Polselli v. Nationwide Mut. Fire Ins. Co.

• Decision Date: 10 May 1994
• Docket Number: No. 93-1499,93-1499
• Parties: Regina POLSELLI; Rudolph T. Polselli, Plaintiff-Intervenor, v. NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 747

23 F.3d 747

Regina POLSELLI; Rudolph T. Polselli, Plaintiff-Intervenor, v. NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, Appellant.

No. 93-1499.

United States Court of Appeals Third Circuit.

Argued March 10, 1994.

Decided May 10, 1994.

R. Bruce Morrison (argued), Marshall, Dennehey, Warner, Coleman and Goggin, Philadelphia, PA, for appellant.

Harry P. Begier, Jr. (argued), Harry P. Begier, Jr., Ltd., Philadelphia, PA, for appellee.

Before: GREENBERG, ROTH, and ROSENN, Circuit Judges.

OPINION OF THE COURT

ROSENN, Circuit Judge.

Regina Polselli brought a diversity action in the United States District Court for the Eastern District of Pennsylvania alleging, inter alia, bad faith on the part of the insurer, Nationwide Mutual Fire Insurance Company (Nationwide), in its handling of her fire loss claim. Following a bench trial, the district court concluded that Nationwide did act in bad faith and awarded Polselli $90,000 in punitive damages pursuant to Pennsylvania's bad faith statute, 42 Pa.Cons.Stat.Ann. Sec. 8371 (Supp.1993). ¹ Nationwide filed a motion for reconsideration, which the district court denied. Nationwide appeals. We reverse.

I.

On January 1, 1991, a fire occurred at the Polselli home causing considerable damage. Regina's husband Rudolph was the sole titled owner of the premises and the sole named insured on a homeowner's insurance policy entered into with Nationwide. Under the policy, Nationwide had the responsibility to reimburse the insured for damage to the building (Building claim), its contents (Contents claim), along with additional living expenses (ALE claim). Rudolph moved out of the Polselli home in April 1988 and currently resides in Florida. In May 1988 he filed a divorce action, described as bitter, which was still pending at the time of the fire. When the fire happened, Regina, along with her daughter, solely occupied the Polselli property. The fire forced them to vacate the home.

Immediately upon being notified of the fire, Nationwide assigned Joseph DiDonato to handle the adjustment for it. DiDonato's supervisor instructed him to deal only with Rudolph. Regina retained Steven H. Smith as her public adjuster to prepare and adjust her claims. In the aftermath of the fire, considerable confusion reigned among the parties as to their rights and responsibilities due to the title ownership of the premises, the pending divorce action between Regina and Rudolph, the mutual distrust and dislike between Regina and Rudolph and questions of Regina's insurable interest and right to possession of the property.

On January 3, 1991, Smith sent DiDonato a letter which set forth the basis for Regina's insurable interest and requested immediate funds to alleviate Regina's desperate living conditions and to satisfy Regina's claim. On January 14, 1991, DiDonato replied that Nationwide was still in the process of investigating. DiDonato also wrote to Rudolph and his attorney asking for information necessary for the investigation, and for permission to enter the premises. In the meantime, Harry P. Begier, Jr., Regina's attorney, wrote three letters to Nationwide in January 1991, requesting that it proceed to process and adjust Regina's ALE claim.

On January 28, 1991, Smith filed a proof of loss of $120,642 for the Building claim, $64,385 for the Contents claim, and $960 per month to rent an unfurnished home, to which Regina later admitted that she had no intention of moving, for the ALE claim. Smith later revised the ALE claim to $1,666.66 monthly, based on the rental of an apartment on the New Jersey shore. Rudolph also asserted claims for the building and a portion of the contents. In response to the letters sent and claims made on behalf of Regina, DiDonato reiterated Nationwide's position that no funds would be forthcoming until it completed inspecting, investigating and evaluating the loss. After entering the Polselli home on February 7, 1991, and discovering evidence suggesting that the fire had been deliberately set, DiDonato, on February 11, requested a cause and origin investigation by an outside investigator. Although the Fire Marshall had previously opined, on the day of the fire, that the fire was accidental, Nationwide's policy is not to talk to the Fire Marshall until its own investigation is complete.

Begier claims that on February 8, John R. Riddell, Nationwide's attorney, orally agreed to adjust Regina's ALE claim without further delay. Begier telecopied a letter to Riddell confirming this information. On February 13, Nationwide engaged INS Investigations Bureau, Inc. to investigate the cause and origin of the fire. After making a number of additional requests for an advance payment on her ALE and Contents claims, Regina filed suit against Nationwide on March 4, 61 days after the fire, alleging, among other things, bad faith in Nationwide's handling of her claims. Two days after the suit was filed, Begier wrote to Riddell to confirm their agreement that Riddell would meet with Smith on the following week to review Regina's Contents claim, and that the ALE claim would be adjusted promptly so that it could be paid the following week.

On March 12, 1991, Nationwide received a written report that determined that the origin of the fire was accidental. DiDonato testified that the ALE claim could have been paid immediately upon receipt of the fire report. He did not know why an advance payment was not made until July 17, 1991. He testified, however, that once Regina filed suit, he transferred the file to the insurer's attorney and no longer had control over the adjustment of the claim. Begier notified Riddell on March 12, that the deposition of Regina scheduled for March 15, 1991 would be cancelled if an advance payment on the ALE claim was not made as promised. No payment was made and the deposition was cancelled.

On April 16, after a month of inaction, Riddell advised Begier of Nationwide's offer to settle the ALE claim for $11,130. On the same day, Riddell also advised Begier that Rudolph had made an oral claim on the contents of the home, and that Nationwide intended to interplead the Contents claim. In light of Begier's contention that Nationwide reneged on an earlier promise to make a payment on the ALE claim, he requested confirmation in writing of Nationwide's offer. On May 9, Begier, not having received confirmation from Nationwide, requested that settlement of Regina's claim be expedited and that an advance payment be made. Riddell expressed surprise at Begier's letter, inasmuch as Nationwide was awaiting a reply on its $11,130 offer made to Begier for the ALE claim.

On May 16, Begier rejected the offer and notified Nationwide that due to a judgment lien in excess of $600,000 on the property, Regina was no longer interested in rebuilding the Polselli home. On May 17, and 23, 1991, Begier advised Riddell that Regina would be evicted from her temporary housing, unless Nationwide made an advance payment. In light of Begier's disclosure that Regina would not rebuild her house, and in accordance with its policy that an insured who permanently relocates is entitled to less money, Nationwide advised Begier on May 23, that it was revising its offer to $5,000 in settlement of the ALE claim. On May 31, Begier requested information relating to the basis of the settlement offer. Riddell responded with the information almost three weeks later. On June 24, without accepting the offer, Begier asked for $3,880 as an advance on the ALE claim pending settlement. Nationwide agreed and made the payment on July 17, 1991.

Regina was deposed on August 28, and September 5, 1991. DiDonato testified that he could not accurately evaluate Regina's Contents claim because, at the deposition, Regina could not identify most of the damaged items or give additional information concerning their date of purchase and price. On September 12, Begier notified Riddell that Regina was evicted from her temporary housing for non-payment of rent. Nationwide promptly made arrangements, at its expense, for Regina to stay at an apartment complex. Prior to these arrangements, Regina stayed at five different places because she did not have the funds to rent suitable housing. On October 24, 1991, Nationwide issued a check for $7,250 to pay for the ALE claim. The parties eventually settled all claims before trial except for Regina's bad faith claim against Nationwide.

The district court found that Nationwide acted in bad faith in its handling of the ALE and Contents claim. The court awarded Regina $75,000 and $15,000, respectively, in punitive damages. Damages for bad faith were not awarded on the Building claim as Regina had no claim on the building. The court found that Nationwide knew that Regina had an insurable interest with respect to the ALE claim, and that after the fire was labelled accidental it had absolutely no reason or justification for not making timely payments on the claim, especially in view of Regina's virtually destitute condition. The court also found that, considering that it was clear that Regina was virtually destitute and had a substantial Contents claim, Nationwide should have proceeded with more dispatch in evaluating and settling the claim, from the date the fire was labelled accidental.

II.

On appeal, Nationwide's primary contention is that the district court erred in determining that bad faith need only be proven by a preponderance of the evidence rather than by clear and convincing evidence. Additionally, Nationwide asserts that the court erroneously defined bad faith too broadly. Finally, it argues that the district court's factual findings are clearly erroneous.

Whether the trial court applied the proper standard is a question of law subject to plenary review. See Tudor Dev. Group v. United States Fidelity & Guar. Co., 968 F.2d 357, 359 (3d Cir.1992). Because Nationwide contends that the court failed to apply the proper standards with respect to the burden of proof for bad...