Since the enactment of the Pennsylvania bad faith statute in 1990, bad faith claims, particularly in the property damage and uninsured/underinsured motorist context, have proliferated. In pursuing such claims, however, practitioners too often neglect to pursue common law bad faith remedies, instead seeking only statutory bad faith damages. Despite protestations from the insurance industry to the contrary, common law bad faith damages can be pursued in the lawsuit seeking extra-contractual damages from insurers under policies of insurance. A brief review of the development of common law bad faith claims provides an interesting background. All policies of insurance are deemed to include an implied covenant of good faith and fair dealing. That implied covenant creates a special relationship between the insurer and the insured, including the good faith duty to settle. A breach of that duty gives rise to a common law bad faith claim. This common law bad faith claim had its genesis in the context of a third-party excess verdict. Where an insurer unreasonably exposes its insured to an excess verdict, the insurer can be held responsible for the entire amount of the verdict, regardless of the policy limits, if that excess verdict was the result of a breach of the implied covenant of good faith and fair dealing.

In the 1950s, Pennsylvania courts began to recognize a cause of action at common law for breach of the implied duty of good faith and fair dealing in an insurance contract. In Cowden v. Aetna, 134 A.2d 223 (Pa. 1957), the Pennsylvania Supreme Court recognized that an insured (or its assignee) could sue its insurer for breach of the duty of good faith and fair dealing to recover the amount of a verdict exceeding the limits of the insurance policy. This common law cause of action became firmly entrenched in the context of third-party tort actions. Questions then arose as to its applicability to the first party claim.