Here’s what to do and who to call if you believe you’re a victim of insurance bad faith
The Pennsylvania Supreme Court sets forth a two-part test for whether an insurance company has committed bad faith. If your insurance payout is lower than you expected, or if your claim was denied, you can look into whether bad faith is a factor.
There are few things that are certainties in life. Among them is that nearly everyone must have insurance at some time. We get insurance for our homes, vehicles, health care, work, and perhaps other assets.
What is Pennsylvania bad faith insurance?
Insurance is supposed to protect us. It should be there when a crisis happens—an accident or loss—so that our lives aren’t upended by no fault of our own. And despite the insurance companies’ assurances that they will take care of us in our times of need, sometimes that doesn’t happen as it should.
Bad faith insurance refers to situations where an insurance company fails to fulfill its obligations to policyholders in an honest, fair, and reasonable manner.
This can occur when an insurer deliberately acts in ways that are unfair or unjust in handling claims, denying benefits, or delaying payments without legitimate reasons.
Examples of common Pennsylvania bad faith insurance practices
- Unreasonable denial of a claim. The insurer refuses to pay a valid claim without a proper basis.
- Delays in processing. The insurer unreasonably delays payment or response to a claim.
- Failure to investigate. The insurer does not thoroughly investigate a claim before making a decision.
- Lowball settlement offers. Offering far less compensation than what is fair under the policy.
- Misrepresentation of coverage. Providing false information about what is covered under the policy.
Pennsylvania laws for insurance bad faith
Pennsylvania has specific laws that govern bad faith insurance practices. These laws allow policyholders to take legal action against insurers who act in bad faith. The key statute is **42 Pa.C.S. § 8371**, which provides a cause of action for insurance bad faith.
Pennsylvania definition of “bad faith”
Pennsylvania courts interpret the statute for bad faith as an insurer's lack of a reasonable basis for denying a claim, coupled with knowledge or reckless disregard of its unreasonableness.
What are the policyholder’s statutory rights?
42 Pa.C.S. § 837 provides for the court to award a policyholder:
- Interest on the claim, calculated at a rate of prime interest plus 3% from the date the claim was made;
- Punitive damages if the insurer’s conduct was particularly egregious; and
- Attorneys’ fees and costs paid to the insured by the insurer to cover the fees and expenses related to the bad faith action.
What elements must the policyholder prove to meet the standard for bad faith?
- The insurer did not have a reasonable basis for denying or delaying benefits.
- The insurer knew or recklessly disregarded the lack of a reasonable basis for the denial or delay.
Types of Pennsylvania bad faith actions
- First-party claims involve the insurer's bad faith in handling the policyholder's own claim (e.g., health, auto, homeowner’s insurance).
- Third-party claims are cases when the insurer fails to properly defend or settle a claim made by a third party against the policyholder, leading to additional liability.
Pennsylvania statute of limitations for a bad faith insurance claim
The statute of limitations is the amount of time a plaintiff has to file a lawsuit. If you fail to file by the required date, you lose the ability to make a claim. For a Pennsylvania bad faith insurance lawsuit, the plaintiff must file within two years of the date of the bad faith action.
Pennsylvania court case and legal standard for bad faith insurance lawsuits
The Pennsylvania Supreme Court set forth a two-part test as the basis for proving bad faith. This was established by Terletsky v. Prudential Property & Casualty Insurance Co. (1994) and clarifies what constitutes “bad faith” under Pennsylvania law.
In this case, the plaintiff and her husband were in a car accident. They filed a claim using their uninsured motorist coverage. They believed they were entitled to $15,000 in policy benefits. However, the insurer offered only $500; it claimed the accident was minor and their injuries were not significant enough for a larger payout. The Terletskys claimed the insurer acted in bad faith by failing to offer a reasonable settlement.
The court found that the insurer acted in bad faith because it withheld benefits under the policy without a reasonable basis for offering such a low settlement.
It applied a two-part test:
- Absence of a reasonable basis, meaning the insurer did not provide reasonable cause for denying or delaying payment of the claim; and
- Knowledge or reckless disregard, which means the insurer knew or recklessly disregarded its lack of a reasonable basis in denying the claim.
The court emphasized that bad faith does not arise merely because the insurer made a low offer or denied a claim, but rather when the denial is unreasonable and the insurer is aware of this unreasonableness.
Why Teletsky is important in Pennsylvania law
- It clarifies "bad faith" by establishing a clear standard for determining when an insurance company is acting in bad faith under Pennsylvania law.
- It’s broadly applied to both first-party claims (such as uninsured motorist claims) and third-party claims (involving liability or defense obligations).
- It sets forth a foundation for future cases (also known as precedent) to inform courts in evaluating bad faith claims and policyholders seeking remedies against insurers who fail to meet their obligations.
What to do if you think you have a Pennsylvania insurance bad faith claim
- Carefully review your insurance policy.
Understand the specific terms of your coverage, its limits, and the claims process. Ensure that the insurer’s denial or dispute is inconsistent with the policy. - Document all communications.
Maintain records of written correspondence, including emails and letters. Keep notes of phone calls, including dates, the representative’s name, and a summary of each conversation. Keep all documents related to the claim, including settlement offers. - Keep a calendar of relevant dates.
Make notes of any unreasonable delays in the insurer’s responses or processing times. Note the date of the denial, because that is the date of the bad faith action and is important for the statute of limitations. - Be familiar with the insurer’s reasons for denial.
If the reasons for a low settlement offer or denial are vague, unsupported, or unreasonable, this could support a bad faith claim. - Consult a Pennsylvania attorney.
There are lawyers who specialize in insurance bad faith. These types of claims can be complex and it’s crucial to have an attorney who understands the law and evaluate the likelihood of success for your claim. - Work with your lawyer to gather evidence and expert testimony before filing a lawsuit.
Your lawyer will work with experts like accident reconstruction professionals, medical professionals, and others to determine whether or not the insurance company’s decision was reasonable. When and if it becomes time to file a lawsuit, your lawyer will advise on what your demand should be based on the insurer’s conduct and whether punitive damages are appropriate.
Your lawyer will likely try to negotiate with the insurance company to reach an agreeable settlement and going to trial is a last resort. If you do need to go to trial, the judge or jury will determine whether the insurer acted in bad faith and whether (and how much) damages should be awarded.
Your insurance company has deep pockets to defend against lawsuits. Although you are their “customer” as a policyholder, this is one industry in which the customer is not always right. Remember, the insurance company makes a profit when the amount it pays in settlements is less than what it receives in premiums. In other words, the insurance adjuster’s objective will always be to pay you the lowest amount you are willing to take.
An insurance company giving a lowball offer isn’t necessarily bad faith. It needs to meet the standards set forth above in order to be considered bad faith; and even then, you can try to negotiate the offer to what would be reasonable. However, insurance companies specifically train their employees to look for loopholes, find admissions you might have made as to why you deserve less compensation or figure out any way to save themselves money. That’s why if the offer looks low, it’s best to seek the advice of a qualified Pennsylvania lawyer. The lawyer will review the claim and the offer and tell you whether you might have a case against the insurer.
Did you know that bad faith insurance law varies by state?
What does an injury lawyer do?
A personal injury lawyer helps individuals who have sustained injuries in accidents to recover financial compensation. These funds are often needed to pay for medical treatment, make up for lost wages and provide compensation for injuries suffered. Sometimes a case that seems simple at first may become more complicated. In these cases, consider hiring an experienced personal injury lawyer. Read more