• Pennsylvania Supreme Court adopts a two-part test for statutory bad faith claims in PA
  • November 22, 2017
  • Rancosky v. Wash. Nat’l Ins. Co., 2017 Pa. LEXIS 2286 (Pa. 2017)

    In this significant case, the Pennsylvania Supreme Court has interpreted the bad faith test from Terletsky v. Prudential Prop. & Cas. Ins. Co., 649 A.2d 680 (Pa. Super. 1994). Specifically, the court held that, in order to recover in a bad faith action, the plaintiff must present clear and convincing evidence 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 a reasonable basis.

    The court also held that “[p]roof of an insurance company’s motive of self-interest or ill-will is not a prerequisite to prevailing in a bad faith claim under § 8371,” and that, “[w]hile such evidence is probative of the second Terletsky prong … evidence of the insurer’s knowledge or recklessness as to its lack of a reasonable basis in denying policy benefits is sufficient.” Hence, there is no third prong to the test for bad faith in Pennsylvania. As such, proof that the insurer acted in self-interest or with ill-will is merely probative of the second prong of the test. The court noted, however, that “[m]ere negligence is insufficient for a finding of bad faith under § 8371.”

    The court went on to discuss the issue of punitive damages in the context of statutory bad faith, stating, “Consequently, as § 8371 does not distinguish between the standard for finding ‘bad faith’ generally and ‘bad faith’ allowing for punitive damages, we find no basis for concluding that the General Assembly intended to impose a higher standard of proof for bad faith seeking punitive damages when it created the right of action.” Id.