Pennsylvania Claims Compliance

. Under Cowden, an insurer assumes a fiduciary obligation to its insured when it takes control of the defense and settlement of a claim . The standard dictates that an insurer must accord the insured's interests the "same faithful consideration it gives its own interest" .

which prompted the state legislature to enact § 8371 in 1990 . The statute itself does not define "bad faith," leaving courts to flesh out its parameters. Under the widely adopted Terletsky test, a plaintiff must prove by clear and convincing evidence that the insurer lacked a reasonable basis for its actions and knew or recklessly disregarded its lack of a reasonable basis .

The strict adherence to the exclusivity provision remains the dominant judicial philosophy in Pennsylvania today. In Franczyk v. Home Depot, 292 A.3d 852 (Pa.

the Third Circuit Court of Appeals reaffirmed that bad faith includes "a failure to communicate with the insured" . Therefore, the explicit case law requirement for communication is firmly established: total or reckless failure to communicate constitutes bad faith .

. Dealing with a CGL policy covering advertising injury, the court cemented the rule that bad faith encompasses "a frivolous or unfounded refusal to pay, lack of investigation into the facts, or a failure to communicate with the insured" .

a commercial insurance dispute, the insurer was found to have acted in bad faith largely due to its communication practices . The insurer was aware that the policy had been canceled due to a premium issue but hid this information from the insured for months while continuing to "investigate" the claim.

the Superior Court determined that an adjuster’s failure to respond to a specific letter or a few phone calls constitutes "inadvertence" rather than the "motive of self-interest or ill will" required to demonstrate reckless disregard under the bad faith standard .

and Orcutt v. Erie Indemnity Co. (1934), which laid the foundation for the rule that an insurer must promptly advise an insured if it contemplates denying coverage .

a federal district court applying Pennsylvania law addressed a plaintiff's claim that the insurer's failure to communicate constituted bad faith. The court dismissed the claim, noting that while the defendant's communications "may be described as tardy," the "mere passage of time does not define bad faith" .

wherein a class-action plaintiff argued that an insurer breached its contract by failing to cover diminished value following repairs . The Pennsylvania Court of Common Pleas dismissed the complaint, applying Pennsylvania's "reasonable expectations" standard .

the insurer provided a status update letter that: (1) clearly identified the established date of loss; (2) quoted the specific suit limitation provision of the policy (advising the insured of the one-year deadline to file suit); and (3) informed the insured that the claim remained pending while explicitly stating what further documentation was needed to proceed .

recognized that bad faith "encompasses a wide variety of objectionable conduct," which explicitly includes a "failure to communicate with the claimant" . This principle was further solidified in Brown v. Progressive Ins. Co. (2004), where the court reiterated that bad faith conduct inherently includes a "lack of good faith investigation into facts, and failure to communicate with the claimant" .

which laid the foundation for the rule that an insurer must promptly advise an insured if it contemplates denying coverage .

. Under this standard, bad faith is defined as any frivolous or unfounded refusal to pay proceeds of a policy, and requires the plaintiff to prove two distinct prongs:

the plaintiff alleged bad faith specifically because the insurer failed to provide the mandated 45-day written status updates . The federal court held that while violations of state insurance regulations can be considered when examining a bad faith claim, "a violation of the UIPA or the UCSP is not a per se violation of the bad faith standard" .

the Pennsylvania Superior Court held that a plaintiff seeking damages for an insurer's bad faith conduct under § 8371 may point to the insurer's violations of UIPA provisions and corresponding regulations as evidence of bad faith .

the Pennsylvania Superior Court explicitly adopted language stating that bad faith encompasses a "frivolous or unfounded refusal to pay, lack of good faith investigation into fact, and failure to communicate with the claimant" .

the Pennsylvania Superior Court addressed exactly what level of specificity is required . The insurer had sent a letter stating it was handling the matter under a reservation of rights and generally reserved "all rights reserved to it under applicable law, insurance regulations and policy provisions" . The letter did not explicitly cite the "Snow and Ice Removal" exclusion.

the Pennsylvania Superior Court issued a stark warning to insurers regarding the adequacy of ROR letters . In that case, the insurer issued a timely ROR letter but utilized boilerplate language reserving "all rights reserved to it under applicable law, insurance regulations and policy provisions that may become relevant as this matter continues to develop" .

which required a plaintiff to demonstrate by clear and convincing evidence that:

the Pennsylvania Superior Court established a two-prong test that remains the bedrock of bad faith litigation in the state: to prevail, a plaintiff must present clear and convincing evidence that (1) the insurer lacked a reasonable basis for denying or delaying benefits under the policy, and (2) the insurer knew or recklessly disregarded its lack of a reasonable basis .

that it had not definitively ruled on whether UIPA violations are strictly relevant to bad faith, the Romano standard remains heavily utilized by state and federal courts in Pennsylvania to evaluate the reasonableness of an insurer's communication practices .

and later in cases like Yoder, where the Superior Court found no support in Pennsylvania law for the "extraordinary duty" of an insurer to inform insureds of ongoing changes in statutory law that might affect their coverage in the absence of an active claim or request .

. A hacker deleted a company's database from a third-party GoDaddy server. The policy covered data residing in "your computers." The insurer denied the claim, arguing the GoDaddy server was not the insured's computer.

the Superior Court held that § 8371 authorizes actions for bad faith directed toward the specific insured, not bad faith committed against "the world at large" through general corporate policies, unless the plaintiff can prove a direct nexus between the corporate policy and the specific mishandling of their claim .