Placing Rancosky in Context:
Taking the “Bad” Out of Bad Faith
Dan Krane
Brigid Alford
D. Alicia Hickok
42 Pa.C.S. § 8371
Effective date July 1, 1990.
In an action arising under an insurance policy, if the court finds that the
insurer has acted in bad faith toward the insured, the court may take all of
the following actions:
(1) Award interest on the amount of the claim
from the date the claim was made by the insured in an amount equal to
the prime rate of interest plus 3%.
(2) Award punitive damages against the insurer.
(3) Assess court costs and attorney fees against
the insurer.
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Pennsylvania Courts Have Held:
 An insured cannot bring a claim under § 8371 against an
insurance adjuster, because by its text, the statute applies only
to insurers. Brown v. Everett Cash Mut. Ins. Co., 2017 PA Super
62 (Pa. Super. Mar. 10, 2017).
 An insured can assign a bad faith claim to an injured plaintiff.
Allstate Prop. & Cas. Ins. Co. v. Wolfe, 105 A.3d 1181 (Pa.
2014).
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 Interest is optional – including whether interest is on the entire
verdict.
 Expert witness fees are not costs recoverable under the statute
 The facts and circumstances analysis allows a court to look beyond,
for example, the amount of time, to see if there were “inexcusable
periods of inactivity, unreasonable assumptions, and inadequate
communication.” Grossi v. Travelers Personal Ins. Co., 79 A.3d 1141
(Pa. Super. 2013).
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Terletsky v. Prudential Property & Casualty Ins. Co., 649 A. 2d
680 (Pa. Super. 1984)
 Quoted Black’s Law Dictionary definition: Any frivolous or
unfounded refusal to pay proceeds of policy
- Not necessary that refusal be fraudulent
- Conduct that “imports a dishonest purpose”
- Breach of known duty of good faith & fair dealing through some
motive of self-interest or ill will
- Mere negligence or bad judgment is not bad faith
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Terletsky, continued
 Bad faith must be proven by clear and convincing evidence and not
merely insinuated
 Plaintiff has the burden to show insurer did not have a reasonable
basis and knew or recklessly disregarded that it had no reasonable
basis.
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Rancosky: The Facts … and Nothing but the Facts
 Supplemental health insurance policy (cancer)
 Premiums automatically deducted from paycheck
 Waiver of Premium if:
-
disabled due to cancer for > 90 days; and
-
physician certification of diagnosis, disability dates
-
ongoing updates from insured
•
No physician statement or proof of ongoing disability submitted
•
Premiums not paid (Rancosky thought they'd been waived)
•
Policy cancelled for non-payment of premiums
•
Suit filed: Breach of contract; bad faith
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Rancosky Procedural History: A Long and Winding Road
 Jury verdict for Rancosky on contract claim
 Non-jury verdict for insurer on bad faith claim
-
Burden of proof not met
-
Post trial motions by Rancosky denied
-
Trial judge: Insurer's conduct must import dishonest purpose. Must show
insurer breached duty of good faith through some motive of self-interest
or ill will.
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Superior Court
 Rancosky appeals
 Superior Court vacates bad faith verdict
- Motive of self-interest or ill will "merely a factor" that trial court may
consider (but is not required to consider) in determining if insurer
breached duty of good faith & fair dealing
- Rejected trial court's credibility assessments & finding that there was
no evidence of subjective bad motive
- Remanded for a new trial on bad faith
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Supreme Court
 Insurer files a petition for allowance of appeal
 The Supreme Court grants allowance of appeal as to two questions:
1.
Should the Court ratify the requirements of Terletsky for establishing
statutory insurance bad faith?
2.
If so, is the “motive of self-interest or ill will”
a. Merely a discretionary consideration; or
b. A mandatory prerequisite to proving bad faith
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Support on Both Sides
Amici Supporting
Washington National
o Pennsylvania Defense
Institute & PAMIC
o IFP, AIA, & Property
Casualty Insurers
Amici Supporting
Rancosky
o PAJ
o United Policyholders Assn.
of America
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Key Arguments
 History – legislative intent
 8371 = a penal statute
 Can't punish for negligence alone
 Subjective intent (bad motive; ill will) part & parcel of common
law/pre-1990 "bad faith"
 Constitutional considerations
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In the meantime…
Allstate Ins. Co. v. Lagreca, 2017 U.S. Dist. LEXIS 35197 (E.D. Pa.
Mar. 13, 2017) (“The most common formulation of the test for bad faith
under Pennsylvania law remains that from Terletsky, which requires
proof that (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. The
discovery sought by Lagreca would at most shed light on the second
prong of the test—the specifics of what Allstate considered in
ultimately denying coverage. Because I have determined as a matter of
law that a reasonable basis for that denial existed, Lagreca's claim
would fail regardless of what the requested discovery might reveal.”)
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Paul v. State Farm Mut. Auto. Ins. Co., 2016 U.S. Dist. LEXIS 133699 (W.D. Pa.
2016) (“This court considered this exact issue previously in Emplrs Mut. Cas. Co. v.
Loos, 476 F. Supp. 2d 478, 490-91 (W.D.Pa. 2007). In Loos, this court predicted
that the Pennsylvania Supreme Court would rule consistently with then-existing
superior court holdings that "the 'motive of self-interest or ill will' level of culpability is
not a third element required for a finding of bad faith, but is probative of the second
element identified in Terletsky, i.e., "the insurer knew or recklessly disregarded its
lack of reasonable basis in denying the claim." Id. at 491. Pennsylvania case law
since this court decided Loos has been consistent with the holding in Rancosky and
therefore the court maintains its prediction of how the Pennsylvania Supreme Court
will rule on this issue. While it is possible that the Pennsylvania Supreme Court will
set forth new or altered requirements for establishing insurer bad faith, this court
again predicts that the Pennsylvania Supreme Court will rule that the "motive of selfinterest or ill will" level of culpability is not a third element required for a finding of
bad faith, but is probative of the second element identified in Terletsky.)
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Contact Information
D. Alicia Hickok
Partner
Drinker Biddle
Philadelphia
(215) 988-3364
[email protected]
Daniel W. Krane
Partner
Drinker Biddle
Philadelphia
(215) 988-2488
[email protected]
Brigid Q. Alford
Shareholder
Marshall Dennehey
Camp Hill, PA
(717) 651-3710
[email protected]
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