HARRISBURG – The Pennsylvania Supreme Court has taken a stand on what policy holders have to prove to lay the groundwork for a bad faith claim under the state’s bad faith statute.
Justices Debra McCloskey Todd, Christine Donahue, Kevin M. Dougherty, David N. Wecht and Sally Updyke Mundy joined the opinion, as did Chief Justice Thomas G. Saylor and Wecht, who filed a concurring opinion on Sept. 28.
"We adopt the two-part test articulated by the Superior Court in Terletsky v. Prudential Property &Cas. Ins. Co. ... which provides that, in order to recover in a bad faith action, the plaintiff must present clear and convincing evidence (1) that the insured 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," the opinion states.
In its opinion, the court determined that the statute doesn’t require policy holders prove an insurance company acted out of self-interest or ill will as a prerequisite to prevailing in a bad faith claim.
The court ruled on an appeal from Matthew Rancosky, administrator of the estate of LeAnn Rancosky and Matthew Rancosky and executor of the estate of Martin L. Rancosky, in a complaint against Washington National Insurance Co.
The opinion states that LeAnn Rancosky had purchased a cancer insurance policy in 1992 while an employee of the United States Postal Service. The policy was issued by appellant Conseco Health Insurance Co. She paid the policy with bi-weekly payroll deductions of $22.
In February 2003, Rancosky was diagnosed with ovarian cancer. She didn’t return to work at USPS but remained on the payroll because of accrued vacation time.
On June 24, 2003, Rancosky went on disability retirement. She tried to get a waiver-of-premium status on the policy, filing required forms and physician statements.
Washington National is the successor of Conseco, which noted that Rancosky quit making premium payments in June of 2003. However, she continued to battle the company over her status, the opinion states.
As late as 2006, when she had another recurrence of her cancer, Rancosky continued to seek further benefits, which Conseco rejected based on her failure to pay premiums.
The opinion indicates that while it was evaluating Rancosky’s reconsideration request, Conseco’s review was limited to in-house documentation, which included inconsistent filings and a physician’s statement that listed an incorrect date for her disability.
“We hold that, to prevail in a bad faith insurance claim pursuant to Section 8371, a plaintiff must demonstrate, by clear and convincing evidence, that the insurer did not have a reasonable basis for denying benefits under the policy and that the insurer knew or recklessly disregarded its lack of a reasonable basis in denying the claim,” the court wrote in its opinion.
The court also held that a policy holder doesn’t have to prove an insurer’s motive of self-interest or ill will in order to be successful in a bad faith claim.
“Rather, proof of the insurer’s knowledge or reckless disregard for its lack of reasonable basis in denying the claim is sufficient for demonstrating bad faith under the second prong,” the court wrote in its opinion.
The court further noted that on remand, “the trial court should consider anew whether the above test has been met.”
In a concurring opinion also issued Sept. 28, Saylor noted that he would endorse a threshold of at least reckless disregard.
“I endorse the threshold of at least reckless disregard, since I believe that this captures a sufficient measure of wrongfulness to comport with the Legislature’s remedial purposes and yet conveys that a finding of bad faith requires more than mere negligence,” Saylor wrote.
Moreover, Saylor wrote that punitive damages should be adjusted by conventional standards, including any applicable constitutional limitations.