In Rancosky v. Washington National Insurance Company, the Superior Court addressed a bad faith claim in the first party context, where the insured had purchased a “Cancer Policy”. The Superior Court ruled that the bad faith claim fell within the two year statute of limitations period based upon poor investigative practices, even when the original denial of the benefit was beyond the two year period.
The insurance policy had a contractual “suit limitations clause,” providing legal actions for benefits. However, for purposes of the bad faith claim, the court ultimately focused on the two year statute of limitations. The policy also contained detailed waiver of premium provisions based upon a manifestation of cancer and disability therefrom. The policy also addressed the situation where an insured ceased making direct premium payments via payroll checks, but could convert to making direct payments personally, while keeping coverage. After going into the facts in painstaking detail, the Superior Court concluded that the waiver of premium provision should have applied; that there was no need to address conversion for future premium payments; and thus that the insurer’s denial of benefits for missing premium payments was an unreasonable position for the insurer to take.
At trial level, after a jury ruled for the insured on the breach of contract claim, the trial court ruled for the insurer on the bad faith claim. The Superior Court reversed, and among other things in its close factual analysis, stated: “The record reflects that [the insurer] did not purport to conduct any investigation regarding [the] claim until it received [the insured’s] request for reconsideration … eighteen months after it had first received conflicting information regarding the starting date of [her] disability.” Before that time, the insured had provided 8 authorizations, all of which permitted the carrier to contact her employer and physicians “regarding the date when she first became unable, due to cancer, to perform all the substantial and material duties of [her] regular occupation.” Instead, “despite requiring that [the insured] sign these authorizations, [the insurer] never bothered to use them to obtain the information that it needed in order to make an accurate determination as to the starting date of her disability.”
First, the trial court effectively ruled that a bad faith plaintiff must establish the insurer had a motive of self-interest or ill will. As the Superior Court has stated numerous times in earlier opinions, this is not an element of proof in a statutory bad faith claim. Ill will or self-interest are only evidence that can be used to establish the second element of statutory bad faith, i.e., that the insurer knowingly or recklessly disregarded the first element, that there was no reasonable basis to withhold the benefit. While the trial court had ruled that self-interest or ill will were considered in weighing the first element, absence of a reasonable basis, the Superior Court found this was merely a back door ruling that self-interest or ill will were required elements to establish the claim.
Second, as stated above, the appellate court reviewed the record and concluded that the trial court erred in finding there was a reasonable basis to deny coverage. In reaching this decision, the court rendered an expansive view of the bad faith statute.
It began by stating that “a heightened duty of good faith was imposed on [the insurer] in this first-party claim because of the special relationship between the insurer and its insured, and the very nature of the insurance contract.” It then stated that statutory bad faith under section 8371 “is not restricted to an insurer’s bad faith in denying a claim.” The Superior Court then cited six of its prior decisions as examples to support this point. It did not cite or discuss the Supreme Court’s 2007 Toy decision in this context, as to what constitutes a cognizable section 8371 bad faith claim. It solely cited language from the prior Superior Court decisions on, e.g., the breadth of the statute’s aim to stop all forms of bad faith, and that section 8371 was intended to address conduct that evades “the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, and interference with or failure to cooperate in the other party’s performance.”
Third, and most significantly, the Superior Court addressed when the statute of limitations begins to run. It observed that “there is an important distinction between an initial act of alleged bad faith conduct and later independent and separate acts of such conduct.” It ruled that: “When a plaintiff alleges a subsequent and separately actionable instance of bad faith, distinct from and unrelated to the initial denial of coverage, a new limitations period begins to run from the later act of bad faith.” Thus, “[a]n inadequate investigation is a separate and independent injury to the insured.”
[Note: This conclusion is measured against a prior Superior Court opinion, and does not address the Supreme Court’s Toy decision. The court cites the Supreme Court’s Ash opinion on the bad faith statute’s limitations period, though it does not reference footnote 10 of the Ash opinion on the scope of the bad faith statute (“The bad faith insurance statute, on the other hand, is concerned with ‘the duty of good faith and fair dealing in the parties’ contract and the manner by which an insurer discharge[s] its obligation of defense and indemnification in the third party claim context or its obligation to pay for a loss in the first party claim context.”)]
The court then states that “a refusal to reconsider a denial of coverage based on new evidence is a separate and independent injury to the insured. The statute of limitations for such injuries begins to run, in the first instance, when the insurer communicates to the insured the results of its inadequate investigation, and in the latter instance, when the insurer communicates to the insured its refusal to consider the new evidence that discredits the insurer’s basis for its claim denial.” The Superior Court found that had the insurer conducted a “meaningful investigation” and “good faith investigation” into the additional information, or “undertaken to ‘research’ the new information” it would have discovered that there was no reasonable factual basis to deny coverage. Thus, the insurer’s “failure to conduct an meaningful investigation of [the] claim when it undertook to do so in [8 months after its original denial of the benefit], and its refusal to reconsider its denial of coverage based on the new information provided by [the insured] in her November 30, 2006 letter [7 months after the insurer’s original denial], constituted new injuries to the insured.”
By contrast, the Dissent in this 2-1 decision would have ruled that the statute of limitations began to run when the insurer first denied the benefit was due. In response, the majority stated that the Dissent unduly focused on the denial of the benefit as the basis for the bad faith claim, “without considering [the insured’s] claim for bad faith based on [the insurer’s] lack of good faith investigation.” Once again, citing prior Superior Court case law without reference to Toy or Ash, the court observed that “a claim for bad faith may be based on an insurer’s investigative practices.” Thus, “[i]n declining to acknowledge these tenets of Pennsylvania’s bad faith law, the Dissent has failed to acknowledge [the insured’s] claims for bad faith based on a lack of good faith investigation, or identify the date(s) on which such claims accrued. Thus, we abide by our conclusion that [insured’s] bad faith claim is not time-barred.”
4. Failure to allege bad faith based on litigation conduct waived
The insured also sought reversal on the basis that the trial court failed to consider the insurer’s litigation conduct during the bad faith litigation and trial itself. However, the insured had never made this argument prior to trial, and such an argument was waived.
Lastly, the court affirmed a summary judgment against the foregoing insured’s husband, who likewise had developed cancer and was seeking relief from the same insurer. The court found that the husband insured had not provided evidence as to why it was not reasonably possible for him to have given the required notice under the policy.
While upholding this later judgment, the case was reversed and remanded on the wife insured’s bad faith claim.
Date of Decision: December 16, 2015
Rancosky v. Wash. Nat’l Ins. Co., Superior Court No. 1282 WDA 2014, 2015 Pa. Super. LEXIS 822 (Pa. Super. Ct. December 16, 2015)