No Right To Jury Trial In First Party Bad Faith Action Filed In Pennsylvania State Court DD 12/03

Defense Digest

No Right To Jury Trial In First Party Bad Faith Action Filed In Pennsylvania State Court

The Pennsylvania Supreme Court's recent seminal decision in Mishoe v. Erie Insurance Co., 824 A.2d 1153 (Pa. 2003), has clarified that there is no right to a jury trial in a first party bad faith action brought in Pennsylvania state court pursuant to its bad faith statute, 42 Pa.C.S. §8371. This decision provides more certainty in making jurisdictional decisions and in evaluating potential punitive damage awards in bad faith actions.  However, the potential scope of Mishoe is yet untested. 

In Mishoe and in a related consolidated matter, the plaintiffs-insureds filed suit alleging that the defendant insurance companies acted in bad faith pursuant to 42 Pa.C.S. §8371 following the entry of uninsured motorist arbitration awards a number of times higher than the last offer prior to arbitration.  Section 8371 provides in part that, "…in an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith toward the insured, the court may… award interest,… award punitive damages against the insurer… (and) assess court costs and attorney's fees against the insured."  In both cases, the trial courts denied the plaintiffs' demand for a jury trial.  On appeal, the Pennsylvania Superior Court reversed the trial courts' orders refusing the jury demands and remanded the cases for jury trial.  The defendants appealed to the Pennsylvania Supreme Court.

Justice Russell M. Nigro, writing on behalf of the Pennsylvania Supreme Court, held that there is no right to a jury trial in a bad faith action pursuant to 42 Pa.C.S. §8371.  The plaintiffs in Mishoe argued that the term "court" implied the right to a jury trial since juries are traditionally the finders of fact, and because the Pennsylvania Constitution guarantees a jury trial.  The court rejected the plaintiff's statutory arguments based upon the plain meaning of the statute and the legislative history.  The court also rejected the plaintiff's constitutional argument because Section 8371 was enacted after the adoption of the Pennsylvania Constitution. 

Mishoe does not address the issue of whether an insured may be entitled to a jury trial in a third-party bad faith action, which has existed under common law in Pennsylvania for decades.   Typically, third-party bad faith actions involve claims against insurers where it is alleged that an insurer failed to settle a third-party claim within policy limits when it had an opportunity to do so, and subsequently exposed an insured to a judgment in excess of their liability policy limits. Thus, it is still unanswered how state courts in the future will handle a demand for a jury trial in a common law bad faith claim.

With regard to cases filed in federal court, it appears that a party will have a right to a jury trial.  In a footnote, the Third Circuit summarily dismissed a defendant-insurer's contention that the plaintiff was not entitled to a jury trial in light of Mishoe.  W.V. Realty, Inc. v. Northern Ins. Co., 2003 U.S. Lexis 13182 (3d Cir. June 27, 2003).  The W.V. Realty Court commented that the remedy of punitive damages in a statutory bad faith action under Section 8371 triggers the Seventh Amendment jury trial right.

The Mishoe state court decision and the split with the federal courts will require a case-by-case analysis when handling new bad faith claims.  This analysis will require consideration of the nuances of each claim and all potential venues.  For example, the judges in a particular Pennsylvania county may tend to award higher verdicts, so you may want a transfer or removal to federal court so that you can have a jury trial.  Alternatively, a challenge to federal jurisdiction may be indicated to avoid a jury.  Mishoe will require that important strategy decisions be given careful consideration during the infancy of litigation.

In conclusion, the Pennsylvania Supreme Court's determination that there is no right to a jury trial in a first-party bad faith action filed in state court in Pennsylvania will most likely provide greater predictability in jurisdictional decisions and the evaluation of potential punitive damage awards.  However, the Mishoe decision's complete scope beyond Pennsylvania first-party bad faith actions is still untested.  Both the insurer and counsel will need to give Mishoe consideration in formulating a litigation plan when handling bad faith claims in Pennsylvania.

*Seth is an associate in our Philadelphia, PA office and can be reached at (215) 575-2790 or sschwartz@mdwcg.com.