Erie hit with $1.75m bad faith verdict
A Pennsylvania appeals court upheld a bad-faith ruling against Erie Insurance but sent the case back to recalculate damages. The dispute started after a 2004 car crash when the Gambones settled with the other driver and requested underinsured motorist benefits from their carrier. An arbitrator awarded them 300,000 dollars, with policy stacking applied, but Erie paid only 250,000 dollars and challenged the decision.
A trial court found the insurer acted in bad faith by participating in binding arbitration and then contesting the outcome without telling the policyholders it reserved the right to dispute stacking. On Oct. 17, the Superior Court agreed Erie lacked reasonable grounds for its actions. Judges threw out the 1.75 million dollar damage award because the lower court wrongly calculated attorney fees and added compound interest without legal authority.
The court ordered new fee and interest calculations while retaining the bad-faith verdict. Erie must follow the lodestar method for legal costs by multiplying hours worked by fair hourly rates rather than using contingency percentages.
