In Bonenberger, the insured was injured in an automobile accident and recovered the tortfeasor’s policy limits of $15,000. The insured then asserted a UIM claim against his auto carrier, Nationwide. The insured forwarded all pertinent medical records, bills, wage loss information, and a detailed narrative report from his surgeon, along with a demand in the amount of $52,968. Nationwide responded with a request that the insured undergo an independent medical exam (IME), to which he consented, but which the Company never scheduled. The Company then made an offer to settle in the amount of $7,390 which the insured rejected. After Nationwide had obtained the insured’s sworn statement, his worker’s compensation file and medical records, and the surgeon’s deposition, Nationwide increased its offer to $10,390 which was likewise rejected. A final offer of $14,700 was made and rejected prior to the arbitration hearing. The arbitrators unanimously awarded the insured total tort damages of $77,000, with an award of $2,500 to the insured’s wife for loss of consortium.

The insured then filed a bad faith action against Nationwide asserting that the Company had mishandled his UIM claim and failed to adequately evaluate his injuries. Following a non-jury trial, the trial court concluded that Nationwide had engaged in bad faith because its representatives had no reasonable basis for their valuation of the claim and were not properly informed on the extent of the insured’s injuries. The court found significant the fact that the Company failed to schedule the IME, and that the representatives were guided by the terms of the Company’s claims practices manual which set forth the Company’s overall philosophy. The trial court characterized this philosophy as “encourag[ing] unethical and unprofessional practices.” Id. at 380 (substitution in original). The trial court then awarded punitive damages in the amount of $275,000, attorney fees of $89,160, and $14,736 in costs for a total verdict in excess of $378,000.

On appeal, Nationwide challenged the trial court’s consideration of the Company’s Pennsylvania Best Claims Practice Manual. The trial court had found that the manual was in existence since 1993, and was used as the primary guide in evaluating, valuing and negotiating claims, including the insured’s UIM claim. The court cited the Company’s philosophy set forth in the manual of reducing the average claim payment to be first consistent with, and then lower than, the average claims payment of its major competitors, and to be a “defense-minded” carrier in the minds of the legal community. The manual statements further called for “aggressive use of IME’s,” attempts to catch claimants “off guard,” and assigning cases to defense counsel who would fully follow the adjustor’s direction without the exercise of independent judgment.

In affirming the judgment of the trial court, President Judge Del Sole, writing for the Superior Court panel, “agree[d] with the trial court that this philosophy does not encourage reasonable case-by-case evaluation.” Id. at 382. The Court declared that “[t]he manual was relevant evidence and offers support for the [trial] court’s ultimate finding of bad faith.” Id.

The significance of the Superior Court’s decision should be obvious to anyone who is involved in the evaluation, negotiation and settlement of first party bodily injury claims. A Claims Manual is now “fair game” for discovery, and for use as evidence against a company that embraces philosophies and practices such as those found to be offensive by the trial and Superior Courts. All Claims Manuals should be carefully reviewed and, if necessary, revised in light of this important and far-reaching appellate decision.

Should you have any questions regarding this matter or any insurance issues, please call or e-mail Robert L. Monks at (412) 261-6400 or rlm@jpcg.com.