insurance policy

Plaintiffs do not need to provide 
so-called “smoking gun” evidence of ill will to bring bad-faith claims against insurance carriers, the Pennsylvania Supreme Court has ruled in an issue of first impression for the court.

Ruling Sept. 28 in Rancosky v. Washington National Insurance, the high court adopted the two-pronged test used for establishing bad-faith claims that the state Superior Court outlined in the 1994 decision Terletsky v. Prudential Property and Casualty Insurance. As part of its decision, the Supreme Court rejected arguments from an insurance carrier that, as part of the requirements under that test, plaintiffs need to prove that a carrier was motivated by self-interest or ill-will.

“We hold that proof of an insurer’s motive of self-interest or ill-will, while potentially probative of the second prong, is not a mandatory prerequisite to bad-faith recovery under Section 8371,” Justice Max Baer, who wrote the court’s majority opinion, said. “An ill will level of culpability would limit recovery in any bad-faith claim to the most egregious instances only where the plaintiff uncovers some sort of ‘smoking gun’ evidence indicating personal animus towards the insured.”

Chief Justice Thomas Saylor and Justice David Wecht each issued concurring opinions.

Attorney Kenneth Behrend of Behrend & Ernsberger, who represented the plaintiffs, said he was glad the court rejected the need for ill will evidence, and added that the ruling should provide much-needed guidance on the topic.

“The trial judges have some clear guidance from the Supreme Court on how to handle bad-faith issues when they’re confronted with such claims,” he said.

Jacob Cohn of Gordon Rees Scully Mansukhani, who represented the defendant, declined to comment without first speaking with his client.

LeAnn Rancosky bought a health insurance policy focusing on cancer, according to the opinion, but was later denied benefits after she was diagnosed with ovarian cancer. The policy included a waiver provision allowing policyholders to stop making premium payments if they were disabled due to cancer for more than 90 days after being diagnosed.

The parties differed over when Rancosky’s disability started because of conflicting dates provided on claim forms. Although Rancosky said her disability began the day she was diagnosed, the carrier accepted a later date for the start of the disability and ultimately determined that the insurance policy had lapsed because Rancosky failed to pay the premiums.

Rancosky asserted a bad-faith claim against the carrier for denying her the benefits, but the trial court granted summary judgment to the carrier, Washington National Insurance.

On appeal before the Supreme Court, the defendant pointed to the definition of bad faith from the 1990 edition of Black’s Law Dictionary as supporting its argument that Section 8371, which was also enacted in 1990 and does not define “bad faith,” requires a motive of self-interest or ill will.

Baer outlined the cases that 
the Pennsylvania General Assembly 
had been responding to when it 
enacted Section 8371, and said he 
found no basis to determine that the 
legislature intended to impose a higher standard of proof for bad-faith claims.

“In particular, we conclude that the Terletsky test, and its imposition of a recklessness standard for liability under the second prong, comports with the historical development of bad faith in Pennsylvania and effectuates the intent of the General Assembly in enacting Section 8731,” Baer said.