SDV Insights

PA High Court: Proof of Insurer's Ill Will is Not Required for Bad Faith Claim

On September 28, the Pennsylvania Supreme Court rendered an opinion1 adopting a two-part test for proving a claim under Pennsylvania’s bad faith statute.2 To prevail on a statutory bad faith claim, “the plaintiff must present clear and convincing evidence (1) that the insurer did not have a reasonable basis for denying benefi ts under the policy and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis.”

The case arose out of the purchase of a cancer insurance policy by postal worker LeAnn Rancosky. The policy, which was issued by Conseco Health Insurance Company (Conseco), stated that the policyholder would be excused from paying premiums in the event that she became disabled due to cancer, following a ninety-day waiting period. Ms. Rancosky paid for the policy by way of automatic premium deductions from her paychecks.

Ms. Rancosky was diagnosed with cancer in February 2003 and was unable to return to her job, though she continued to receive paychecks for several months because she had accrued vacation and sick days. Consequently, her premium payments continued to be deducted from her paychecks even though she was not working. Ms. Rancosky tried to invoke the policy’s premium waiver clause in April 2003 because she was unable to return to work and was thus disabled due to cancer, and submitted documentation of her disability to Conseco. Believing her premium payments to be waived, she stopped making payments, and continued to submit claims as her cancer recurred.

Conseco apparently did not realize that Ms. Rancosky had stopped making premium payments until nearly two years later, at which time they deemed her policy to have lapsed in May 2003 due to a physician’s error in the disability documentation Ms. Rancosky had submitted to Conseco. Conseco paid for cancer treatments Ms. Rancosky received in 2004 and 2005, but then denied a claim she made in 2006 due to nonpayment of premiums.

Following the denial of benefi ts, Ms. Rancosky sued Conseco for breach of contract and statutory bad faith. She argued that she had repeatedly authorized Conseco to contact her employer or any other person for information regarding her disability, yet they failed to do so, relying instead on the erroneous information in her disability documentation as the sole basis for denying coverage. A jury found in Ms. Rancosky’s favor on the breach of contract claim, and the bad faith claim proceeded to a bench trial. The trial court determined that although Conseco’s handling of Ms. Rancosky’s claim was “sloppy and negligent,” it did not constitute bad faith.

On appeal, Ms. Rancosky argued that the trial court failed to properly apply the two-part test referenced above, which had previously been established by the Pennsylvania Superior Court (the state’s intermediate court of appeals),3 and had instead required proof that Conseco acted out of a motive of self-interest or ill will. Ms. Rancosky argued, and the appellate court agreed, that while evidence of the insurer’s motives may be probative of the second prong of the test, it is not a prerequisite for succeeding on a statutory bad faith claim. The court concluded that Conseco failed to conduct a reasonable investigation into Ms. Rancosky’s claim, satisfying the fi rst prong of the test, and remanded the case to the trial court for a determination of the second prong of the test.

Conseco subsequently petitioned to the Pennsylvania Supreme Court to answer the limited question of whether the insurer’s motive of self-interest or ill will is a discretionary consideration or a mandatory prerequisite to proving a claim of statutory bad faith. Because Pennsylvania’s bad faith statute did not specify the level of proof necessary to prevail on a claim, the Court considered the intent of the bad faith statute and of similar statutes in other states – that is, to create a right of action to address the unequal bargaining power between insurance companies and policyholders. The Court determined that requiring a finding of ill will would limit bad faith recovery to only extremely egregious acts by insurers, making it highly unlikely that an insured could prevail on a bad faith claim and frustrating the intent of the statute. Therefore, the Court held that the two-part test is the appropriate framework for considering statutory bad faith claims, that a recklessness standard for the second prong of the test comports with the intent of the bad faith statute, and that proof of motive or ill will is probative, but not a mandatory prerequisite to succeeding on a bad faith claim.

This decision carries an important message: many states have enacted bad faith statutes as a means for insureds to protect themselves against an insurer’s improper conduct, and they should not be subject to a standard of proof so high that it would be nearly impossible for a plaintiff to prevail on their claim.

For more information about this case, please contact Bethany Barrese at or 203-287-2113.

1 Rancosky v. Washington National Ins. Co., No. 28 WAP 2016 (Pa. Sept. 28, 2017).
2 42 Pa.C.S. § 8371.
3 See Terletsky v. Prudential Property & Cas. Ins. Co., 649 A.2d 680 (Pa. Super. Ct. 1994). 

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