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Insurers: Keep an eye on this Pennsylvania Supreme Court case

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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.

Rancosky asserted a bad faith claim against the carrier for denying her the benefits, but the trial court granted summary judgment to the carrier, Washington National Insurance.

Rancosky died in 2010, and Matthew Rancosky, her stepson, took over the case as administrator of her estate.

On appeal Rancosky argued that under the Superior Court’s 1994 decision in Terletsky v. Prudential Property and Casualty Insurance Company, a “dishonest purpose” or a “motive of self-interest or ill will” are only probative elements in establishing whether the carrier knew or recklessly disregarded its lack of having a reasonable basis for denying the claim.

Washington National’s attorney, Henry Sneath of Picadio Sneath Miller & Norton, did not return a call for comment.

Max Mitchell can be contacted at 215-557-2354 or [email protected] Follow him on Twitter @MMitchellTLI.

See also:

DOL 101: The fiduciary rule’s impact on insurance-only agents

Broker-dealer advisors at historic crossroads

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