Monthly Archive for September, 2016

SEPTEMBER 2016 BAD FAITH CASES: MERE MISTAKES ARE NOT BAD FAITH (New Jersey Federal)

The federal district court observed that mere mistakes cannot be the basis for bad faith claims under New Jersey law. Opposing the insurer’s summary judgment motion, the insureds asserted 4 bases for bad faith. Of the four grounds asserted for bad faith, two were unsupported and on the other two, the plaintiffs themselves conceded were mistakes by the insurer.  The mistakes included an incorrect date that was corrected; and a statement that the policy lapsed, but the policy was not treated as lapsed.

Date of Decision: July 12, 2016

Andrews v. Merchs. Mut. Ins. Co., 2016 U.S. Dist. LEXIS 89997 (D.N.J. July 12, 2016) (Rodriguez, J.)

Waterfall

Photo by M. M. Ginsberg

SEPTEMBER 2016 BAD FAITH CASES: SUPREME COURT TO RULE ON ELEMENTS OF STATUTORY BAD FAITH CLAIMS

The Pennsylvania Supreme Court had granted an appeal on the following issue:

AND NOW, this 30th day of August, 2016, the Petition for Allowance of Appeal is GRANTED, LIMITED TO the issue[s] set forth below. Allocatur is DENIED as to all remaining issues. The issue[s], as stated by petitioner, is:

Whether this Court should ratify the requirements of Terletsky v. Prudential Property & Casualty Insurance Co., 649 A.2d 680 (Pa. Super. 1994), appeal denied, 659 A.2d 560 (Pa. 1995), for establishing insurer bad faith under 42 Pa.C.S. § 8371, and assuming the answer to be in the affirmative, whether the Superior Court erred in holding that Terletsky factor of a “motive of self-interest or ill-will” is merely a discretionary consideration rather than a mandatory prerequisite to proving bad faith?

Rancosky v. Washington National Insurance Company, 28 WAP 2016 (Pa. Aug. 30, 2016).

Terletsky has been the gold standard for section 8371 bad faith for over 20 years, and two of its criteria have not been controversial: “to recover under a claim of bad faith, the plaintiff must show that the defendant did not have a reasonable basis for denying benefits under the policy and that defendant knew or recklessly disregarded its lack of reasonable basis in denying the claim.” This standard is common in other jurisdictions as well.

There has been dispute over other language in Terletsky, i.e., what was the Superior Court intending when it talked about showing the insurer’s self-interest or ill will. Is this a third element, or is it merely a reference to evidence that can establish the second element?

At least since the Superior Court’s 2007 decision in Greene v. USAA, and as more recently reiterated in Mohney v. American General Life, and the Superior Court’s own Rancosky decision, the trend has been to find ill-will is not a third requirement. Rather, it is evidence relevant to proving Terletsky’s second element. By contrast, there is case law apparently still treating self-interest and ill will as a third element of proof. The Supreme Court will now resolve the issue, and presumably address the non-controversial elements as well.

As to those “non-controversial” two elements, these are expressly based upon denial of a benefit. However, courts more and more often appear to have gone beyond the need for a benefit to be denied in allowing a bad faith claim to proceed, apparently contrary to the Supreme Court’s 2007 Toy decision. In that case,  benefit was defined as failure to pay claims or provide a defense; with matters such as poor claims handling practices being evidentiary in nature, and not a cognizable basis for statutory relief in and of themselves. Thus, this is an issue that the Supreme Court may have to address again, as Toy is not frequently referenced by the lower courts in their consideration of what it means to deny a benefit as a basis to bringing a statutory bad faith claim.

Date of Decision: August 30, 2016

Rancosky v. Washington National Insurance Company, 28 WAP 2016 (Pa. Aug. 30, 2016) (appeal granted per curiam).

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Photo by M. M. Ginsberg