PA courts have routinely advised that, to prove bad faith under 42 Pa.C.S. § 8371, an insured must prove by clear and convincing evidence that its insurer: (1) did not have a reasonable basis for denying benefits under a policy; and (2) knew or recklessly disregarded its lack of a reasonable basis in denying the claim. Terletsky v. Prudential Prop. and Cas. Ins. Co., 437 Pa.Super. 108 (1994). Additionally, these same courts have stated that the insured must demonstrate that its insurer breached its duty of good faith through some motive of self-interest or ill-will. See Condio v. Erie Insurance Exchange, 899 A.2d 1136, 1142-43 (Pa. Super. 2006).
Standing alone, each of these statements seem easily understood and applied. However, what has not been clear is how they work together. Is there a third "bad motive" element of a bad faith under PA law?
The PA Superior Court addressed this issue in Greene v. United Services Auto Assoc., 2007 Pa. Super. Ct. 344 (November 20, 2007). After acknowledging this apparent ambiguity in the application of PA's bad faith statute and that no PA court has examined this issue, the Superior Court looked to the "well-informed and persuasive" decision of the PA Western District Court in Employers Mutual Casualty Company v. Loos, 476 F.Supp.2d 478 (W.D.Pa. 2007). Following the Loos reasoning, the Superior Court held that:
Standing alone, each of these statements seem easily understood and applied. However, what has not been clear is how they work together. Is there a third "bad motive" element of a bad faith under PA law?
The PA Superior Court addressed this issue in Greene v. United Services Auto Assoc., 2007 Pa. Super. Ct. 344 (November 20, 2007). After acknowledging this apparent ambiguity in the application of PA's bad faith statute and that no PA court has examined this issue, the Superior Court looked to the "well-informed and persuasive" decision of the PA Western District Court in Employers Mutual Casualty Company v. Loos, 476 F.Supp.2d 478 (W.D.Pa. 2007). Following the Loos reasoning, the Superior Court held that:
"motive of self-interest or ill will” level of culpability is not a third element required for a finding of bad faith, but it is probative of the second element identified in Terletsky, i.e., “the insurer knew or recklessly disregarded its lack of reasonable basis in denying the claim.”
Thus, while evidence of self-interest or other bad motive of the insurer can help in proving that an insurer knew it did not have a reasonable basis for denying a claim or recklessly disregarded such information, an insured is not required to provide the often difficult to adduce evidence of ill will or self-interested motive.
