Insurance Bad Faith in Pennsylvania – Common Law

In addition to claims for statutory bad faith pursuant to 42 Pa.C.S.A. § 8371, Pennsylvania courts have also recognized the existence of a common law cause of action for bad faith.  In this regard, the Pennsylvania Supreme Court in Birth Center v. St. Paul Co. Inc., 787 A.2d 376 (Pa. 2001), pronounced that the “[b]reach of . . . [the] obligation [to act in good faith] constitutes a breach of the insurance contract for which an action in assumpsit will lie.”  787 A.2d at 385.  The Court went on to state that, while Pennsylvania has a statutory scheme to deal with insurer’s bad faith conduct, that scheme does not alter the contract remedy available to the insured under the common law.  Id. at 386.  Specifically, the Court stated as follows:

In St. Paul’s third argument, it incorrectly asserts that compensatory damages may not be awarded when an insurer’s bad faith conduct causes the insured to incur actual damages, because the damages are not mentioned in 42 Pa. C.S.A. § 8371.   While The Birth Center may not recover compensatory damages based on Section 8371, that Section does not alter The Birth Center’s common law contract rights.

Id. at 386.  Further, the Court went on to note that:

The statute does not prohibit the award of compensatory damages. It merely provides an additional remedy and authorizes the award of additional damages. Specifically, the statute authorizes courts, which find that an insurer has acted in bad faith toward its insured, to award punitive damages, attorneys’ fees, interest and costs. Id. The statute does not reference the common law, does not explicitly reject it, and the application of the statute is not inconsistent with the common law. Consequently, the common law remedy survives. 

Id. at 386 (footnote omitted).  The Supreme Court then concluded:

Therefore, contrary to St. Paul’s contention, Section 8371 does not prohibit courts from awarding compensatory damages that are otherwise available.  In Section 8371, the legislature granted the court additional authority to award punitive damages, interest, costs and attorneys’ fees. The fact that the statute authorized courts to award these damages does not prohibit them from granting other remedies that they theretofore had the power to award without the grant of additional authority.

Id. at 387-388 (footnote omitted). 

Following Birth Center, the Pennsylvania Supreme Court in Ash v. Cont’l Ins. Co., 932 A.2d 877 (Pa. 2007), further clarified the contractual remedies available to an insured under the common law, stating as follows:

This Court highlighted the distinction between the common law contractual duty of good faith and the duty of good faith imposed by § 8371 in The Birth Center v. The St. Paul Companies, Inc., 787 A.2d 376 (Pa. 2001).  In that case, the insurer argued compensatory damages — which were available for a breach of the implied contractual duty of good faith prior to the enactment of § 8371 — were no longer available since § 8371 did not authorize such damages.  Id. at 386-90.  We rejected the insurer’s claim that § 8371 supplanted the existing common law remedy, noting § 8371 does not refer to or explicitly abrogate that remedy, and that the application of § 8371 is not inconsistent with the common law. Id. at 390.  We concluded § 8371 does not prohibit the award of compensatory damages where they are otherwise available; it merely provides a basis to award additional damages beyond those already available. Id. at 390. Thus, while the insurer “may not recover compensatory damages based on Section 8371, that Section does not alter [the insured’s] common law contract rights.” Id. at 386.

Id. at 884.  Thereafter, in Allstate v. Wolfe, 105 A.3d 1181, 1187 (Pa. 2014) the Pennsylvania Supreme Court further clarified, stating that [the Pennsylvania Bad Faith Statute] is a mere “supplementation of remedies” already existing at common law.[1]  105 A.3d at 1187. 

           In applying this rationale, Courts applying Pennsylvania law have explicitly determined that:

Bad faith by an insurance company can give rise to two separate causes of action under Pennsylvania law: a breach of contract action for violation of an insurance contract’s implied duty of good faith and a statutory action under the terms of Pennsylvania bad faith law, 42 Pa.C.S. § 8371. 

DeWalt v. Ohio Casualty, 513 F. Supp. 287, 291 (E.D. Pa. 2007).  Other Federal courts applying Pennsylvania law have also applied this reasoning.  See Kakule v. Progressive Cas. Ins. Co., 2007 U.S. Dist LEXIS 44942, *13-14 (E.D. Pa. 2007) (Kelly, J) ( holding “[t]hus it has been clearly decided that in Pennsylvania insureds are now permitted to raise common law contract actions for bad faith conduct of insurers.”); Smith v. Allstate Ins. Co., 904 F. Supp. 2d 515 (W.D. Pa. 2012) (Gibson, J) (holding in light of the language of Birth Center and its subsequent application by Courts applying Pennsylvania law, this Court predicts that the Supreme Court of Pennsylvania would apply Birth Center to a first party insurance case if presented with the issue and applies this precedent in the instant case); Katta v. GEICO Ins. Co., 2013 U.S. Dist. Lexis 9762 (W.D. Pa. 2013) (Conti, J) (holding [t]he Pennsylvania Supreme Court and federal courts interpreting Pennsylvania law have thus allowed plaintiffs to assert a common law contract claim of bad faith in addition to a bad faith claim pursuant to section § 8371).  

Recently, the Pennsylvania Supreme Court reaffirmed the continuing viability of a common law bad faith action.  In Rancosky v. Wash. Nat’l Ins. Co., 170 A.3d 364, n. 10 (Pa. 2016)[2], the Court observed, in pertinent part, that:

We observe, however, that this Court has considered other aspects of claims brought pursuant to Section 8371. . . . Birth Center v. St. Paul Companies, 567 Pa 386, 787 A.2d 379 (Pa. 2001) (holding that in creating additional remedies for bad faith under Section 8371, the General Assembly did not intend to prohibit an award of compensatory contractual damages that were otherwise available at common law).

170 A.3d 364, n. 10 (emphasis added).  

The standard governing common law contract claims for bad faith is a negligence standard, as opposed to the heightened standard of bad faith under Section 8371.  Katta v. Geico Ins. Co., 2013 U.S. Dist. LEXIS 9762 (W.D. Pa. 2013) (Conti, J.); DeWalt v. Ohio Casualty Ins. Co., 513 F. Supp. 287, 297 (E.D. Pa. 2007). 

If you believe that you have been a victim of insurance bad faith in Pennsylvania, contact Attorney Jeff Stanton for a free consultation.

[1]   In fact, § 8371 was added to Article 42 of the Pennsylvania Code in Subchapter G entitled “Special Damages”. 

[2]    In Rancosky, the Court, in dicta, observed that it previously declined to recognize the common law cause of action for bad faith.  However, the Court was referencing a common law tort action, not a common law contract action.  See Birth Center, Ash and DeWalt, supra.