In a case decided late last year, the Supreme Court of Pennsylvania established standards for proving bad faith against insurance companies. It also adopted a standard that made it much easier for policyholders and plaintiffs to hold insurance companies responsible—not just to pay the benefits they should have paid in the first place—but to get punitive damages.
The name of the case is Rancosky vs. Conseco Health Insurance Company. The plaintiff, who is now deceased, worked for the United States Postal Service. She bought a cancer insurance policy as a supplement to her already existing health insurance, which she had obtained through her employer.
The policy was paid through automatic, bi-weekly payroll deductions from her paycheck, and contained a waiver of premium in the event that Ms. Rancosky became disabled from cancer. In this particular case, she did become disabled from cancer and she submitted the claim for waiver of premium benefits. Those premiums were waived for quite awhile during times when she was out of work from a cancer relapse, but not without a constant fight with the insurance company, Conseco.
According to Conseco, they received a physician’s statement that inaccurately specified the date of her disability, due to cancer, as two months later than it actually had disabled her. That mistake on the physician’s statement could have easily been investigated and identified by Conseco, in order to verify that the date of her disability was actually two months earlier, such that Conseco would not continue to claim that her waiver of premium benefit was no longer effective. But in or about 2006, the insurance company refused to waive her premiums and denied any further claims that she had for benefits.
The Pennsylvania Supreme Court ruled that there is a two-part test for proving bad faith. That test is as follows:
•That the insurance company did not have a reasonable basis for denying benefits under the policy; and
•The insurance company knew or recklessly disregarded its lack of a reasonable basis for denying the claim.
Most importantly to this standard, in order for a plaintiff to obtain an award of punitive damages, the court did not find or create an elevated standard of proof required to show malice or ill will—contrary to what the lower courts had ruled. That makes it extraordinarily easier for a plaintiff, in Pennsylvania, to punish an insurer beyond what they’re required to pay under the contract. This important change in Pennsylvania law creates a significant and important incentive to insurance companies in the Commonwealth of Pennsylvania to administer claims fairly and objectively, as they should, when evaluating claims for benefits under their policies, or else pay the price.
Evan S. Schwartz
Founder of Schwartz, Conroy & Hack