In the context of religion, there is no such thing as good faith or bad faith – to each his own. In the world of insurance, however, a carrier has a duty to act in good faith and the concept of “bad faith” has a very specific legal meaning. Consumers and business owners routinely purchase insurance to protect themselves against unexpected happenings which could have negative financial consequences. The risks are evaluated by the insurance carrier and a premium is paid. Insurance is a heavily regulated industry because of the potential for overcharging and the potential for serious losses to consumers when insurance companies do not have adequate resources to pay claims. Statements regarding an insurance company’s obligation to deal fairly with its insureds have appeared in Pennsylvania cases for over 50 years. See Fedas v. Insurance Company of the State of Pennsylvania, 300 Pa. 555 (1930). In 1957, the Pennsylvania Supreme Court first addressed the issue of an insurance company’s liability for “bad faith” conduct in reviewing and paying claims.
The general concept is that an insurance carrier has a duty to act reasonably in protecting and defending an insured. If an injured claimant makes a reasonable demand, the insurance company is obligated under the law to respond and make an appropriate payment. If an insurance carrier refuses to make a payment of a reasonable amount to protect its insured, and if a jury verdict comes in far in excess of the amounts of coverage, the insurance company may be held liable for the difference under the theory of bad faith. The Pennsylvania Supreme Court has held that “where an insurer refuses to settle a claim that could have been resolved within policy limits without a ‘bona fide belief’ that it has a good possibility of winning, it breaches its contractual duty to act in good faith and its fiduciary duty to its insured.”
This does not mean that an insurance carrier is obligated to settle every case or pay amounts which it deems to be more than the fair value of cases. However, if the insurance company “guesses wrong” it could be found to be liable in a subsequent trial. Pennsylvania has a bad faith statute at 42 Pa.C.S. — 8371 and it appears that the two year Statute of Limitations applies to any claims brought for bad faith.
If your insurance company is protecting you in regard to a pending claim, and you do not feel that the insurance company is acting properly, you should investigate to determine whether the insurance carrier may be liable for bad faith.
— Bill Brennan