The Pennsylvania Superior Court has upheld a verdict of over $2 million against a title insurer for bad faith claims handling. Davis v. Fidelity Nat. Title Ins. Co. concerned the purchase of property for construction of a housing development. After another individual claimed to be the owner of the property, the purchaser filed a claim under his title insurance policy. Nearly two years later, the insurer acknowledged a problem with the title and promised resolution of the matter. Over three years later (and nearly five years after the claim was filed), the insurer resolved the claim by purchasing the property from the owner. By that time, the policyholder had instituted an insurance bad faith action, which resulted in a verdict of $393,227.31 in compensatory damages (including damages for increased building costs and lost profits due to the delay in construction), and $1,572,909.24 in punitive damages.
On appeal, the Superior Court held that the lost profits award was not speculative, but supported by the evidence. The Court noted that the policyholder had taken several steps to move the project forward, and that in light of the insurer’s actions in delaying the project, the trial court was justified in selecting an estimated date when the project would have commenced. The Court also found that based upon the record evidence, the insurer’s failure to timely adjust the claim was the direct cause of the policyholder’s inability to start construction.
With regard to the punitive damages award, the Court held that the 4-to-1 ratio of punitive to compensatory damages awarded by the trial court was consistent with State Farm Mut. Auto. Ins. Co. v. Campbell, in which the United States Supreme Court recognized that single-digit ratios of punitive to compensatory damages are more likely to comport with due process than more substantial ratios. The Court also noted that the “degree of reprehensibility” is the most significant factor for determining punitive damages in Campbell. The Court found the insurer’s conduct to be sufficiently reprehensible, observing that the insurer declined to act on the claim despite numerous requests from the policyholder, and warnings by the policyholder’s counsel that the insurer was acting in bad faith. Finally, the Court held that under well-established Pennsylvania law, attorney’s fees were properly taken into account in determining the ratio between punitive and compensatory damages.
Davis provides a stark reminder of the necessity of handling insurance claims in a prompt and efficient manner. As Davis reflects, Pennsylvania courts are not hesitant to impose substantial punitive damage awards when an insurer’s conduct is deemed dilatory.
