July 2007 Bad Faith Cases: Court Finds That Insurance Bad Faith Does Not Apply In The Annuity Context Where No Failure To Pay A Claim (Commonwealth Court)
In Bercosky v. Township of Cumberland, the defendant purchased an annuity policy for Mr. Carter, now deceased, the defendant’s sole police officer. At the time, Mr. Carter was designated the beneficiary of the policy. Years later, a second police officer was hired. A portion of the value of Mr. Carter’s annuity was rolled into a policy benefiting this second police officer. Mr. Carter filed this action claiming that defendant had no right to transfer money and that the insurance company that issued the policy acted in bad faith because it offered misleading statements and failed to answer questions regarding the pension.
Regarding the bad faith claim, the trial court observed that bad faith in the insurance context means failure to pay a claim when there is no reasonable basis for doing so. The legislature provided an incentive to counter an insurer’s urge to delay payment with § 8371 by providing for interest, fees and punitive damages where bad faith conduct is shown. The court determined, however, that this bad faith analysis did not apply in this annuity situation, where there were allegations that the insurer failed to answer inquiries and made misleading statements; not that it failed to pay a claim.
Date of Decision: July 9, 2007.