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November 16, 1994


The opinion of the court was delivered by: THOMAS N. O'NEILL, JR.


 O'Neill, J.

 I. Procedural History

 On October 30, 1991, plaintiff Younis, a Liberian corporation, filed its complaint against defendant CIGNA. This Court has jurisdiction pursuant to 28 U.S.C. § 1332.

 Plaintiff alleged that defendant breached a pair of fire insurance policies which defendant issued to plaintiff. Counts I through III sought compensatory damages for breach of the policies, which concerned three locations in Liberia. In Count IV, plaintiff alleged:


64. As of the commencement of this action, CIGNA has made no offer to Younis Bros. for any of the losses it suffered in Liberia in August of 1990.


65. CIGNA has acted in bad faith in its adjustment of Younis Bros.'s claim.


66. CIGNA has acted in bad faith in its investigation of Younis Bros.'s claim.


* * *


68. Because of CIGNA's bad faith, Younis Bros. is entitled to an award of interest, counsel fees, punitive damages in accordance with Pennsylvania law, 42 Pa. C.S.A. § 8371.

 In its answer, defendant denied plaintiff's allegations of bad faith and asserted affirmative defenses against plaintiff's bad faith claim.

 Defendant contended that Count IV failed to state a claim "because application of the statute would be a constitutionally impermissible extraterritorial application of Pennsylvania law" violating the Commerce Clause of and due process rights guaranteed by the United States Constitution; *fn1" "because the statute violates guarantees of due process . . . by failing to adequately to inform those against whom it may be applied of the conduct or actions it prohibits and/or penalizes;" *fn2" because the statute allows "the imposition of punitive damages without adequate substantive and procedural guidelines and protections;" *fn3" and because the statute violates "rights of trial by jury afforded by the United States Constitution and Pennsylvania Constitution." *fn4"

 Plaintiff subsequently filed an amended complaint setting forth additional factual allegations and repeating its assertion that defendant acted in bad faith in its investigation and adjustment of plaintiff's losses. In its answer, defendant denied those allegations, incorporated by reference the affirmative defenses asserted in its earlier answer. *fn5" During the pretrial phase, the Court consolidated this case with a related case, The Abi Jaoudi and Azar Trading Corporation v. Cigna Worldwide Insurance Company, Civil Action No. 91-6785.

 Trial in both cases began on February 7, 1994. The Court divided the cases into phases. In phase one, the jury found that plaintiffs' suits were not barred by the war risk exclusion clauses in the various insurance policies.

 In phase two, which concerned a number of affirmative defenses arising out of provisions in the insurance policies, the jury found in favor of plaintiffs on all questions except that it could not reach a decision with respect to the affirmative defense of fraud asserted against plaintiff Abi Jaoudi and Azar Trading Corporation ("AJA").

 The Court therefore discontinued proceedings in the AJA case and resumed proceedings in the Younis case. Because the parties did not dispute the amount of compensatory damages claimed by Younis, the Court did not hear any evidence relevant to phase three.

 With respect to phase four, the parties disputed the definition of the term "court" in section 8371. Defendant asserted that the term "court" referred only to the trial judge while plaintiff argued that the term meant "judge and jury." I did not resolve this dispute but felt constrained by the Seventh Amendment to submit to the jury the questions whether defendant acted in bad faith, whether its conduct was outrageous and whether plaintiff was entitled to an award of punitive damages. See Transcript, April 6, 1994, at 112-116.

 The jury determined that defendant acted in bad faith towards plaintiff. This required phase five, in which the jury found that defendant's conduct was not outrageous. Accordingly, the jury was not required to consider an award of punitive damages to plaintiff.

 At a post-trial hearing, I requested that the parties brief the question of whether section 8371 is constitutional. See Transcript, May 13, 1994, at 36-38. Comprehensive briefs were submitted and oral argument was held on August 18.

 For the following reasons, I conclude that section 8371 is constitutional. I also conclude that in a federal court action pursuant to section 8371 a party is entitled to a jury trial with respect to a claim for punitive damages but is not entitled to a jury trial with respect to the other remedies available under the statute.

 II. Discussion

 A. Section 8371

 In D'Ambrosio v. Pennsylvania National Mutual Casualty Insurance Company, 494 Pa. 501, 431 A.2d 966 (Pa. 1981), the Pennsylvania Supreme Court held that there is no common law action for bad faith conduct by an insurer. The Court stated that there "is no evidence to suggest, and we have no reason to believe, that the system of sanctions established under the Unfair Insurance Practices Act must be supplemented by a judicially created cause of action." Id. at 970. The Court added that "it is for the Legislature to announce and implement the Commonwealth's public policy governing the regulation of insurance carriers" and "to determine whether sanctions beyond those created under the Act are required to deter conduct which is less than scrupulous." Id.

 In 1990, the Pennsylvania legislature created a statutory cause of action for bad faith. That statute, which became effective on July 1, 1990, and is codified at 42 Pa.C.S.A. section 8371, provides:


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 take all of the following actions:


(1) Award interest on the amount of the claim from the date the claim was made by the insured in an amount equal to the prime rate of interest plus 3%.


(2) Award punitive damages against the insurer.


(3) Assess court costs and attorney fees against the insurer.

 There is no legislative history that specifically concerns the passage of this statute, which was enacted as part of a comprehensive insurance bill.

 B. Defendant's Objection that Section 8371 Violates the Due Process Clause of the Fourteenth Amendment

 Defendant asserts that section 8371 allows for arbitrary and unreviewable decision making and requests that the Court declare it unconstitutional in violation of the due process clause of the Fourteenth Amendment. *fn6" I am unable to agree.

 Essentially, defendant contends that section 8371 violates the Fourteenth Amendment because it permits punitive damages and "non-punitive damages" (interest, costs and attorney fees) to be imposed by the court at its discretion upon a finding of bad faith without specifying a standard for a court to employ when deciding whether those remedies are appropriate. While disputing the correctness of the cases which uphold the validity of section 8371, defendant asserts that those cases are limited to the distinct issues of "the statute's lack of definition of 'bad faith'" and "the arbitrariness inherent in fixing the amount of punitive damages" and do not address defendant's additional Fourteenth Amendment objection. Defendant's Memorandum at 8 (emphasis original)(citing Empire Fire & Marine Ins. Co. v. Nationwide Mut. Ins. Co., No. 93-0325, 1993 U.S. Dist. LEXIS 8989 (E.D. Pa. June 15, 1993); Santoro v. Allstate Ins. Co., No. 91-3304, 1991 U.S. Dist. LEXIS 13591 (E.D. Pa. Sept. 25, 1991); W.W. Management & Dev. Co. Inc. v. Scottsdale Ins. Co., 769 F. Supp. 178 (E.D. Pa. 1991); Seeger v. Allstate Ins. Co., 776 F. Supp. 986 (M.D. Pa. 1991); Coyne v. Allstate Insurance Company, 771 F. Supp. 673 (E.D. Pa. 1991)).

 As an initial matter, I agree with the reasoning and result reached by Judge Ludwig in Coyne, where the Court rejected an insurance company's arguments that section 8371 was unconstitutionally vague because it did not define the term "bad faith" and that the statute violated due process by failing to establish standards governing the award of punitive damages. *fn7"

 With respect to the assertion that section 8371 inadequately defines the term "bad faith," the Coyne Court concluded that in the insurance context the term has acquired a peculiar and universally acknowledged meaning: "any frivolous or unfounded refusal to pay proceeds of a policy . . . . For purposes of an action against an insurer for failure to pay a claim, such conduct imports dishonest purpose and means a breach of a known duty . . . through some motive of self-interest or ill will; mere negligence or bad judgment is not bad faith." Id. at 677-78, citing Black's Law Dictionary 139 (6th ed. 1990) and Appleman & Appleman, Insurance Law and Practice § 1612 (1967 and Supp. 1990). Judge Ludwig therefore concluded that despite the absence of a statutory definition of "bad faith" in section 8371 the phrase is sufficiently defined in the insurance context to provide constitutionally adequate standards to guide the conduct of the legal community and the insurance industry. *fn8" Id. at 678. With respect to defendant's claim that section 8371 fails to provide standards that guide and limit the amount of punitive damages which may be awarded pursuant to the statute, the Coyne Court held that Pennsylvania law -- which follows Restatement (Second) of Torts Section 908(2) -- guides and limits such awards consistent with due process requirements. Id. at 679. Judge Ludwig therefore concluded that although "§ 8371 confers on the trial court significant discretion in its determination of punitive damages . . . that discretion is not unlimited. As long it is exercised within the reasonable constraints required by Pennsylvania law, due process is satisfied." Id. at 680. *fn9"

 I am guided by the reasoning of Coyne in resolving defendant's additional "first impression" challenge to section 8371 -- that "the legislature's failure to provide standards to guide the imposition of damages under § 8371 and its impermissible delegation of that substantial public policy decision to individual courts on an ad hoc basis renders § 8371 unconstitutionally vague and facially violative of Due Process guarantees." Defendant's Memorandum, at 8. As Pennsylvania law adequately guides and constrains the amount of punitive damages awarded under section 8371, it equally provides a standardized context for "the imposition" of those damages. See Restatement (Second) of Torts §§ 908, 909. *fn10"

 With respect to the imposition of interest, court costs and attorney fees, I conclude that the requirement that a court find bad faith prior to making such an award provides an adequate standard to guide the legal community and the insurance industry. In addition, I note that courts historically have retained wide discretion to fashion equitable remedies in situations in which legal remedies are insufficient. Therefore, I cannot agree with defendant's argument that section 8371 impermissibly delegates public policy to "individual courts on an ad hoc basis." *fn11"

 C. The Application of the Seventh Amendment to Section 8371 Claims Brought in Federal Court

 The Seventh Amendment provides that "in suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law." The Seventh Amendment is inapplicable to state trials. See Melancon v. McKeithen, 345 F. Supp. 1025, 1027 (holding that jury trial in civil cases is not "so fundamental to the American system of justice as to be required of state courts by due process."), aff'd sub nom. Davis v. Edwards, 409 U.S. 1098, 34 L. Ed. 2d 679, 93 S. Ct. 908 (1973) (per curiam); Colgrove v. Battin, 413 U.S. 149, 169 n. 4, 37 L. Ed. 2d 522, 93 S. Ct. 2448 (1973) (Marshall, J., dissenting) (collecting cases).

 In a diversity case, whether a party has a right to a jury trial is a matter of federal law. Simler v. Conner, 372 U.S. 221, 222, 9 L. Ed. 2d 691, 83 S. Ct. 609 (1963) ("the right to a jury trial in the federal courts is to be determined as a matter of federal law . . . . The federal policy favoring jury trials is of historic and continuing strength."). The Seventh Amendment applies to both statutory and common law proceedings when the proceedings concern "legal" as opposed to "equitable" claims. Curtis v. Loether, 415 U.S. 189, 194, 39 L. Ed. 2d 260, 94 S. Ct. 1005 (1974) ("The Seventh Amendment does apply to actions enforcing statutory rights, and requires a jury trial upon demand, if the statute creates legal rights and remedies, enforceable in an action for damages in the ordinary courts of law.").

 When determining whether a statutory right also includes a right to a jury trial, the inquiry focuses first on the statute and then on the nature of the action and the relief sought. As the Court of Appeals explained in Cox v. Keystone Carbon Co., involving a plaintiff's right to a jury trial under a pair of ERISA provisions:


This court must first examine the language and legislative history of ERISA to determine if Congress intended to create a right to a jury trial. If the statutory analysis does not reveal a congressional intent to provide a jury trial, the seventh amendment to the United States Constitution must be examined to determine if it commands that a jury trial be provided.

 Cox v. Keystone Carbon Co., 861 F.2d 390, 393 (3d Cir. 1988) (citations omitted). Although Cox concerned a party's right to a jury trial under a federal statute, courts in this district have employed the Cox analysis when determining whether a party has a right to a jury trial when asserting a claim under a Pennsylvania statute. See, e.g., Welcker v. Smithkline Beckman, 746 F. Supp. 576, 581-582 (E.D. Pa. 1990) (evaluating demand for jury trial under the Pennsylvania Human Relations Act, 43 Pa.C.S.A. § 951 et seq.).

 1. The Meaning of the Term "Court" in Section 8371

 Section 8371 does not explicitly provide for a jury trial. Plaintiff, however, asserts that I should construe the term "court" in section 8371 to mean "judge and jury." *fn12" Defendant contends that the term means only "judge."

 Defendant argues for its interpretation on the basis that "court" is defined in 42 Pa.C.S.A. § 102, as "any one or more of the judges of the court who are authorized by general rule or rule of court, or by law or usage, to exercise the powers of the court in the name of the court." Section 102 does not refer to the jury in its definition of "court". Further, other courts in this district have concluded that the "plain language of the statute" shows "that the Pennsylvania legislators intended § 8371 actions to be heard and decided by the" judge and not the jury. See Thomson v. Prudential Property and Casualty Ins. Co., No. 91-4073, 1992 U.S. Dist. LEXIS 12627 at *8 (E.D. Pa. Aug. 24, 1992).

 Defendant also points to the legislative history of the insurance reform bill of which section 8371 was a part. In discussion regarding that bill, State Senator Scanlon specifically distinguishes between a decision made by the "court" as opposed to the "jury." See Statement of Senator Scanlon, Senate Journal, December 11, 1989, at 1453. *fn13" Even though this remark does not specifically concern section 8371, defendant argues that it suggests that the legislature did not generally equate the term "court" with "jury" in regard to the insurance reform bill which enacted section 8371.

 The Pennsylvania legislature has enacted several statutes where the functions of the "jury" and "court" (meaning judge) are specifically distinguished. See, e.g., 50 Pa.C.S.A. § 944 *fn14" and 42 Pa.C.S.A. § 5327(c). *fn15" The language of these statutes leads me to conclude that the term "court" does not include "jury" and that the legislature specifically includes the term "jury" in a statute when it wants the jury to serve as a decision maker under the statute. I agree with defendant that the term "court" in section 8371 refers only to the judge and not to the judge and the jury and therefore conclude that section 8371 does not create a right to a jury trial.

 2. The Seventh Amendment's Mandate

 Having concluded that the Pennsylvania legislature did not intend to provide parties with a right to a jury trial for section 8371 claims, I turn to the question of whether the Seventh Amendment nonetheless mandates that a party may present a section 8371 claim to a jury when that claim is brought in federal court. See Cox, 861 F.2d at 393. To determine whether section 8371 embodies a "legal" as opposed to "equitable" claim, I first "compare the statutory action to 18th-century actions brought in the courts of England prior to the merger of the courts of law and equity" and then examine the remedy sought under the statute. Chauffeurs, Teamsters & Helpers, Local No. 391 v. Terry, 494 U.S. 558, 565, 108 L. Ed. 2d 519, 110 S. Ct. 1339 (1990). *fn16" The nature of the remedy sought is the more important prong of the analysis. Id. at 565; Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 42, 106 L. Ed. 2d 26, 109 S. Ct. 2782 (1989).

 Neither party compared an action against an insurer under section 8371 with actions brought in England prior to merger. However, I note that section 8371 is a statutory cause of action arising out of a bad faith breach of an insurance contract. Prior to merger, an action for breach of contract normally constituted a legal claim. I note, however, that section 8371 provides remedies not normally available at law. I therefore conclude that with respect to a section 8371 claim brought in federal court the applicability of the Seventh Amendment should be delimited by the nature of the remedy sought under the statute.

  The Supreme Court has explained that "remedies intended to punish culpable individuals, as opposed to those intended simply to extract compensation or restore the status quo, were issued by courts of law, not courts of equity." Tull, 481 U.S. at 422. Accordingly, in Thomson, Judge Joyner held that the Seventh Amendment permitted a plaintiff seeking punitive damages pursuant to section 8371 to present that claim to a jury. See Thomson, No. 91-4073, 1992 U.S. Dist. LEXIS 12627 at *10 (E.D. Pa. Aug. 24, 1992). This holding apparently was not appealed. I believe that the Court in Thomson arrived at the right result with respect to punitive damages under section 8371.

 The Court in Thompson, however, did not address the issue of whether the Seventh Amendment requires that a party be permitted a jury trial with respect to a claim for interest or court costs and attorney fees available under section 8371. I note the Seventh Amendment does not grant a party the right to submit equitable claims to a jury merely because legal claims also are present. See Billing v. Ravin, Greenberg & Zackin, P.A., 22 F.3d 1242, 1245 (3d Cir. 1994) (no jury right attaches to equitable claims), petition for cert. filed (Aug. 19, 1994); see, e.g., Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 508, 3 L. Ed. 2d 988, 79 S. Ct. 948 (1959) (instructing that a district court should permit a jury to resolve legal claims presented in an action prior to the court ruling on the equitable claims); but cf., Fitzgerald v. United States, 374 U.S. 16, 10 L. Ed. 2d 720, 83 S. Ct. 1646 (1963) (holding -- in the context of admiralty law -- that when a suit would become unnecessarily complicated if part is tried by a jury and part by a judge "only one trier of fact should be used for the trial of what is essentially one lawsuit to settle one claim split conceptually into separate parts because of historical developments"). *fn17"

 In its brief, plaintiff concedes -- and I concur -that an award of prejudgment interest is an equitable remedy not implicated by the Seventh Amendment. See Defendant's Memorandum at 41; Laird v. Hudson Engineering Corp., 449 F.2d 216, 217 (5th Cir. 1971), cert. denied, United States Steel Corp. v. Laird, 405 U.S. 955, 31 L. Ed. 2d 232, 92 S. Ct. 1177 (1972). Similarly, because "there is no common law right to recover attorney fees, the Seventh Amendment does not guarantee a trial by jury to determine the amount of reasonable attorneys fees." Resolution Trust Corp. v. Marshall, 939 F.2d 274, 279 (5th Cir. 1991); see also Swofford v. B & W Inc., 336 F.2d 406, 413 (5th Cir. 1964), cert. denied, 379 U.S. 962, 13 L. Ed. 2d 557, 85 S. Ct. 653 (1965) ("exemplary damages [under patent act] and attorneys' fees are not money claims triable by jury, although they are awarded in a legal action."); Empire State Ins. Co. v. Chafetz, 302 F.2d 828, 830 (5th Cir. 1962) (noting that "there was no common law right to attorney's fees."); A.G. Becker-Kipnis & Co. v. Letterman Commodities, Inc., 553 F. Supp. 118, 122-124 (N.D. Ill. 1982) (discussing right to jury trial and attorneys' fees, concluding that court rather than jury makes determination). *fn18"

  I therefore conclude that when a federal court action pursuant to section 8371 seeks punitive damages a party is entitled to a jury trial on that issue and on the issue of bad faith. The Seventh Amendment does not, however, command a court to honor a party's request for a jury trial with respect to a claim for interest, court costs or and attorney fees pursuant to the statute. However, because plaintiff is entitled to a jury trial on its claim for punitive damages under section 8371, I am bound by the jury's finding that defendant acted in bad faith towards plaintiff in determining the appropriateness of the equitable remedies that plaintiff seeks under the statute. *fn19" Cf. Roebuck v. Drexel University, 852 F.2d 715, 737-738 (3d Cir. 1988) (district court tried claims under 42 U.S.C. § 1981 and Title VII; the Court of Appeals held that "because the elements of proof are identical . . . a trial court is bound in a Title VII case to conform its verdict to the findings of the jury in a concurrently tried § 1981 case.").

 D. Section 8371 does not Violate the Seventh Amendment.

 Because I have concluded that the Seventh Amendment requires that a party is entitled to present a claim for punitive damages brought in federal court pursuant to section 8371 to a jury, defendant argues that I must find the statute unconstitutional. Defendant argues that the Pennsylvania legislature's selection of the "court" as the decisionmaker under section 8371 is a substantive provision of the statute for the purpose of the Erie doctrine and must therefore be applied in federal court in violation of the Seventh Amendment. See Erie v. Tompkins, 304 U.S. 64, 82 L. Ed. 1188, 58 S. Ct. 817 (1938). Defendant argues that a determination on my part that the designation of the decisionmaker is merely a procedural provision for the purpose of Erie would contravene the intent of the Pennsylvania legislature which I may not do under Byrd v. Blue Ridge Rural Electric Cooperative, Inc., 356 U.S. 525, 2 L. Ed. 2d 953, 78 S. Ct. 893 (1958). See Defendant's Memorandum at 22-26. I am unable to adopt defendant's reasoning.

 The Supreme Court has cautioned that a court is to avoid mechanistic determinations with respect to which provisions of a state statute are procedural and which are substantive. See Hanna v. Plumer, 380 U.S. 460, 466-67, 14 L. Ed. 2d 8, 85 S. Ct. 1136 (1965) (choices between state and federal law are to be made by reference to the policies underlying the Erie rule). One of the important considerations in determining whether a provision of a state law is substantive or procedural is whether the provision can fairly be construed as outcome determinative. See Guaranty Trust Co. v. York, 326 U.S. 99, 109, 89 L. Ed. 2079, 65 S. Ct. 1464 (1945); Neifeld v. Steinberg, 438 F.2d 423, 426 (3d Cir. 1971)(the outcome determinative analysis, in light of Hanna, must be read with reference to the aims of preventing forum-shopping and avoidance of inequitable administration of the laws); see also Defendant's Memorandum at 28 (arguing that the selection of the judge rather than the jury as the decisionmaker pursuant to section 8371 is to protect insurance companies from extreme punitive damage awards that it claims juries are likely to level against insurance companies).

 I conclude -- as did the Supreme Court in Byrd -- that there is not a strong possibility that a judge and a properly instructed jury would make substantially different punitive damage determinations under section 8371. See United States v. Gilsenan, 949 F.2d 90, 96 (3d Cir. 1991)(a jury may be presumed to follow the court's instructions in arriving at a verdict), cert. denied 504 U.S. 987, 119 L. Ed. 2d 590, 112 S. Ct. 2971. In either case Pennsylvania law binds the decisionmaker. In addition, as the Supreme Court noted in Byrd, the judge in the federal system has discretion pursuant to Fed.R.Civ.P. Rule 50 to "to grant a new trial if the verdict appears to [the judge] to be against the weight of the evidence. We do not think the likelihood of a different result is so strong as to require the federal practice of jury determination of dispute factual issues to yield to the state rule in the interest of uniformity of outcome." 356 U.S. at 540.

 My determination that the Pennsylvania legislature's selection of the court as the decisionmaker is not "an integral part of the special relationship created by the statute" Byrd, 356 U.S. at 536, and may therefore be regarded as procedural for the purpose of Erie without contravening the Pennsylvania legislature's intent is buttressed by Pennsylvania rules of statutory construction. Title 46 P.S. § 551 provides that "the object of all interpretation and construction of laws is to ascertain and effectuate the intention of the legislature." Title 46 P.S. § 552(3) provides that in determining the intent of the legislature a court may presume "that the Legislature does not intend to violate the Constitution of the United States or of this Commonwealth." I am required to choose between two distinct interpretations of the legislative intent behind section 8371, one of which would require me to hold the statute -- at least in part -- unconstitutional and one of which would not. I conclude that the Pennsylvania legislature intended to provide for the court as decisionmaker under section 8371 consistent with the established requirements of the Seventh Amendment and hold that that provision is procedural for the purpose of Erie. Therefore, my determination that a party is entitled to a jury trial with respect to a section 8371 claim seeking punitive damages does not contravene the intent of the Pennsylvania legislature.

 E. Interest and Court Costs and Attorney Fees

 In drafting section 8371, the Pennsylvania legislature adopted language that permits but does not compel the court to award punitive damages, prejudgment interest and to assess court costs and attorney fees against an insurer upon a determination that the insurer acted in bad faith toward the insured. Therefore, the jury's finding of bad faith permits a court to exercise its equitable power to order prejudgment interest and/or court costs and attorney fees. *fn20" At this juncture, however, I do not read section 8371 to mandate such remedies.

 Accordingly, the parties will agree upon a briefing schedule to address the issues of whether plaintiff is entitled to interest and attorney fees and court costs as provided by section 8371. If appropriate, the parties also should agree on a schedule for all other motions filed or to be filed.

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