Not So Fast – Pennsylvania’s Bad Faith Statute Is Not A Blank Check for Fees

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The Third Circuit recently held that a jury bad faith damage award does not automatically entitle a successful claimant to an award of attorney’s fees under Pennsylvania’s bad faith statute. In affirming the district court’s denial of an award of attorney’s fees, the Third Circuit formally endorsed the view that where a fee-shifting statute provides a court with discretion to award attorney’s fees, such discretion includes the ability to deny a fee request that is outrageously excessive. In doing so, the Third Circuit joins the First, Fourth, Seventh, and D.C. Circuits which have previously adopted a similar view.

The facts of the underlying case were unremarkable. Litigation over a denial of Underinsured motorist insurance (UIM) benefits under an auto policy included an allegation of bad faith against the insurer. After settling the UIM claim for $25,000, the remaining bad faith claim went to trial, and a jury awarded punitive damages of $100,000 against the insurer. Under Pennsylvania’s bad faith statute, 42 Pa. Cons. Stat. §8371, “the court may …assess court costs and attorney fees against the insurer” upon a finding of bad faith. 

What is remarkable was that counsel for the insured then submitted to the district court a petition seeking $1,122,156.43 in attorney’s fees and interest. After performing a lodestar analysis, the district court disallowed approximately 87% of the hours billed and 97% of the interest claimed. The district court then awarded $4,986.58 in interest and denied the attorney’s fee request in its entirety, holding that when the “fee requested by counsel is so grossly exaggerated or absurd, that the fees shocks the conscience of the court, the court may entirely deny the request for fees.”

Insured’s counsel appealed the denial of attorney’s fees in their entirety; however, the Third Circuit affirmed the district court finding that it did not abuse its discretion in denying the request for attorney’s fees.  In doing so, the Third Circuit explained that “if courts did not possess this kind of discretion, claimants would be encouraged to make unreasonable demands, knowing that the only unfavorable consequence of such conduct would be reduction of their fee to what they should have asked for in the first place.”

As the old adage goes, pigs get fat but hogs get slaughtered. The availability to recover statutorily permitted attorney’s fees by a successful litigant is not a blank check. The key takeaway from this case is that even a successful bad faith claimant may not ultimately recover statutorily permitted attorney’s fees and costs if the amount claimed is outrageously excessive.