Policyholders need insurance laws which protect them if their insurance company delays, denies or wrongfully adjusts their claim. Attorneys have long recognized that insurance law is a specialized niche area of the law with strange nuances. Attorneys not dedicated to this field of law may fail to appreciate or may even miss small but important details when representing a client with Insurance problems. A case in Pennsylvania is a case in point.
Pennsylvania’s insurance bad faith statute1 is an important protection for policyholders. It permits a court to award interest on the claim amount from the date the claim was made by an insured equal to the prime rate of interest plus 3%. It allows the court to assess court costs and attorney’s fees if it finds that an insurer has acted in bad faith toward an insured. The law even allows for punitive damages.
Insurers routinely fight such bad faith claims at every stage of litigation. They routinely seek to have law suits dismissed prior to litigating their substance by moving to dismiss.
In a recent case interpreting the pleading requirement under Pennsylvania’s bad faith statute, a plaintiff-insured alleged an insurance company committed bad faith when it grossly underestimated the extent of damage and grossly underpaid a claim relative to water damage containing human waste. Specifically, the insured claimed the insurance company’s estimates for repairs did not comply with the either the insurance and construction industry’s custom because they did not include payment for the removal and replacement of all areas affected by contaminated water.
The insurance company argued that the insured’s bad faith complaint insufficiently consisted of threadbare allegations supported by mere conclusory statements. This is a fairly common trend by insurers to defend themselves, especially in federal court.
The court disagreed with the insurance company and found that the insured’s complaint satisfied the pleading requirement for bad faith because it contained numerous explanations and descriptions of alleged bad faith by the insurance company, including-notice of contaminated waste, violations of industry protocols for remediation, and knowledge that the estimated repairs and ultimate payment was not in accord with the Institute of Inspection Cleaning and Restoration. Therefore, the insured’s bad faith claim was not dismissed because it met the required showing “that the insurer lacked a reasonable basis for denying benefits; and … that the insurer knew or recklessly disregarded its lack of reasonable basis.”
The court’s finding contrasted its prior decisions when bad faith claims were dismissed because they contained purely conclusory legal statements and the facts alleged did not shed light on the reasonableness on the insurance company’s actions. Those decisions recognized the “inherent difficulty of pleading sufficient factual allegations of bad faith when an insured can only point to the few and sporadic interactions they had with their insurance company as facts to support a claim of bad faith,” but provided the following guidance: “plaintiffs claiming bad faith may simply have to allege the limited facts of which they are aware, including but not limited to: the nature of the correspondence with the insurance company; details of how the negotiations, if any, proceeded; and more detailed allegations supporting claims of injury necessitating benefits.”
If you believe that an insurance company has committed bad faith regarding your property damage claim or have other questions about your insurance claim, contact an experienced insurance professional.
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1 42 Pa.Cons. Stat. § 8371.