Philadelphia Business Lawyers: Supreme Court to Review Bad Faith Standard for Insurers

The Pennsylvania Supreme Court will review the issue of establishing insurer bad faith under 42 Pa.C.S. § 8371. The main question at hand is whether the factor of a “motive of self-interest or ill-will” is a discretionary one rather than a mandatory requirement in proving bad faith.

The Superior Court, in the case Rancosky v. Washington National Insurance Company, ruled it was a discretionary factor. 130 A.3d 79 (Pa. Super. Ct., 2015). The plaintiff in the case, LeAnn Rancosky, was denied benefits from her insurance carrier after she was diagnosed with ovarian cancer. The insurance policy included a waiver of premium, which stated that premium payments would not be required after the policy owner is disabled due to cancer for more than 90 days after being diagnosed. There was a dispute as to when the disability started, with Rancosky believing the disability started the day she was diagnosed and the carrier believing it was a later date. The carrier ultimately found that the insurance policy had lapsed because Rancosky had not paid her premiums. Among other claims, Rancosky instituted a claim of bad faith against the insurance carrier.

Because the legislature did not provide a definition of bad faith in the statue, there has been some confusion in the courts on how to apply it. Prior cases have found plaintiffs do not need to prove ill-will to proceed with bad faith claims. The Superior Court restated a two-part test to determine bad faith of an insurer: “that (1) the insurer did not have a reasonable basis for denying benefits under the policy, and (2) the insurer knew of or recklessly disregarded its lack of reasonable basis in denying the claim.” (at *92). The Superior Court then held that, “A ‘dishonest purpose’ or ‘motive of self-interest or ill will’ is not a third element required for a finding of bad faith,” but “may be considered in determining the second prong of the test for bad faith, i.e., whether an insurer knowingly or recklessly disregarded its lack of a reasonable basis for denying a claim.” (at *93). The Supreme Court will hear arguments to hopefully settle the issue.

For more information call our Philadelphia business lawyers at Sidkoff, Pincus & Green at 215-574-0600 or contact us online.