When people in Pennsylvania file claims with their insurance companies, the companies control the claims settlement processes. Insurance companies have extensive financial resources and far greater negotiating strength and expertise in settling claims than policyholders do. Because of the large disparity in the power that each party holds, Pennsylvania holds insurance companies to a duty of good faith and fair dealings in their insurance policies and claims processes.
Most people purchase insurance to protect themselves from financial losses when they suffer property damage or personal injuries. Some purchase liability insurance to protect themselves from litigation in the event that lawsuits are filed against them. In exchange for the policyholders’ premiums, the insurance companies owe certain duties and responsibilities to their insureds. Two of the duties are a duty to adhere to the policy’s terms and to pay valid claims covered under the policy.
If you believe that your insurance company is not acting in good faith and is acting unreasonably in investigating, processing, or paying you for your claim, you may have valid legal grounds to file a bad faith insurance lawsuit. State law in Pennsylvania controls how bad faith insurance claims are handled. The attorneys at Raynes Lawn Hehmeyer can explain the rights that you may have if your insurance company is acting in bad faith.
What is insurance bad faith?
In some cases, an insurance company fails to adhere to its implied or express duties that it owes to its insureds. Some insurance companies may deceive their insureds, misinterpret the language of their policies and records, unreasonably delay resolution of the claims, or make arbitrary demands for proof of loss. Some companies may also engage in abusive tactics or ask their insureds to contribute to settlements when they should not have to contribute anything. Finally, some insurance companies fail to conduct investigations of the claims submitted to them. All of these types of actions are breaches of the companies’ duties of good faith and fair dealing, and they may provide legal grounds to file a bad faith insurance lawsuit.
Bad faith insurance practices typically occur with first-party or third-party insurance claims. Bad faith involving first-party insurance claims occurs when an insurance company refuses to pay the claim without a good reason or without conducting a prompt and proper investigation. For instance, imagine that you lose your home in a fire from a lightning strike that is covered by your insurance policy. When you submit your claim, you are told by the insurance company representative that you are not allowed to make repairs until the investigation has concluded. The insurance company never sends anyone to visit your home and doesn’t respond to your correspondence. This scenario would likely support a first-party bad faith insurance lawsuit.
A third-party bad faith insurance claim involves liability claims. When a policyholder has liability coverage, the insurance company is supposed to pay liability claims for the losses that others incur as a result of the insured’s actions. The insurance company must defend against lawsuits and pay all of the defense costs. This is true even when a portion of the lawsuit is not covered under the policy. The insurance company may have a duty to indemnify its insured up to the policy limits for covered losses.
In Pennsylvania, insurance companies also owe a duty of care to settle claims in which the liability of the insured is clear. For example, if you caused a drunk driving accident that injured another motorist, your insurance company must settle the claim within the policy limits with the injured victim. If the victim makes an offer to settle the case for the policy limits, the insurance company has to settle it for that amount. If the insurance company refuses to accept a reasonable settlement offer from the victim within the policy limits, forcing you into bankruptcy to defend your claim, you may have valid grounds to file a bad faith insurance claim against the company.
Bad faith causes of action
Some states do not have statutes that govern bad faith insurance claims. However, Pennsylvania enacted a bad faith insurance law which can be found in Pennsylvania statutes at 42 Pa.C.S. § 8371 in 1990. This law allows people to file lawsuits against insurance companies when they act in bad faith. Historically, people were not allowed to directly sue their insurance companies for operating in bad faith until the passage of the Pennsylvania Unfair Trade Practices and Consumer Protection Act in 1990.
Before a private right of action was established, attorneys would use workarounds to recover compensation for their clients by relying on common law causes of action such as breach of contract or fraud. However, the passage of the bad faith insurance statute now allows people who have been harmed by the bad faith of their insurance companies to file lawsuits against them to recover damages.
Insurance companies that are found to be liable for acting in bad faith can be ordered to pay damages above the policy limits. They may be ordered to pay damages for judgments beyond the policy limits along with penalties, emotional distress, interest, attorney’s fees, economic losses, and punitive damages. Punitive damages in these types of cases are generally determined based on both the insured’s losses and the wealth of the insurance company.
Elements of bad faith insurance claims in Pennsylvania
Pennsylvania does not have a common-law cause of action for bad faith insurance claims, meaning that the claims fall under the statute. In 2017, however, the Pennsylvania Supreme Court clarified the elements that plaintiffs must prove in bad faith insurance claims in Rancosky v. Washington Nat’ l Ins. Co., 642 Pa. 153 (2017). In that case, the issue dealt with whether plaintiffs had to show that the insurance company acted out of a motivation of ill will or self-interest. The court found that plaintiffs are not required to show that insurance companies are motivated by self-interest or ill will to prevail on their bad faith insurance claims. The court established that plaintiffs must prove the following elements by clear and convincing evidence:
- No reasonable basis existed for the denial of the benefits
- The insurer knew or recklessly ignored its lack of reasonable basis in denying the claim
This decision was important because it clarified what plaintiffs must prove about the motive of an insurer in a bad faith insurance claim.
Examples of bad faith insurance
Bad faith claims essentially mean that the insurance companies unreasonably denied or delayed valid claims. Some examples of actions that might constitute bad faith include:
- Unreasonable denials of coverage
- Failing to conduct a proper investigation
- Denying claims without investigating
- Failing to act within a reasonable time in investigating, confirmations or denials of coverage, and payments or denials of claims
- Failing to explain denial decisions
- Failing to provide information about the policy limits
- Trying to implement a standard that deviates from the insurance industry
- Unreasonable and purposeful delays of payments
Damages in a bad faith insurance claim
Under the statute, plaintiffs may seek to recover the following damages from insurers that have acted in bad faith in delaying or denying their claims:
- The amount of the claim
- Interest on the amount of the claim at the prime interest rate plus 3% from the date that the claim was made
- Attorney’s fees and court costs
- Punitive damages
Contact a bad faith insurance attorney
A variety of different tactics that may be used by insurance companies can constitute bad faith. If you believe that your insurance company is acting in bad faith on your claim, you may have legal rights. Contact the attorneys at Raynes Lawn Hehmeyer today to schedule a free consultation by calling us at 800.535.1797.
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