HARRISBURG, Aug. 30 – The Pa. Supreme Court issued a ruling granting appeal in a bad faith case to consider whether proof of ill will or motive is a prerequisite to establishing liability under the Pa. Bad Faith Statute, 42 Pa.C.S.A. §8371.
In Rancosky v. Wash. National Ins. Co. , 2016 Pa. LEXIS 1910 (Pa. Aug. 30, 2016), the state’s highest court ruled it will undertake limited review of a Pa. Superior Court ruling which granted a new trial to a bad faith plaintiff, an estate executor, after the trial court found for Washington National following a non-jury trial in a dispute over a cancer insurance policy.
The Supreme Court Order indicates it will review only the following issue:
“Whether this Court should ratify the requirements of Terletsky v. Prudential Property & Casualty Insurance Co., 649 A.2d 680 (Pa. Super. 1994), appeal denied, 659 A.2d 560 (Pa. 1995), for establishing insurer bad faith under 42 Pa.C.S. § 8371, and assuming the answer to be in the affirmative, whether the Superior Court erred in holding that Terletsky factor of a “motive of self-interest or ill-will” is merely a discretionary consideration rather than a mandatory prerequisite to proving bad faith?
While recognizing that the state legislature did not define bad faith, the Superior Court held that a statutory bad faith claim under Pennsylvania’s bad faith statute had two elements: (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 reasonable basis in denying the claim. According to the Superior Court opinion, the trial court granted judgment to the insurer in part because the Plaintiff “failed to prove that Conseco [predecessor to Washington Mutual] had a dishonest purpose” or a “motive of self-interest or ill-will.”
The Superior Court ruled it was sending the case back to the trial court for a new trial because the trial court’s finding that Plaintiff failed to prove the first element of the bad faith claim was in part premised upon the Plaintiff’s failure to prove that the insurer in the case acted will ill will or a dishonest purpose.
The following passage from the Superior Court opinion, which could be seen as exalting form over substance, refers to an insurer’s ill will or dishonest purpose as merely “probative.” This aspect of the opinion could be what drew the Supreme Court’s attention:
We conclude that the trial court’s verdict is faulty based on its erroneous determination that Rancosky failed to establish the first prong of the test for bad faith because he failed to prove that Conseco had a dishonest purpose or a motive of self-interest or ill-will against LeAnn. As noted above, a dishonest purpose or a motive of self-interest or ill-will is probative of the second prong of the test for bad faith, rather than the first prong.. . . The trial court could not have considered whether Conseco had a dishonest purpose or a motive of self-interest or ill-will unless it had first determined that Conseco lacked a reasonable basis for denying benefits to LeAnn under the Cancer Policy. However, because the trial court made no such determination, its consideration of a dishonest purpose or a motive of self-interest or ill-will was improper. Accordingly, we conclude that the trial court erred as a matter of law by using standards applicable to the second prong of the test for bad faith in its determination of whether Rancosky had satisfied the first prong of the test for bad faith.
Rancosky v. Wash. National Ins. Co. , 2016 Pa. LEXIS 1910 (Pa. Aug. 30, 2016)