Bad Faith Litigation — 42 Pa.C.S. § 8371

Pennsylvania's bad faith statute — 42 Pa.C.S. § 8371 — gives insureds a private cause of action against carriers that deny claims, delay payment, or handle claims without a reasonable basis. It is the most significant risk in Pennsylvania insurance defense, because it transforms a contract dispute into a tort action with uncapped punitive damages.

Elements of Bad Faith

The insured must prove by clear and convincing evidence that:

• The insurer did not have a reasonable basis for denying benefits under the policy; and
• The insurer knew or recklessly disregarded its lack of a reasonable basis

Terletsky v. Prudential Property & Cas. Ins. Co., 437 Pa. Super. 108 (1994), established this two-part test. The Pennsylvania Supreme Court refined it in Rancosky v. Washington National Ins. Co., 642 Pa. 153 (2017), confirming that the insured does not need to prove the insurer acted with a subjective motive of self-interest or ill will — only that the insurer's conduct was objectively unreasonable and that the insurer knew or recklessly disregarded its lack of a reasonable basis. The "clear and convincing" burden is higher than preponderance — but juries in Southeastern Pennsylvania have shown a willingness to find bad faith when the carrier's investigation was thin, the denial letter was boilerplate, or the claims handling file shows internal awareness that the denial was questionable.

What Triggers Bad Faith Claims

Bad faith doesn't just arise from outright denials. The most common triggers we see:

• Inadequate investigation: The carrier denied without fully investigating the claim — didn't inspect the property, didn't get a second estimate, didn't interview the insured, didn't review all submitted documentation. This is the most frequent bad faith allegation and the easiest for plaintiffs to prove, because the claims file tells the story.
• Unreasonable delay: The carrier didn't deny — it just didn't pay. Months of "under review" with no communication, no requests for additional documentation, and no explanation. Pennsylvania courts treat unreasonable delay as the functional equivalent of a denial.
• Lowball estimates: Particularly in first-party property claims — the carrier's adjuster valued the loss at a fraction of the actual repair cost, without adequate support. When the insured's public adjuster or contractor submits a detailed scope and the carrier's response is a cursory desk review, the claims file creates a bad faith record.
• Post-hoc justification: The carrier denied on one ground, then shifted to a different exclusion after being challenged. Moving targets in a coverage dispute suggest the original denial lacked a reasonable basis.
• Ignoring the insured's evidence: The insured submitted documentation supporting the claim, and the carrier's denial doesn't address it. Courts view this as evidence that the carrier made its decision before reviewing the file.

Defending Bad Faith Claims

The defense of a bad faith action is built on the claims file. Every note, every email, every internal memo, every adjuster's diary entry is discoverable — and will be read by a jury. The defense strategy focuses on:

• Demonstrating a reasonable basis: The carrier didn't have to be right — it had to have a reasonable basis for its position. If the policy language genuinely supports the denial, and the carrier investigated adequately before denying, the bad faith claim fails even if the court ultimately finds coverage.
• Claims handling timeline: Showing the carrier acted promptly — acknowledged the claim, assigned an adjuster, inspected the property, communicated with the insured, and made a decision within a reasonable time.
• Expert support: In property cases, the carrier's valuation must be supported by a qualified expert (engineer, contractor, public adjuster) whose methodology can withstand cross-examination. A desk adjuster's estimate based on Xactimate alone, without a site inspection, is difficult to defend.
• Good faith disagreement: Insurance coverage disputes often involve genuinely debatable questions. Two reasonable people can disagree about whether water damage was caused by a covered "sudden and accidental" discharge versus an excluded "long-term seepage." If the carrier's position was objectively reasonable — even if ultimately wrong — bad faith fails.