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Is The Pennsylvania Bad Faith Test Bad?

September 9, 2016

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On August 30, 2016, the Pennsylvania Supreme Court granted a Petition for Allowance of Appeal in <a href="https://scholar.google.com/scholar_case?case=13539522019631183042&amp;hl=en&amp;as_sdt=6&amp;as_vis=1&amp;oi=scholarr"><em>Rancosky v. Washington National Insurance Company</em></a>, agreeing to review certain current requirements to prove bad faith.
In its order, the Supreme Court agreed to review the current requirements for proving insurer bad faith in Pennsylvania, and if it determined these requirements were proper, it agreed to review whether the factor of “motive of self-interest or ill-will” was a mandatory prerequisite to proving bad faith, or whether it was merely a discretionary condition.  In the intermediate appellate court, the Superior Court had previously held that proving a “dishonest purpose” or “motive of self-interest or ill-will” was merely a discretionary condition that was probative of the issue of whether “the insurer knew of or recklessly disregarded its lack of reasonable basis in denying the claim.”
The Opinion of the Supreme Court, when issued, could drastically reshape the current landscape in Pennsylvania’s bad faith law.  Pennsylvania’s statute on bad faith does not define a standard for bad faith, and the current rule was established by the Superior Court in <em>Terletsky v. Prudential Prop. And Cas. Ins. Co.</em>  437 Pa.Super 108 (1994).  The <em>Terletsky</em> rule requires a plaintiff to satisfy a two-part test: (1) that the insurer did not have a reasonable basis for denying benefits under the policy; and (2) the insurer knew or recklessly disregarded its lack of reasonable basis in denying the claim.”  The Pennsylvania Supreme Court’s order granting review offered a sweeping basis for reviewing the <em>Terletsky</em> test, and could alter how insurers are forced to approach defending bad faith in the future.  We will issue further guidance on this issue once the Court issues its opinion.
Thanks to Konrad Kreb for his contribution to this post.
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