This matter arose out of issues pertaining to a Cancer Policy issued by Conseco Health. The Plaintiff paid premiums for a Cancer Policy under which the Plaintiff would be granted certain benefits if diagnosed with internal cancer while the policy was in effect.
In a lengthy 50 page Opinion, the Pennsylvania Superior Court outlined the current status of Pennsylvania law in bad faith litigation pertaining to insurance contracts.
The Rancosky court reiterated that, in order to prove bad faith, an insured must present clear and convincing evidence that (1) the carrier did not have a reasonable basis for denying benefits under the policy, and (2) the carrier knew of or recklessly disregarded its lack of reasonable basis in denying the claim.
The significance of this Rancosky decision is that the court agreed with the Plaintiff’s argument that the trial court improperly applied the burden of proof upon the Plaintiff by erroneously requiring the Plaintiff to show a “dishonest purpose” or “motive of self-interest or ill will” on the part of the carrier under the first part of the two-part test. Rather, the court stated that these elements should only be considered in determining whether the second prong of the bad faith test, i.e., whether a carrier knowingly or recklessly disregarded its lack of a reasonable basis for denying the claim.
The Superior Court stated that the trial court could not have considered whether the carrier had a dishonest purpose or a motive of self-interest or ill will until it had first determined that the carrier lacked reasonable basis for denying benefits to the insured under the Cancer Policy. The Superior Court more specifically found that the trial court improperly erred as a matter of law by using standards applicable to the second prong of the bad faith test in its determination of whether or not the Plaintiff had satisfied the first prong of the bad faith test.
The Superior Court otherwise concluded that the evidence did not support the trial court’s determination that the carrier had a reasonable basis for denying the benefits to the insured.
In its Opinion, the Superior Court also addressed the other allegations of the Plaintiff regarding a delay in the evaluation of the claim presented by the carrier.
With respect to the coverage issues presented in this matter, the Superior Court noted that, when a carrier is presented with conflicting facts that are material of the issue of coverage, the carrier may not merely select or, as here, passively, “accept,” a singular disputed fact, to provide the carrier as a basis to deny coverage. Rather, the carrier is required under the law to undertake a meaningful investigation to obtain accurate information that pertains to the coverage question. Here the court found that the carrier failed to do so under the circumstances presented.
On a statute of limitations issue, the court rejected the carrier’s claim that the Plaintiff’s suit was barred by the statute of limitations applicable to bad faith actions.
In so ruling, the Superior Court noted that, in the context of an insurance claim, a continuing or repeated denial of coverage is merely a continuation of the injury caused by the initial denial of coverage and does not constitute a new injury that triggers the beginning of a new statute of limitations period.
However, the court stated that, when a Plaintiff alleges a subsequent, separate and distinct act of bad faith on the part of the carrier that is distinct from and unrelated to the initial denial of coverage, a new limitation period begins to run from the later active alleged bad faith. In this regard, the court found that an alleged inadequate investigation can be a separate and independent injury to the insured.
The Rancosky court also found that a refusal to reconsider a denial of coverage based upon new evidence is another example of a separate and independent injury to an insured.
In such scenarios, the statute of limitations for such injuries begins to run when the insurer communicates to the insured the results of its inadequate investigation, or in the second instance, when the carrier communicates to the insured its refusal to consider new evidence that discredits the insurer’s basis for its denial of the claim.
Anyone wishing to review the majority Opinion by the Pennsylvania Superior Court on the above bad faith issues may click this LINK.
The Concurring and Dissenting Opinion by Judge Jenkins can be viewed HERE.