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Evidence of an Insurer’s Motive of Self-Interest or Ill Will is Not Required in an Insurance Bad Faith Action

September 28th, 2017

In Rancosky v. Washington National Insurance Company, No. 28 WAP 2016, (September 28, 2017), the Pennsylvania Supreme Court considered for the first time the elements of a bad faith insurance claim brought pursuant to the Pennsylvania bad faith statute, 42 Pa.C.S. Section 8371.  The Court adopted a two part test earlier articulated in the Superior Court case of Terletsky v. Prudential Property & Cas. Ins. Co., 649 A.2d 680 (Pa. Super. 1994).  This test requires a showing of 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.  Importantly, the Court specifically held that proof of an insurance company’s motive of self-interest or ill-will is not a prerequisite to prevailing in a bad faith claim, as asserted by the carrier.  The Court found that while such evidence would be probative of the second prong of theTerletsky test, evidence of the insurer’s knowledge or recklessness as to its lack of a reasonable basis in denying policy benefits is sufficient.

In this case, Rancosky purchased a cancer policy.  The policy contained a waiver of premium provision which excused premium payments in the event that Rancosky became disabled due to cancer.  Rancosky was subsequently diagnosed with ovarian cancer causing her to become disabled.  She submitted all of the forms and authorizations required under the policy, and discontinued making premium payments.  The insurer subsequently denied payment of benefits due to failure to pay premiums.  Rancosky sought reconsideration of the denial of benefits because she was excused from making premium payments due to her disability and had satisfied all other policy requirements.  The insurer’s paper work included an erroneous physician statement as to the start date of Rancosky’s disability which put it two and one-half months after the date that Rancosky claimed that it began.  Rancosky had given the insurer eight separate authorizations that would have permitted the insurer to obtain the correct documentation, but the insurer conducted no investigation.  Instead, it merely accepted the physician’s statement, which resulted in a lapse of premium payment prior to a ninety-day waiting period under the waiver of premium payment provision.

The trial court found that the insurer was sloppy and even negligent in its handling of paper work, but found against Roncosky with respect to her claim of bad faith because she had not shown that the insurer had acted out of some motive of self interest or ill will.  The Superior Court vacated the trial court’s judgment as to Rancosky’s bad faith claim and remanded for further proceedings.  The Superior court held that under Terletsky an insurance company’s motive of self-interest or ill-will is not a prerequisite to prevailing in a bad faith claim, and that while such evidence would be probative of the second prong of the Terletsky test, evidence of the insurer’s knowledge or recklessness as to its lack of a reasonable basis in denying policy benefits is sufficient.  The Pennsylvania Supreme Court affirmed.

Opinion by Justice Baer, joined by Justices Todd, Donohue, Doougherty, Wecht and Mundy.  Chief Justice Saylor and Justice Wecht  filed concurring opinions.

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