In Rancosky v. Washington National Insurance Company, No. 28 WAP 2016, the Pennsylvania Supreme Court confirmed that, to prevail on a claim pursuant to Pennsylvania’s bad-faith statute, a policyholder does not have to prove that an insurance company acted with a “motive of self-interest or ill-will.” While the Pennsylvania Superior Court had reached the same conclusion more than 20 years ago, the Supreme Court had never addressed the issue until just recently.
Proving that an insurance company acted with a bad motive can be quite challenging. As Reed Smith explained in an amicus brief it filed on behalf of its client in Rancosky, requiring “a policyholder to prove (by clear and convincing evidence, no less) the insurer’s bad motive (i.e., what was in the insurer’s head) … would make it exceedingly difficult to prove statutory bad faith, a task which is sufficiently difficult as is. This is especially true since insurers routinely seek to shield their true motives under the attorney-client privilege or attorney work product doctrine.”
Writing for a unanimous court, Justice Baer agreed, rejecting the insurance industry’s long-running attempt to add just such a requirement to the elements of statutory bad faith in the commonwealth: Requiring “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.” Justice Baer explained that the court did not believe that Pennsylvania’s legislature “intended to create a standard so stringent that it would be highly unlikely that any plaintiff could prevail thereunder when it created the remedy for bad faith.”
As addressed in more detail in Reed Smith’s recent client alert, “Pennsylvania Supreme Court Agrees That, to Prevail on Claim for Statutory Bad Faith, Policyholder Need Not Prove Insurer Acted with Self-Interest or Ill Will,” the Supreme Court’s decision in Rancosky is a welcome, albeit not unexpected, ruling for policyholders. It confirms what has been the law of the commonwealth for more than two decades already: Policyholders are not required to find the “smoking gun” to prevail on a claim for statutory bad faith.