Friday, March 28, 2008

insurance - denial - bad faith

Brown v. Liberty Mutual Fire Insurance Co. - ED Pa. - March 26, 2008

Defendant-insurer's motion for summary judgment on plaintiff's claim of bad faith under
Pennsylvania’s Bad Faith Statute, 42 Pa. C.S.A. § 8371, denied because of genuine issues of material fact.

The Bad Faith Statute, 42 Pa. C.S.A. § 8371, provides that in an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith toward the insured, the court may

1) Award interest on the amount of the claim from the date the claim was made by the insured in an amount equal to the prime rate of interest plus 3%.
2) Award punitive damages against the insurer
3) Assess court costs and attorney fees against the insurer.

Bad faith on the part of an insurer is any frivolous or unfounded refusal to pay proceeds of a policy; it is not necessary that such a refusal be fraudulent. Leo v. State Farm Mutual Automobile Insurance Co., 1996 WL 37827 (E.D. Pa. Jan. 25, 1996).

Bad faith imports a dishonest purpose through some motive of self-interest or ill will; mere negligence or bad judgment is not bad faith. Id. Bad faith must be proven by clear and convincing evidence. Smolinsky v. State Farm Insurance Co., 2000 WL 1201384 (E.D. Pa. Aug. 8, 2000).

To recover a plaintiff must show that the defendant did not have a reasonable basis for denying benefits under the policy and that the defendant knew or recklessly disregarded its lack of a reasonable basis for denying the claim. Leo, 1996 WL 37827 at 2.