Birth Center v. St. Paul Cos.

Parents who had sued The Birth Center (center) (plaintiff) for negligence offered to settle the case. The center repeatedly informed its insurer, St. Paul Companies, Inc. (St. Paul) (defendant), that it wanted to accept the settlement offer, but St. Paul refused to settle. St. Paul’s lawyers, as well as judges hearing the negligence case, repeatedly warned St. Paul that the center would lose if the case went to trial. Nevertheless, St. Paul was intransigent and insisted on trying the case. The negligence case ended in a verdict for the parents. The judgment against the center far exceeded the limits of the center’s insurance coverage. Nevertheless, knowing that it faced a possible lawsuit for bad faith and punitive damages, St. Paul paid the excess judgment. This did not deter the center from suing St. Paul for tortious breach of fiduciary duty, breach of contract, and violating Pennsylvania’s statute against insurance bad faith. The trial jury awarded the center compensatory damages for the reputational damage the center clearly suffered as a result of taking the negligence case to trial, but the jury did not award punitive damages under the statute. The trial court entered judgment notwithstanding the verdict on the grounds that the statute authorized only punitive damages and was silent as to compensatory damages. An intermediate appellate court reversed. St. Paul appealed to the Pennsylvania Supreme Court.