Bad Faith Claims Against Insurers

The need for insurance coverage is an accepted fact of life. Auto insurance, business owner’s insurance, homeowner’s insurance, etc. are necessary to protect our families and our belongings. Fortunately, many of us do not have to avail ourselves of the protections afforded by our insurance policies. When problems do arise, however, insurers often do not […]

The need for insurance coverage is an accepted fact of life. Auto insurance, business owner’s insurance, homeowner’s insurance, etc. are necessary to protect our families and our belongings. Fortunately, many of us do not have to avail ourselves of the protections afforded by our insurance policies. When problems do arise, however, insurers often do not handle claims in the manner as required by law. Consumers need to know that they are not only entitled to insurance policy proceeds but may also recover additional bad faith damages when an insurance company fails to comply with its duties of good faith and fair dealing.

All insurance policies are deemed to include an implied covenant of good faith and fair dealing. The actions of insurers are governed by the Unfair Insurance Practices Act, 40 P.S. § 1171.1 et seq., the Unfair Trade Practices and Consumer Protection Law, 73 P.S. § 201-1 et seq. and the Unfair Claims Settlement Practices Regulations, 31 Pa. Code § 146.1 et seq. These statutes and regulations require insurers to fully and fairly investigate, evaluate and negotiate a fair resolution of a claim under an insurance policy. The financial realities of the modern economy have realigned the goals of insurance companies. Where once insurance was considered a service, it is now merely a commodity, driven by the goals of price and profitability. The welfare of the customer has often now taken a back seat to the bottom line.

The Pennsylvania statutes and regulations are designed to maintain the balance of fairness in insurance transactions. Insurers are required to handle claims promptly and fairly. Unfortunately, in today’s market place, if a consumer wants a prompt resolution of his or her claim, it is often not fair; if a consumer wants a fair resolution of his or her claim, it is often not prompt. In such situations, the consumer needs to be aware of the potential remedy of additional bad faith damages when an insurer fails to comply with the statutory mandate of good faith and fair dealing.

In Pennsylvania, an insured may pursue common law and statutory bad faith claims against insurers. Pennsylvania has long recognized a common law bad faith claim for the breach of the duty of good faith and fair dealing. Cowden v. Aetna, 134 A.2d 223 (Pa. 1957). This common law bad faith claim, customarily seen in the third party (tort action) excess verdict situation, has been recognized by the Pennsylvania Courts in the context of a first party claim, e.g., homeowner’s claims, property damage claims, uninsured and underinsured motorist claims, etc. See Birth Center v. St. Paul, 787 A.2d 376 (Pa. 2001). This common law bad faith claim has been supplemented by additional statutory remedies. In 1990, the Pennsylvania Legislature provided statutory bad faith damages with the enactment of §8371 of the Judicial Code. Section 8371 provides additional damages that may be recovered in the bad faith claim. See Allstate v. Wolfe, 105 A.3d 1181 (Pa. 2014). Under §8371, upon a finding of bad faith on the part of the insurer, a Court may award (1) interest; (2) costs; (3) counsel fees; and (4) punitive damages. The possibility of the award of these extra-contractual bad faith damages can often be used to spur an insurer to handle a claim promptly and fairly as required by law. Insureds, therefore, should be aware of the duties imposed upon insurers in handling claims as well as the possible damages which can be recovered if an insurer fails to abide by the good faith requirements of Pennsylvania law.

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