## Facts

- The Birth Center operated a freestanding birth facility insured by St. Paul under a professional liability policy with $1,000,000 limits.
- In an underlying malpractice action, parents sued The Birth Center alleging negligent delivery care caused their child severe injury and permanent brain damage.
- The plaintiffs offered to settle within policy limits; The Birth Center urged St. Paul to accept.
- Judges and St. Paul’s defense counsel warned St. Paul that liability exposure was high and recommended settling within limits.
- St. Paul refused to offer settlement funds and proceeded to trial.
- A jury returned a $4,500,000 verdict against The Birth Center, exceeding policy limits.
- St. Paul later paid the entire verdict amount to the plaintiffs but denied acting in bad faith.
- The Birth Center sued St. Paul for bad faith refusal to settle, breach of contract and fiduciary duty, and statutory bad faith under 42 Pa. Cons. Stat. § 8371.
- A jury found, by clear and convincing evidence, that St. Paul acted in bad faith and that the bad faith was a substantial factor causing $700,000 in compensatory damages (including reputational and related economic harm); no punitive damages were awarded.
- The trial court granted JNOV on the compensatory award; the Superior Court reversed and reinstated the verdict.

## Issues

1. Whether an insurer’s bad-faith refusal to settle within policy limits can support consequential compensatory damages to the insured even if the insurer later pays the entire excess verdict.
2. Whether 42 Pa. Cons. Stat. § 8371 precludes recovery of common-law contract compensatory damages for an insurer’s bad-faith failure to settle.

## Decision

- The Supreme Court of Pennsylvania affirmed the reinstatement of the $700,000 compensatory verdict.
- The court held St. Paul’s bad-faith refusal to settle could support foreseeable compensatory damages that reasonably flowed from the breach, notwithstanding St. Paul’s later payment of the excess verdict.
- The court held § 8371 provides additional remedies and does not displace common-law contract damages.

## Legal Principles

- An insurer that refuses a within-limits settlement without a bona fide belief it has a good possibility of winning breaches its contractual duty of good faith and its fiduciary duty to the insured.
- Contract damages may include known or foreseeable consequential losses that reasonably flow from the insurer’s bad-faith failure to settle, including reputational and related economic harm, if causation is proven.
- An insurer’s later payment of an excess judgment does not, by itself, extinguish liability for separate consequential harms caused by the refusal to settle and resulting trial.
- 42 Pa. Cons. Stat. § 8371 authorizes specified statutory remedies for bad faith and does not bar traditional compensatory contract damages arising from the same conduct.

## Conclusion

Pennsylvania law permits an insured to recover foreseeable consequential compensatory damages for an insurer’s bad-faith refusal to accept a within-limits settlement, even when the insurer later pays the excess verdict, and § 8371 does not preempt common-law contract remedies.


Birth Ctr. v. St. Paul Cos., 787 A.2d 376 (Pa. 2001)