PENNSYLVANIA DEFENSE INSTITUTE SUBMITS AMICUS BRIEF AUTHORED BY BRIGID Q. ALFORD, ESQUIRE, JOHN J. HARE, ESQUIRE, ROBERT E. DAPPER, JR., ESQUIRE, AND DANIEL J. TWILLA, ESQUIRE TO SUPREME COURT IN RANCOSKY APPEAL
Together with the Pennsylvania Association of Mutual Insurance Companies (“PAMIC”), the Pennsylvania Defense Institute recently submitted an Amicus Curia Brief in the case of Rancosky v. Washington National Insurance Company, which is currently on appeal to the Supreme Court of Pennsylvania.
Principal Issues Before the Supreme Court
The present appeal calls into question whether the two-prong test for statutory insurance bad faith, established decades ago in Terletsky will continue or not. Terletsky v. Prudential Property and Cas. Ins. Co., 649 A.2d 680 (Pa. Super. 1994)[Bad faith plaintiff must show (1) that insurer did not have reasonable basis for denying benefits; and (2) that insurer knew or recklessly disregarded that lack of reasonable basis in denying the claim].
It also calls into question whether the long-held requirement – that a disgruntled insured can only prove that “knowing and reckless disregard” with evidence of some motive of self-interest or ill will – should also be discarded.
The Rancosky Case History
The underlying case has a long and convoluted factual history. In short, it arises from a dispute over a health insurance policy – specifically, a cancer policy that supplemented Leann Rancosky’s primary health insurance coverage and provided limited additional benefits in the event of a cancer diagnosis. Premiums were deducted automatically from Rancosky’s paychecks, but the policy also contained a “Waiver of Premium” provision that applied, when a policyholder is disabled from working, due to the cancer, for more than 90 consecutive days and when the policyholder has submitted a physician’s statement certifying the date of the cancer diagnosis, the date on which the cancer-related disability began, and the expected disability date, as well as additional ongoing obligations on the part of the policyholder.
Rancosky never submitted the physician’s statement, nor proofs of her ongoing disability, although she did suspend payment of premiums, believing that the Waiver of Premium provision was in effect. The insurer canceled the policy for non-payment of premiums. Rancosky filed suit, raising breach of contract and statutory insurance bad faith claims.
Breach of Contract Claim – Jury Verdict for Rancosky
The contract claims were tried to a jury, which returned a verdict for the plaintiff. (By that point, both Rancosky and her husband had passed away; their son was named administrator of her estate.) Stipulated contract damages were a little over $31,000. That decision has not been appealed.
Bad Faith Claim – Non Jury Verdict for Insurer
The bad faith claim was then tried to a Washington County judge, who found that the plaintiff had failed to prove bad faith by clear and convincing evidence. She also found that the plaintiff had failed meet the applicable standard of proof, which she described as including “a breach of contract duty, through some motive of self-interest or ill will.” The judge’s lengthy opinion also reflects that, in the course of reaching her verdict, she did make several credibility determinations with respect to certain of the witnesses who testified at trial.
Rancosky Appeal to Superior Court
The trial judge denied plaintiff’s post-trial motions. Rancosky appealed. In the court’s 1925 (a) opinion, the judge opined, “To support a finding of bad faith, the insurer’s conduct must be such as to import a dishonest purpose. In other words, the plaintiff must show that the insurer breached its duty of good faith through some motive of self-interest or ill-will.” The judge said that no evidence of motive of self-interest or ill-will had been shown against Leann Rancosky.
The Superior Court vacated the trial court’s bad faith verdict. But in doing so, the appellate court did not challenge the trial judge’s conclusion that there was no evidence of motive of self-interest or ill-will. Instead, the Superior Court said that a motive of self-interest or ill will was “merely a factor” that a trial court “may,” but is not required to, consider in determining the second prong of the Terletsky test.
Supreme Court Grants Allocatur
The Pennsylvania Supreme Court granted allocator to determine the legal standard for proving bad faith under 42 Pa. C.S. §8371.
PDI Amicus Brief
The Pennsylvania Defense Institute and PAMIC have filed an Amici Curiae Brief supporting the position of the Appellant. That Brief was prepared and filed by following PDI members and member firms:
From Marshall Dennehey Warner Coleman & Goggin:
Brigid Q. Alford, Esquire and John J. Hare, Esquire
From Burns White LLC:
Robert E. Dapper, Jr., Esquire and Daniel J. Twilla, Esquire
PDI’s principal arguments can be summarized as follows:
For more than twenty years, Pennsylvania’s courts have recognized that “bad faith” has a “peculiar and appropriate” definition in the context of insurance disputes. Hollock v. Erie Insurance Exchange, 903 A.2d 1185 (Pa. 2006). Bad faith means that the insurer “breached its duty to act in good faith and fair dealing with its insured by any frivolous or unfounded refusal to pay the policy through some motive of self-interest or ill will.”
A litigant cannot establish insurance bad faith unless and until the litigant presents clear and convincing evidence of improper “self-interest or ill will” on the part of the insurer. The Court should give the “peculiar and appropriate meaning” of “bad faith” the attention it deserves.
Furthermore, since punitive damages are an “extreme” remedy, they should be reserved for select cases warranting punishment. Eliminating the requirement of improper “self-interest or ill will” and allowing an award of punitive damages under a lesser standard is incongruous with the purpose of punitive damages, and incompatible with the Court’s jurisprudence and constitutional due process requirements.
The Superior Court found that improper “self-interest or ill will” is not required to establish a claim for statutory bad faith. Allowing that finding to stand will have practical, negative consequences, including encouraging bad faith lawsuits in nearly every insurance dispute, diminishing the purpose of the bad faith statute altogether. Equally, if not more disconcerting, are the constitutionally repugnant ramifications of exposing a citizen of this Commonwealth – including a corporate one – to punitive damages for non-intentional, non-malicious, non-egregious acts or omissions.
Other Briefs; Argument
A separate Amici Brief supporting the Appellant was also filed by Insurance Federation of Pennsylvania, American Insurance Association, and Property Casualty Insurers Association of America.
Briefs by Appellees and their Amici are due later this month. An argument date has yet to be scheduled.
