Opinion ID: 2320868
Heading Depth: 1
Heading Rank: 7

Heading: Payment of the Excess Verdict

Text: Next, we address St. Paul's arguments that the trial court properly granted its motion for a judgment notwithstanding the verdict because of its contentions that: (1) an insurer's payment of an excess verdict precludes all bad faith claims, and (2) allowing The Birth Center to recover additional compensatory damages would discourage insurance companies from satisfying excess verdicts. St. Paul states: The effect of the Superior Court's holding is to discourage insurance companies from satisfying excess verdicts unless they are required to do so. If an insurance company can still be exposed to a bad faith suit even after voluntarily satisfying an excess verdict, the company has no incentive to pay the excess.    If it remains exposed to the bad faith claim and punitive damages anyway, the obvious course for the insurance company is to stand its ground, defend the bad faith claim, and leave its insured to its own devices. Appellant's Br. at 15. While St. Paul's argument has facial appeal, it does not stand up to closer examination. St. Paul did not pay the excess verdict out of the goodness of its heart. It had reason to believe that The Birth Center was going to sue for bad faith [9] and it knew that if it were found to have acted in bad faith, it would be liable for punitive damages as well as the amount of the excess verdict. 42 Pa.C.S.A. § 8371. It, therefore, appears that St. Paul paid the excess in an attempt [10] to avoid a punitive damages award. The purpose of damages in contract actions is to return the parties to the position they would have been in but for the breach. Gedeon, 188 A.2d at 322 n. 5. The relationship and dispute between The Birth Center and St. Paul flow from their contract. Gray, 223 A.2d at 12. Breach of ... [the] obligation [to act in good faith] constitutes a breach of the insurance contract for which an action in assumpsit will lie. Id. Therefore, where an insurer acts in bad faith, the insured is entitled to recover such damages sufficient to return it to the position it would have been in but for the breach. St. Paul's payment of the excess verdict does not bar The Birth Center's claim for compensatory damages because The Birth Center was able to prove that St. Paul's bad faith conduct was a substantial factor in The Birth Center suffering damages in addition to the excess verdict. Furthermore, there is no reason to limit damages to the amount of the verdict where the insured can show that the insurer's bad faith conduct caused it additional damages. The insurer's conduct is not the subject of the underlying court action against the insured and, except for the amount of the excess verdict, damages stemming from the insurer's bad faith conduct are not resolved by the action against the insured. Where, as here, the insured can prove that it sustained damages in excess of the verdict, the insurer's payment of the excess has little to do with the insured's damages. Accordingly, the insurer's payment of the excess should not free it from other known or foreseeable damages it has caused its insured to incur.