Insurers: Keep an eye on this Pennsylvania Supreme Court case

The Pennsylvania Supreme Court has agreed to hear arguments in a case looking into what is a mandatory prerequisite for proving that an insurance carrier acted in bad faith, and what is merely a factor for consideration.

The justices granted review in Rancosky v. Washington National Insurance Company earlier this week, on the specific issue of whether the requirements for establishing bad faith outlined in a 1994 case remain good law, and, if so, whether a finding that the carrier acted out of “self-interest or ill will” is a discretionary consideration, or a mandatory element for proving bad faith.

Attorney Kenneth Behrend, of Behrend & Ernsberger, who is representing the plaintiff, said courts have been struggling with this issue since the bad faith statute was enacted more than 25 years ago.

In 1997, the U.S. Court of Appeals for the Third Circuit held in Klinger v. State Farm Mutual that plaintiffs do not need to prove “ill will” to proceed with bad faith claims, Behrend said, but the notion that the extra evidence is required has persisted in the courts. That’s due to an old definition of bad faith that was used in Black’s Law Dictionary before the statute was enacted, he said.

“It needs to be a settled issue,” Behrend said.

A state appellate panel sided with Behrend on the issue.

According to the Superior Court of Pennsylvania, the self-interest, or ill will factor was not necessary for the plaintiff in Rancosky to prove that the carrier had acted in bad faith after it denied health care benefits to a cancer patient at the center of the case.

In December, a divided three-judge panel revived the suit against Washington National Insurance.

The case involves LeAnn Rancosky, who bought a health insurance policy focusing on cancer, but was later denied benefits after she was diagnosed with ovarian cancer. The policy included a waiver provision allowing policyholders to stop making premium payments if they were disabled due to cancer for more than 90 days after being diagnosed.

A dispute eventually arose regarding when Rancosky’s disability started because of conflicting dates provided on claim forms. Although Rancosky said her disability began the day she was diagnosed, the carrier accepted a later date for the start of the disability and ultimately determined that the insurance policy had lapsed because Rancosky had not paid the premiums.