Insurance Bad Faith in Pennsylvania – Statutory:

In Pennsylvania, the Bad Faith Statute, 42 Pa.C.S.A. § 8371, provides, in pertinent part, as follows:

1. 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: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%.
2. Award punitive damages against the insurer.
3. Assess court costs and attorney fees against the insurer.

42 Pa.C.S.A. § 8371.  While the Statute does not define “bad faith”, nor does it set forth the manner in which an insured must prove “bad faith”, the Pennsylvania Supreme Court recently set forth a two part test for determining “bad faith” under the Statute.  See Rancosky v. Wash Nat’l Ins. Co., 170 A.3d 364, 376 (Pa. 2017).  Specifically, the Pennsylvania Supreme Court stated as follows:

[I]n order to recover in a bad faith action, the plaintiff 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 of or recklessly disregarded its lack of a reasonable basis. 

Id. at 376.  Additionally, although proof of an insurer’s motive of self-interest or ill-will is not a prerequisite to prevailing on a bad faith claim, evidence of self-interest or ill-will is considered to be probative of the second prong of the test.  Id.  In this regard, Justice Wecht, in his Concurring Opinion in Rancosky, set forth various examples of bad faith conduct by an insurer.  Specifically, Justice Wecht stated as follows:

Many species of bad faith may flourish notwithstanding the absence of either “self-interest” or “ill will”.  Shoddy claims-handling, lack of diligence, non-responsiveness, haphazard investigation, unreasonable denials, and the like, all may come within the statutory definition of bad faith while nonetheless falling short of the “self-interest”/”ill will” threshold. 

Id. at 379 (footnote omitted).  Further, Justice Wecht went on to state:

Knowing or reckless claims-handling leading to objectively unreasonable denial of benefits, if proven by clear and convincing evidence, embodies the principle that a patent absence of good faith is tantamount to the presence of bad faith. 

Id. at 379 (footnote omitted).  

It has long been held in Pennsylvania that “[t]he utmost fair dealing should characterize the transactions between an insurance company and the insured.” Dercoli v. Pennsylvania Nat. Mut. Ins. Co., 554 A.2d 906, 909 (Pa. 1989) (quoting Fedas v. Insurance Company of the State of Pennsylvania, 151 A. 285, 286 (Pa. 1930)).  Moreover, insurance companies have a duty to deal with their insureds “on a fair and frank basis, and at all times, to act in good faith.” Id.; Hollock v. Erie Ins. Exchange, 842 A.2d 409, 416 (Pa. Super. 2004) (en banc) (holding that an insurer has a duty to act with the utmost good faith towards its insured).  “[B]ad faith encompasses a wide variety of objectionable conduct.”  Brown v. Progressive Ins. Co., 860 A.2d 493, 500 (Pa. Super. 2004).  Section 8371 was designed to remedy instances of bad faith conduct of an insurer, including bad faith in the insurer’s investigative practices, whether committed before, during or after litigation.  Grossi v. Travelers Personal Ins. Co., 79 A.3d 1141, 1153 (Pa. Super. 2013) (citing Hollock v. Erie Ins. Exch., 842 A.2d 409, 415 (Pa. Super. 2004)).  Bad faith conduct includes “lack of good faith investigation into facts, and failure to communicate with the claimant.” Romano v. Nationwide Mut. Fire Ins. Co., 646 A.2d 1228, 1232 (Pa. Super. 1994); see also Monaghan v. Traveler’s Prop. & Cas. Co. of America, 2014 U.S. Dist. Lexis 82368, at *11 (M.D. Pa. June 16, 2014) (citing Frog, Switch & Mfg. Co., Inc. v. Travelers Ins. Co., 193 F.3d 742, 751 n. 9 (3^rd Cir. 1999) (Bad faith conduct extends to “a frivolous or unfounded refusal to pay, lack of investigation into the facts, or a failure to communicate with the insured.”)); see also Schifino v. GEICO Gen. Ins. Co., 2012 U.S. Dist. LEXIS 177072 (W.D. Pa) (December 14, 2012) (McVerry) (Denying motion for summary judgment on bad faith claim where plaintiff alleged the insurer failed to conduct a meaningful investigation and failed to offer a reasonable settlement amount.).  

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