Opinion ID: 3014821
Heading Depth: 4
Heading Rank: 2

Heading: Award punitive damages against the insurer.

Text: (3) Assess court costs and attorney fees against the insurer. 42 PA . CONS. STAT . ANN . § 8371. The statute does not define the term “bad faith.” We have predicted that the Pennsylvania Supreme Court would define the term according to the definition set forth by the Pennsylvania Superior Court in Terletsky v. Prudential Property and Casualty Ins. Co., 649 A.2d 680 (Pa. Super. Ct. 1984). See Keefe v. Prudential Property and Cas. Ins. Co., 203 F.3d 218, 225 (3d Cir. 2000). There, the court adopted the following definition of “bad faith”: “Bad faith” on part of insurer is any frivolous or unfounded refusal to pay proceeds of a policy; it is not necessary that such refusal be fraudulent. For purposes of an action against an insurer for failure to pay a claim, such conduct imports a dishonest purpose 30 and means a breach of a known duty (i.e., good faith and fair dealing), through some motive of self-interest or ill will; mere negligence or bad judgment is not bad faith. Terletsky, 649 A.2d at 688 (quoting BLACK’S LAW DICTIONARY 139 (6th ed. 1990)) (citations omitted). Ultimately, in order to recover on a bad faith claim, the insured must prove: (1) that the insurer did not have a reasonable basis for denying benefits under the policy; and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis in denying the claim. Keefe, 203 F.3d at 225. Courts have extended the concept of “bad faith” beyond an insured’s denial of a claim in several limited areas. See W.V. Realty, Inc. v. Northern Ins. Co., 334 F.3d 306, 317-18 (3d Cir. 2003) (insurer’s failure to follow internal guidelines evidence of bad faith); Bonenberger v. Nationwide Mut. Ins. Co., 791 A.2d 378, 381 (Pa. Super. Ct. 2002) (insurer’s claims practice manual is relevant evidence in bad faith claim against insurer); O’Donnell ex rel. Mitro v. Allstate Ins., 734 A.2d 901 (Pa. Super. Ct. 1999) (bad faith may extend to the misconduct of an insured during the pendency of litigation); Liberty Mut. Ins. Co. v. Marty’s Exp., Inc., 910 F. Supp. 221 (E.D. Pa. 1996) (bad faith may extend to an insurer’s conduct in retrospectively rating and collecting premiums). The insured is required to meet its burden of proving “bad faith” by clear and convincing evidence. Terletsky, 649 A.2d at 688. Although the insurer’s conduct need not be fraudulent, “mere negligence or bad judgment is not bad faith.” Brown v. Progressive Ins. Co., 860 A.2d 493, 501 (Pa. Super. Ct. 2004).22 The insured 22 For example, an insurer’s denial of a claim does not constitute bad faith if it is based on a reasonable legal position in an unsettled area of the law. Terletsky, 649 A.2d at 690; Brown, 860 31 must ultimately show that “the insurer breached its duty of good faith through some motive of self-interest or ill will.” Id. At the summary judgment stage, the insured’s burden in opposing a summary judgment motion brought by the insurer is “commensurately high because the court must view the evidence presented in light of the substantive evidentiary burden at trial.” Kosierowski v. Allstate Ins. Co., 51 F. Supp. 2d 583, 588 (E.D. Pa. 1999) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986)).