Presented by the Insurance Coverage/Bad Faith Litigation Group

Legal Updates for Coverage and Bad Faith - Special Alert

March 3, 2016

Edited by Allison Krupp, Esq.

PA Superior Court Decision Means Bad Faith Claims May Live to See Another Day

By Christopher W. Woodward, Harrisburg, PA

Rancosky v. Washington National Insurance Co., 2015 Pa. Super. LEXIS 822, 2015 PA Super 264 (Pa. Super. Ct. Dec. 16, 2015).

The Pennsylvania Superior Court confirmed that the test for bad faith in Pennsylvania consists of two prongs: (1) the insurer did not have a reasonable basis for denying benefits under the policy; and (2) the insurer knew or recklessly disregarded its lack of reasonable basis in denying the claim. The trial court determined that the insureds had failed to prove the first prong by clear and convincing evidence because they had not shown a "dishonest purpose" or a "motive of self-interest or ill-will" on the part of the insurer. The Superior Court reversed, holding that such proof should only be used in consideration of the second prong of the bad faith test and, thus, the trial court erred by granting summary judgment in favor of the insurer. The court considered that the trial court could not have considered whether the insurer had a dishonest purpose, a motive of self-interest or ill-will unless it had first determined that the insurer lacked a reasonable basis in denying benefits. The Superior Court also held that the insureds' claims were not barred by the statute of limitations because each new independent act of alleged bad faith—including an inadequate investigation and wrongful denial of a reconsideration based upon new evidence—gave rise to a new statute of limitations, and that the statute begins to run when the insureds are informed of these subsequent decisions. In light of this decision, insurers may see requests for reconsideration of a denial of benefits where a potential bad faith claim would otherwise be time-barred by the two-year statute of limitations.

For a copy of the Rancosky decision, please contact Allison L. Krupp in our Harrisburg office.

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