Category Archives: Insurance Law

Pennsylvania Supreme Court’s First Insurance Bad Faith Decision a Big Win for Plaintiffs

Supreme Court Wades Into Bad Faith

On Friday, the Pennsylvania Supreme Court delivered a groundbreaking decision in Rancosky v. Washington Nat’l Ins. Co., the first decision by the Court interpreting the requirements of Pennsylvania’s Bad Faith Statute, 42 Pa. C.S. § 8371. The Supreme Court’s decision in Rancosky was critical for two reasons.  First, it formally adopted the legal test set for bad faith, first established by the Pennsylvania Superior Court 23-years ago in Terletsky v. Prudential Property & Cas. Ins. Co., 649 A.2d 680 (Pa. Super. 1994).  In Terletsky, the Superior Court held that in order to recover in a bad faith action, the plaintiffs must establish by clear and convincing evidence 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 a reasonable basis. More significantly, the Supreme Court also held that the insurer’s motive of self-interest or ill will is not a requirement to recovering under Pennsylvania’s Bad Faith Statute. While evidence of self-interest or ill will on the part of the insurer is probative in considering the second prong of Terletsky, the Court held that “evidence of the insurer’s knowledge or recklessness as to its lack of a reasonable basis in denying policy benefits is sufficient.” This ruling is important as the Supreme Court explicitly rejected efforts to raise the threshold evidentiary showing necessary to prove insurance bad faith.

Rancosky v. Washington National Insurance

The Rancosky case arose out of Washington National Insurance Company’s, successor by merger of Conseco Health Insurance Company, denial of insurance benefits to plaintiff for failure to pay premiums.  The plaintiff in Rancosky brought claims of breach of contract and bad faith, which were bifurcated, and plaintiff’s bad faith claim proceeded to a bench trial. The trial court determined that the insurer’s handling of plaintiff’s claim was sloppy and even negligent, but that plaintiff failed to establish that the insurer lacked a reasonable basis for denying benefits under the insurance policy because the plaintiff did not prove the insurer had a motive of self-interest or ill will. The trial court entered judgment in favor of the insurer on plaintiff’s bad faith claim. The Pennsylvania Superior Court vacated the trial court’s judgment. Consistent with its previous decisions, the Superior Court held that motive of an insurer’s self-interest or ill will is probative of the second prong of Terletsky, but is not a prerequisite to recovery. The Superior Court went further and determined that, based upon its review of the record, the evidence did not support a finding that the insurer had a reasonable basis for denying plaintiff’s benefits under the policy. The Superior Court found that the insurer lacked a reasonable basis for denying the plaintiff’s benefits to meet the first prong of Terletsky and remanded to the trial court for a determination on the second prong.

Although the Supreme Court found that Superior Court erred in making the determination of the first prong from Terletsky, that the insurer lacked a reasonable basis for denying the plaintiff’s benefits, the Court agreed with the Superior Court in adopting the two (2) prong test of Terletsky.  Further, the Supreme Court sided with the Superior Court and concluded that in proving that an insurance carrier acted unreasonably and recklessly, a plaintiff does not need to show that an insurer’s conduct was motive of self-interest or ill will. The Court remanded to the trial court for consideration of plaintiff’s bad faith claim in accordance with the test set forth by the Court.

No “Ill Will” Needed for Bad Faith

The significance of Rancosky cannot be understated.  Given the Pennsylvania Supreme Court’s ruling, insurers will no longer be able to rely upon a failure to show self-interest or ill will to defeat bad faith claims.  As such, insureds do not need the “smoking gun” evidence some courts had previously demanded. This is a big win for insureds, as it preserves the ability to recover under the Bad Faith Statute. Had the Court found the other way, with motive of self-interest or ill will being a prerequisite to a bad faith claim, it would have effectively put an end to bad faith claims.  Indeed, as Justice Bear stated in his opinion, if a plaintiff were required to show that an insurance company acted with ill will, bad faith claims would be limited to “the most egregious instances” and “only where the plaintiff uncovers some smoking gun evidence indicating personal animus towards the insured.” Although it is still true that insureds have an uphill battle in establishing a bad faith claim given the clear and convincing evidentiary standard, the Supreme Court, with its well-reasoned decision, permits bad faith claims to continue. Therefore, insurers permitting delay in adjusting claims, inadequate investigations and/or unreasonable interpretations of policy provisions, all of which fail to reach the level of self-interest or ill will, continue to be subject to bad faith claims.

This article was co-written with James G. Begley, Esq.  James Goslee is a trial attorney in Philadelphia and can be reached at

Pennsylvania Superior Court Eliminates Third-Party Credit for UIM Settlements

The Pennsylvania Superior Court recently issued a significant opinion concerning the applicability of UIM credits in third-party tort claims. In Smith v. Rohrbaugh, 54 A.3d 892 (Pa. Super. 2012) the Superior Court overturned its own precedent and held that third-party defendants in motor vehicle accidents are not entitled to reduce their liability by the amount of payments made under underinsured motorist policies. This decision is important for plaintiffs injured in motor vehicle accidents in Pennsylvania because it potentially increases the amount of insurance coverage available for recovery.

The Superior Court in Rohrbaugh was asked to decide whether under Pennsylvania law, plaintiffs who settle UIM claims must give third-party defendants a “credit” for the amount of that settlement. The following hypothetical example highlights how this scenario would typically play out: A plaintiff is injured in a car accident caused by an underinsured defendant. The plaintiff sues the defendant, but before receiving a verdict settles with their own underinsured motorist carrier. Is the plaintiff’s subsequent recovery against the defendant reduced by the amount of the UIM settlement? Prior to Rohrbaugh, the answer was YES. The Superior Court had previously held in Pusl v. Means, 982 A.2d 550 (Pa. Super. 2009) that any judgment against a third-party defendant must be reduced by the amount of payment made under a UIM policy. The basis for this decision was § 1722 of Pennsylvania’s Motor Vehicle Financial Responsibility Law (“MVFRL”) which prevents double recoveries involving “first party” benefits. The Pusl court considered UIM coverage a “first-party” benefit.

In Rohrbaugh, the Superior Court explicitly overturned its decision in Pusl and held that § 1722 does not require a third-party claim to be reduced by the amount of a UIM recovery. The Rohrbaugh Court held that the Pusl incorrectly found that UIM coverage was a “first-party” benefit. The Court noted that although UIM benefits are sometimes “colloquially” referred to as “first-party benefits,” the MVFRL specifically designated UIM coverage as a separate available coverage. According to the Court “by placing first-party benefits and UIM coverage in different subchapters [of the MVFRL], the legislature was clearly designating the two as distinct entities.” Thus, § 1722 “was not designed or intended to require the offset of UIM benefits from an award against a tortfeasor.”

The result of the Rohrbaugh Court’s decision should have a significant impact on the litigation of motor vehicle accident claims in Pennsylvania. In the wake of Pusl, liability insurance carriers had an incentive to delay paying on a legitimate third-party claim until after a plaintiff settled with their UIM carrier in the hopes of receiving a credit. This sort of insurance gamesmanship is no longer available. Just as importantly, theRohrbaugh decision makes more insurance coverage available to injured plaintiffs.