Articles

Pennsylvania Supreme Court issues opinion that will impact insurance bad faith cases

By Angela M. Heim

On September 28, 2017, the Pennsylvania Supreme Court issued an opinion that will have a significant impact on insurance bad faith cases in the Commonwealth of Pennsylvania.  Prior to September 28, the Pennsylvania Supreme Court had remained silent on the requisite elements of an insurance bad faith claim, forcing insurers and insureds, alike, to rely on inconsistent opinions issued by the Pennsylvania Superior Court, some of which required evidence of an insurance company’s motive of self-interest or ill-will as a prerequisite to a finding of bad faith under 42 Pa.C.S. § 8371, and some which did not.

However, in Rancosky v. Washington National Insurance Company, No. 28 WAP 2016 (Pa., Sept. 28, 2017), the Supreme Court  adopted the two-part test articulated by the Superior Court in Terlestsky v. Prudential Property & Cas. Ins. Co., 649 A.2d 680 (Pa. Super. 1994).  In so doing, the Court made it clear that in order to prevail in an insurance bad faith claim under 42 Pa.C.S. § 8371 which, itself, addresses only the available remedies for bad faith and is silent on the actual standard to prove it, an insured must “present clear and convincing evidence (1) that the insurer did not have a reasonable basis for denying benefits under the policy and (2) that the insurer knew or recklessly disregarded its lack of a reasonable basis.”  The Supreme Court also made clear that “proof of an insurance company’s motive of self-interest or ill-will is not a prerequisite to prevailed in a bad faith claim under Section 8371,” although it could be “probative of the second Terletsky prong.” 

Accordingly, bad faith claims in Pennsylvania will no longer be summarily dismissed in the absence of evidence of an insurance company’s motive of self-interest or ill-will.  Such evidence is also not a prerequisite to an award of punitive damages under the bad faith statute.  Instead, an insured must come forward with evidence that the insurer lacked a reasonable basis for denying coverage.  Once that prong has been met, the insured must come forward with evidence that the insurer knew or recklessly disregarded  its lack of a reasonable basis for denying a claim.  Once again, while evidence of an insurer’s motive of self-interest or ill-will can be introduced to support the second prong of the test, it is not required.

Angela M. Heim, Of Counsel to Rawle & Henderson, concentrates her practice on insurance coverage matters, professional liability and civil litigation. Angela graduated from Penn State University in 1990 with a degree in Business Logistics and an emphasis in Economics. Prior to attending law school, she worked for a computer software company specializing in software for home nursing agencies and physicians’ offices. In 1995, Angela graduated from the University of Pittsburgh School of Law and began her practice of law at Rawle & Henderson LLP.

Angela can be reached directly at:  (215) 575-4241 • aheim@rawle.com