We’ve recently posted summaries of five federal district court bad faith opinions, issued between May 15 and May 23, 2018. These opinions all include some discussion of what kind of conduct could constitute the basis for statutory bad faith under Pennsylvania law.
There is no question that denying benefits due may form the basis of a bad faith claim. Similarly, the strong consensus is that a delay in paying benefits due may lead to actionable bad faith claims. The interesting question is whether bad faith can exist when no benefit is due.
Take this example. The insured sues for breach of contract and bad faith. The bad faith claim is based on two theories: (1) the insurer unreasonably denied coverage based on a misinterpreted policy exclusion, and (2) unreasonable claim handling. The court finds the exclusion applies and dismisses the contract claim, as well as the bad faith claim based on benefit denial. Can the bad faith claim still proceed solely on the basis of poor claim handling, absent any indemnification or defense obligation? Or, in those circumstances, should any claim handling misconduct solely be subject to review by the Insurance Commissioner under the Unfair Insurance Practices Act or Unfair Claims Settlement Practices regulations?
We have posted on this subject in the past, but case law indicates that some courts will find actionable statutory bad faith for poor claim handling even in the absence of any benefit being due.
These five very recent cases, issued within 8 days of each other, appear to show that the range of bad faith standards currently used by courts includes viable bad faith actions where no benefit is due, along with claims for denial or delay in providing benefits. Whether or not these cases be reconciled into a single theory will have to be clarified by Pennsylvania’s Supreme Court, though it has been argued the Supreme Court already did so in the Toy case.
Here are links to our summaries of these five cases.
In this case, a Middle District Judge found a section 8371 claim handling bad faith case viable, even though no coverage was due.
In this case, an Eastern District Judge found no bad faith because no benefit had been denied.
In this case, another Middle District Judge found there could be no bad faith where there was no coverage due.
In these two opinions, issued on consecutive days by another Eastern District Judge, the court set out criteria for actionable statutory bad faith based on either (1) benefit denial (2) poor claims handling or (3) unreasonable delay.