Bad to the Bone: Pennsylvania Bad Faith Insurance Statute

In a previous post, we briefly discussed Underinsured and Uninsured Motorist (UM/UIM) coverage.  These types of insurance are reservoirs that an insured can tap when they’ve been injured in an accident by someone with too little or no insurance.  So if you were injured in a hit and run motorcycle accident or in an accident caused by someone with no insurance, you may be able to recover money from your own insurance company.  The main difference between liability coverage and UM/UIM coverage is that since UM/UIM coverage is part of a contractual claim, your insurance company has a duty to “negotiate with you in good faith.”

Failure to do so can expose an insurance company to a “Bad Faith” lawsuit. The Pennsylvania bad faith statute, 42 Pa. C.S.A. §8371, was passed in 1990.  It created a cause of action to punish insurance companies for unscrupulous claims handling; including, but not limited to automotive, medical, motorcycle, and casualty claims.  Bad faith covers all insurance policies in Pennsylvania.

The bad faith statute 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 percent.

(2)    Award punitive damages against the insurer.

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

42 Pa. Stat. and Cons. Stat. Ann. § 8371.

As you can see, the PA Bad Faith statute is a powerful tool to hold insurance companies accountable to their insureds.  Interestingly, the Pennsylvania Supreme Court has never opined on the 1990 Statute, instead The PA Superior Court’s decision in Terletsky v. Prudential Property & Casualty Insurance Co, 649 A.2d 680 (Pa. Super. 1994) is the foremost authority on these claims.

Tertletsky established the legal framework for Bad Faith Actions. These actions require that an insured prove by clear and convincing evidence that his insurer:

(1) had no reasonable basis to deny a claim and;

(2) knew or recklessly disregarded its lack of a reasonable basis in denying the claim. Id.

Quoting from Black Law Dictionary, the Pennsylvania Superior Court defined bad faith “as any frivolous or unfounded refusal to pay proceeds of a policy; it is not necessary that such refusal be fraudulent. For purposes of an action against an insurer for failure to pay a claim, such conduct imports a dishonest purpose and means a breach of a known duty (i.e., good faith and fair dealing), through some motive of self-interest or ill will; mere negligence or bad judgment is not bad faith.”  Id.

As the Pennsylvania lower courts have continued to struggle with Bad Faith claims, the Pennsylvania Superior Court has come to view it as a type of intentional tort, requiring the two prongs from Tertlesky plus a dishonest purpose or intentional malice towards the insured. For example, in O’Donnell v. Allstate Insurance Co., the Superior Court opined it is not bad faith for an insurer to aggressively investigate and protect its interests in the course of litigation absence a dishonest purpose or ill will. O’Donnell, 734 A.2d 901, 910 (Pa. Super 1999).  However, this may be about to change.

On August 30, 2016, the Pennsylvania Supreme Court granted a hearing on this exact issue. The question currently before the state Supreme Court is:

“Whether this Court should ratify the requirements of Terletsky v. Prudential, Property & Casualty Insurance Co., 437 Pa.Super. 108, 649 A.2d 680 (1994), appeal denied, 540 Pa. 641, 659 A.2d 560 (1995), for establishing insurer bad faith under 42 Pa.C.S. § 8371, and assuming the answer to be in the affirmative, whether the Superior Court erred in holding that the Terletsky factor of a “motive of self-interest or ill-will” is merely a discretionary consideration rather than a mandatory prerequisite to proving bad faith?”

Rancosky v. Washington National Insurance Company, 144 A. 3d 926 (PA 2016)

Very shortly, the Pennsylvania Supreme Court will have the final say as to whether “ill will” is essential to recover for bad faith or simply a factor that can be considered in the Court’s overall analysis.  The Court’s decision will undoubtedly effect the ability of the people to fight back against Pennsylvania insurance companies that act in bad faith.

If you believe your insurance company is delaying, mishandling or acting in “Bad Faith” with regards to your insurance claim you need an experienced attorney to fight for you. Call (267) 225-3317 and ask to speak with Troy.  Troy R. Crichton, Esq. is a Pennsylvania and New Jersey Accident Attorney who knows what it takes to hold insurance companies accountable and protect your rights!