The Pennsylvania Supreme Court has agreed to review an appellate court decision in Rancosky v. Washington National Insurance Company, a case dealing with whether a showing of “dishonest motive” or “ill-will” is necessary to prove that an insurance company acted in bad faith. The Pennsylvania Supreme Court’s forthcoming decision will be its first word on the definition of “bad faith” as used in the Pennsylvania bad faith statute.
In Rancosky, a husband and wife, both cancer patients, filed a lawsuit against Washington National Insurance Company. Rancosky alleged, among other things, breach of contract and bad faith based on the insurer’s handling of the claims under the Rancosky’s Cancer Policy.
The principal issue on appeal was whether the trial court erred in finding that no bad faith occurred because the plaintiffs “failed to prove that Conseco had a dishonest motive” or a “motive of self-interest or ill-will.” The plaintiffs argued that, under Pennsylvania law, bad faith only requires that the insurer (1) lacked a reasonable basis in denying benefits under the policy; and (2) knew or recklessly disregarded its lack of a reasonable basis in denying the claim. According to the plaintiffs, a finding of dishonest motive or ill-will was not necessary to prove bad faith.
Pennsylvania’s intermediate appellate court sided with the plaintiffs, holding that proof of a “dishonest motive” or a “motive of self-interest or ill-will” is not a necessary third element of a bad faith claim. Rather, dishonest motive or self-interest or ill-will can establish the second prong of the test, i.e. whether the insurer knew of or recklessly regarded its lack of a reasonable basis in denying the claim. But a court cannot consider the insurer’s motive when deciding the first prong, i.e. whether the insurer had a reasonable basis to deny benefits. According to the Superior Court, bad faith conduct includes a failure to perform a good faith investigation into the facts. It can also include “evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, [or] abuse of power to specify terms.”
Washington National has appealed the court’s decision to the Pennsylvania Supreme Court, which agreed to hear the case. This will be a closely-watched case. The case marks the first time the Pennsylvania Supreme Court will address the elements of a bad faith claim under Pennsylvania’s bad faith statute, notwithstanding the fact that the statute went into effect in 1990. A decision in the insurer’s favor requiring a plaintiff to demonstrate self-interest or ill-will to prevail in a bad faith claim will have a significant effect on the future of bad faith claims in Pennsylvania.