightful owner to that land. Accordingly, Davis filed a claim under his title insurance policy issued by Fidelity National Title Insurance Company (“Fidelity”) in October 2007. Fidelity did not resolve the disputed title issue until August 2012. Davis contended that Fidelity’s nearly 5-year delay in resolving the insurance claim caused substantial delay in the development of the property resulting in lost profits to Davis.

A bench trial on Davis’s breach of contract and bad faith claims were held before Judge Carmen D. Minora in the Court of Common Pleas of Lackawanna County. The trial court found that Fidelity did not have a reasonable basis for taking almost 5 years to resolve Davis’s claim, that such conduct was outrageous and recklessly indifferent to the rights of the insured, and that Fidelity knew of and was recklessly indifferent to its lack of a reasonable basis for its delay. Accordingly, the trial court found Fidelity to be in bad faith in violation of the Pennsylvania bad faith statute, 42 Pa.C.S. § 8371. The court also found that Fidelity breached its contractual duty of good faith and fair dealing. The trial court awarded $393,227.31 in compensatory damages (which included $89,760 for increased construction costs, $135,000 for depreciation in value of the property, and $168,467.31 in attorney’s fees and costs), $1,572,909.24 in punitive damages, and $96,610.04 in interest.

On appeal, in an unpublished, non-precedential opinion, the Superior Court found that the trial court did not abuse its discretion or commit an error of law and affirmed. First, the court held that the award of lost profits, which was based on the testimony of a licensed real estate appraiser, was supported by the record and appropriate. The court next held that the 4:1 punitive to compensatory ratio was not constitutionally excessive under factors set forth in State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003), particularly in light of the “overwhelming evidence against Fidelity” which established a 5-year pattern of inaction and included repeatedly ignoring warnings of counsel and requests by the insured. Lastly, the court held that the trial court properly included attorney’s fees in the compensatory damage award that was multiplied to formulate the punitive damage award–noting that the Pennsylvania bad faith statute specifically includes attorney’s fees as compensatory damages.

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