Insurance Bad Faith in Pennsylvania: Your Rights Under 42 Pa.C.S. § 8371

Insurance Bad Faith in Pennsylvania: Your Rights Under 42 Pa.C.S. § 8371

A Scranton woman waited nine months for her underinsured motorist carrier to respond to her claim—after a semi-truck left her with substantial medical bills and a policy limit from the at-fault driver that did not fully cover her damages. When her insurer finally replied, it offered a small fraction of her UM policy without explanation. She filed a bad faith claim under 42 Pa.C.S. § 8371 and ultimately recovered not just the full policy limits, but interest on those limits from the date she submitted her claim, punitive damages, and her attorney fees. That outcome is no accident: Pennsylvania law imposes strict duties on insurers and hands real teeth to policyholders when those duties are breached.

Bad faith isn't just poor customer service or a denied claim you disagree with. Under Pennsylvania law, it's a statutory cause of action that requires an insurer to act in bad faith—a term of art with a two-part test that blends objective and subjective elements. This article explains what bad faith means in Pennsylvania, how you prove it, what damages the statute authorizes, and when you should consider pursuing a bad faith claim alongside your underlying injury case.

What Qualifies as Bad Faith Under Pennsylvania Law

Section 8371 creates liability when an insurer acts in bad faith toward an insured. The statute itself doesn't define "bad faith," so Pennsylvania courts have developed the standard through decades of case law. The Pennsylvania Superior Court established the framework in Terletsky v. Prudential Property & Casualty Insurance Co., 649 A.2d 680 (Pa. Super. 1994), and the Pennsylvania Supreme Court clarified it in Rancosky v. Washington National Insurance Co. (Pa. 2017), which adopted the Terletsky two-part test: bad faith exists when (1) the insurer lacked a reasonable basis for denying benefits or investigating a claim, and (2) the insurer knew of or recklessly disregarded its lack of reasonable basis.

Both prongs must be satisfied. Even if an insurer wrongly denies your claim, you do not have a bad faith case unless the insurer knew—or was reckless in not knowing—that its position had no reasonable foundation. Conversely, even deliberate delay or nasty treatment doesn't establish bad faith if the insurer had a genuinely debatable reason to question coverage or value.

The Reasonable Basis Prong

Reasonable basis means a legitimate dispute over coverage, causation, or damages. If your policy contains an ambiguous exclusion and the insurer's interpretation is at least plausible under Pennsylvania contract law, the claim is "fairly debatable" and the first prong fails. The insurer doesn't have to be right—it just needs a reasonable argument.

Common scenarios where reasonable basis exists:

• Ambiguous policy language: Two competing interpretations, both textually supportable
• Disputed medical causation: Medical records conflict on whether the accident caused the condition
• Coverage questions: The facts fall near a policy exclusion's boundary
• Valuation disputes: The insurer offers less than you want, but its appraisal or IME supports the figure

Where reasonable basis fails:

• The insurer ignores medical records that directly prove causation
• The insurer applies an exclusion that plainly doesn't fit the facts
• The insurer denies first-party medical benefits (PIP) without ordering an examination or reviewing records
• The insurer sits on a clear-liability file for months without communicating

The Knowledge or Reckless Disregard Prong

Even when an insurer's position is unreasonable, you must prove the insurer knew its basis was deficient or acted recklessly. Reckless disregard means the insurer failed to investigate, ignored information in the file, or applied a standard so unreasonable that no competent insurer would have used it.

Evidence that satisfies this prong:

• Internal emails showing adjusters or managers knew the denial was unsupported
• Failure to investigate: The insurer denied the claim without reading medical records, conducting an IME, or interviewing witnesses
• Contradictory positions: The insurer tells you one thing in writing and its adjuster testifies to something else at deposition
• Pattern evidence: The insurer has a history of similar denials reversed on appeal or litigation

Common Bad Faith Scenarios in Pennsylvania Personal Injury Cases

Bad faith typically arises in first-party claims—where you're seeking benefits from your own insurer—but can also occur in third-party contexts when an insurer defends its policyholder and exposes that policyholder to excess liability through unreasonable conduct.

Underinsured and Uninsured Motorist Claims

Under 75 Pa.C.S. § 1738, every Pennsylvania auto policy must offer UM/UIM coverage equal to the bodily injury liability limits. If you're hit by an uninsured driver or a driver whose limits are exhausted, your UM/UIM carrier steps in. But because you're now the claimant against your own insurer, disputes over valuation are common—and that's where bad faith claims often arise.

Typical UM/UIM bad faith patterns:

• The insurer refuses to make any offer for months despite clear liability and well-documented injuries
• The insurer offers a token sum without a supporting rationale
• The insurer relies on an Independent Medical Examination that contradicts treating physicians without explaining why the IME is more credible
• The insurer demands authorizations you've already provided or requests irrelevant records to stall the claim

Because UM/UIM coverage exists precisely to protect you when others can't pay, Pennsylvania courts scrutinize these denials closely. If you've already recovered a substantial policy limit from the at-fault driver and your UM carrier knows you have significant medical bills, long unexplained delays or lowball offers can cross the line into bad faith.

First-Party Medical Benefits (PIP) Denials

Under 75 Pa.C.S. § 1711, every Pennsylvania auto policy must provide at least $5,000 in first-party medical benefits, paid regardless of fault. PIP is designed for fast payment—you submit your bills, the insurer pays. Yet insurers sometimes deny PIP on grounds that treatment is unrelated to the accident, unreasonable, or duplicative.

Bad faith arises when the insurer:

• Denies PIP without reviewing medical records
• Denies PIP without ordering a peer review or IME when causation is genuinely in dispute
• Relies on a conclusory peer review that doesn't address the specific treatment at issue
• Ignores the treating physician's narrative explaining the causal link

Because PIP is a no-fault benefit, the insurer's burden to investigate is high. A blanket denial with no supporting medical opinion is often sufficient to establish lack of reasonable basis.

Stacking Waivers and Coverage Disputes

Section 1738 allows insureds to "stack" UM/UIM coverage across multiple vehicles, unless the insured signed a valid waiver on the statutorily prescribed form. Bad faith can arise when an insurer claims you waived stacking but can't produce a signed waiver, produces a waiver that doesn't comply with the statutory form, or refuses to honor stacking after you purchased a new vehicle and the insurer failed to offer a new waiver.

Pennsylvania courts strictly construe these waivers in favor of coverage. Cases such as Sackett v. Nationwide Mutual Insurance Co. (Pa. 2007), Craley v. State Farm Fire & Casualty Co. (Pa. 2006), Gallagher v. GEICO Indemnity Co. (Pa. 2019), Donovan v. State Farm Mutual Automobile Insurance Co. (Pa. 2021), and Franks v. State Farm Mutual Automobile Insurance Co. (Pa. Super. 2020) have clarified the strict requirements for valid stacking waivers under 75 Pa.C.S. § 1738. If the insurer's file contains no compliant waiver and it denies stacked benefits anyway, that's often enough for both prongs of a bad faith claim.

Property Damage and Delay Tactics

Though less common in personal injury cases, bad faith also arises in property damage (vehicle total loss, diminished value). If the insurer delays inspecting your vehicle, lowballs the actual cash value without a supporting appraisal, or refuses to pay for a rental car during unreasonable delays, those actions can support a bad faith claim.

Damages Available Under 42 Pa.C.S. § 8371

Section 8371 authorizes three categories of damages that aren't available in a simple breach-of-contract claim:

Damage Type	Description	Cap or Limit
Interest	Interest on the benefit withheld, from the date the claim should have been paid until judgment	No statutory cap; runs at the legal rate
Punitive Damages	Designed to punish and deter the insurer's conduct	Jury discretion; can exceed the policy limits
Attorney Fees and Costs	Reasonable fees incurred prosecuting the bad faith claim	Court determines reasonableness; typically based on billing records

These damages transform an insurance dispute. A denied policy claim becomes a contract claim plus interest that accrues over time, plus potentially substantial punitive damages, plus attorney fees. The insurer's exposure multiplies, which is why bad faith claims often settle quickly once discovery reveals damning internal communications.

Interest on Withheld Benefits

Interest begins accruing when the insurer should have paid the claim. If you submitted a complete UM claim with all medical records in January and the insurer sat silent until you filed suit in December, you're entitled to interest from January. Over time, interest adds up—particularly if litigation drags on for two or three years.

Punitive Damages: When the Conduct Is Egregious

Punitive damages aren't automatic. The jury (or judge in a bench trial) must find that the insurer's conduct was not just unreasonable but outrageous, malicious, or showed a pattern of disregard for policyholders' rights. Evidence that supports punitive damages:

• Internal memos showing cost-cutting targets that incentivize denials
• Company-wide policies that violate Pennsylvania claims-handling regulations
• Multiple prior bad faith verdicts against the same insurer
• Adjuster testimony that reveals the insurer never intended to pay the claim

Punitive damages serve two functions: punishment and deterrence. Pennsylvania juries have awarded punitive damages in multiples of the policy limits when the evidence shows institutional indifference to policyholders.

Attorney Fees: Leveling the Playing Field

Unlike most civil cases, Section 8371 allows prevailing plaintiffs to recover their reasonable attorney fees. This provision is crucial because it makes bad faith cases economically viable even when the underlying policy limits are modest. An attorney can take a UM case with a strong bad faith claim knowing that if they prevail, the court will award fees for all time spent.

Fees are calculated using the "lodestar" method: reasonable hourly rate × hours reasonably expended. The court reviews billing records and can reduce fees for duplicative or excessive work, but in a clear bad faith case, fee awards often equal or exceed the underlying policy limits.

How to Prove Bad Faith: Evidence and Discovery

Bad faith cases are won or lost in discovery. The insurer's internal file—emails, adjuster notes, coverage opinions, claim manuals, and training materials—often contains the smoking gun that proves both prongs. Pennsylvania law recognizes that while the insurer's claim file is generally protected by work product, bad faith plaintiffs can pierce that privilege because the insurer's state of mind is directly at issue.

The Claims File and Work Product

When you file a bad faith claim, the insurer's claim file is discoverable. Pennsylvania courts balance the work product privilege against the plaintiff's need to prove the insurer's knowledge. The practical result: you get most of the file, especially pre-litigation documents, adjuster communications, and internal coverage analyses.

Key documents to request:

• Complete claim file, including all emails and notes
• Coverage opinions from in-house or outside counsel
• IME or peer review reports and the insurer's instructions to the examiner
• Claim manuals and guidelines governing how adjusters are trained to handle UM/UIM or PIP claims
• Adjuster performance reviews, especially if metrics reward low payouts or high denial rates

Depositions: Locking in the Insurer's Story

Adjuster depositions are critical. Once the adjuster testifies on the record about why the claim was denied, they're locked in. If the testimony contradicts the file, that's evidence of bad faith. If the adjuster admits they didn't read key medical records or couldn't explain the denial rationale, that supports reckless disregard.

Corporate representative depositions (Rule 30(b)(6) in federal court) force the insurer to designate a witness who can testify about company policies, training, and decision-making. If the insurer can't produce a witness who understands why the claim was denied, that's powerful evidence of institutional recklessness.

Expert Testimony: Claims-Handling Standards

While not always required, an expert on insurance claims-handling practices can help establish that the insurer's conduct fell below industry standards. A qualified expert—typically a former claims manager or insurance regulator—can testify that no reasonable insurer would have denied the claim on the stated grounds, that the investigation was inadequate, or that the delay violated standard practices.

The Interplay Between Bad Faith and Your Underlying Injury Claim

Bad faith is a separate cause of action from your underlying breach-of-contract claim for policy benefits. You can't file a bad faith claim until the insurer has denied or unreasonably delayed benefits—so bad faith typically arises after you've submitted a UM/UIM demand, a PIP claim, or some other request for first-party benefits.

Timing: When to Assert Bad Faith

You generally can't plead bad faith in your initial complaint. Pennsylvania courts hold that you must first give the insurer a reasonable opportunity to investigate and respond. If the insurer denies coverage or fails to respond within a reasonable time, you can then amend your complaint to add a bad faith count.

Reasonable time depends on context. For PIP claims, a few weeks is often enough—the records are straightforward and the benefit is meant to be paid quickly. For a complex UM claim involving multiple surgeries and disputed causation, a few months might be reasonable. Anything beyond six months without substantive communication often crosses into bad faith territory.

Settlement Strategy: Leveraging Bad Faith

Once bad faith is on the table, the insurer's risk multiplies. Many cases settle shortly after the plaintiff amends to add a bad faith count, because the insurer now faces not just the policy limits, but interest, punitive damages, and attorney fees. Smart plaintiffs' attorneys use the threat of bad faith to force early mediation and push the insurer toward full policy limits plus a bad faith settlement.

Other Remedies: Department of Insurance Complaints and Regulatory Action

Beyond Section 8371, Pennsylvania's Insurance Department enforces claims-handling regulations. If your insurer violates these regulations—failing to acknowledge your claim within 15 days, failing to affirm or deny coverage within 30 days of receiving all requested information, or engaging in a pattern of unreasonable denials—you can file a complaint with the Department.

While a Department investigation doesn't directly recover damages for you, it creates a regulatory record that can be useful in litigation. If the Department finds the insurer violated claims-handling rules, that finding is admissible evidence in your bad faith case.

Bad Faith in Third-Party Liability Contexts

Bad faith can also arise when an insurer defends its policyholder (the at-fault driver) and refuses to settle within policy limits, exposing the policyholder to excess liability. Though less common in personal injury cases from the victim's perspective, this scenario matters if you're pursuing a claim against a defendant whose insurer acted in bad faith toward them.

If the at-fault driver's insurer refused a reasonable settlement demand within the policy limits, forcing the case to trial where you obtained a verdict exceeding those limits, the defendant may have a bad faith claim against their own insurer for exposing them to the excess. In some cases, you can pursue that bad faith claim through an assignment from the defendant—effectively stepping into the defendant's shoes to recover the full judgment amount from the insurer.

Defenses Insurers Raise in Bad Faith Cases

Insurers don't roll over. They assert defenses designed to defeat one or both prongs of the bad faith test.

"Fairly Debatable" Defense

The most common defense: the claim was fairly debatable. The insurer argues that even if it ultimately was wrong, its position had a reasonable basis in the policy language, medical evidence, or legal precedent. To defeat this defense, you must show the insurer's rationale was pretextual or so unreasonable that no competent adjuster would have relied on it.

"We Investigated Thoroughly" Defense

The insurer claims it reviewed all medical records, ordered an IME, and consulted counsel before denying the claim. If the file contains evidence of investigation, that undermines the reckless disregard prong. But if the investigation was cursory, ignored contradictory evidence, or was designed to justify a predetermined denial, the defense fails.

"Policyholder Delayed or Failed to Cooperate" Defense

Insurers sometimes argue that you caused the delay by failing to provide authorizations, missing appointments, or submitting incomplete information. Pennsylvania law requires policyholders to cooperate with reasonable investigation requests. If you ignored repeated requests for records, the insurer may have a valid excuse for delay. But if the insurer demanded records it already had or requested irrelevant information, that excuse evaporates.

Steps to Take If You Suspect Bad Faith

If your insurer is delaying, lowballing, or denying your claim without explanation, document everything and consult an attorney experienced in Pennsylvania bad faith litigation.

Create a Paper Trail

• Send written demands: Every communication with the insurer should be in writing or confirmed in writing afterward
• Track dates: Note when you submitted records, when the insurer requested information, and when (or if) the insurer responded
• Keep copies: Maintain a complete set of everything you sent the insurer and everything the insurer sent you

Respond Promptly to Reasonable Requests

Don't give the insurer ammunition for a cooperation defense. If the insurer requests medical records, provide them within a reasonable time. If the insurer schedules an IME, attend it. If a request seems unreasonable or overly broad, consult your attorney before refusing.

Demand an Explanation

If the insurer denies your claim or makes a lowball offer, demand a written explanation of the basis for the decision. Pennsylvania regulations require insurers to explain denials. If the insurer can't or won't articulate a reason, that's evidence of lack of reasonable basis.

Consult an Attorney Early

Bad faith claims are fact-intensive and require strategic litigation. An attorney can evaluate whether your insurer's conduct crosses the line, guide you through the investigation and demand process, and preserve your rights if litigation becomes necessary. Many personal injury attorneys handle bad faith claims on contingency, so you pay nothing unless you recover.

Key Takeaways

• Pennsylvania's bad faith statute, 42 Pa.C.S. § 8371, creates liability when an insurer lacks a reasonable basis for denying benefits and knows of or recklessly disregards that lack of reasonable basis—both prongs are required, as established in Terletsky v. Prudential Property & Casualty Insurance Co., 649 A.2d 680 (Pa. Super. 1994) and affirmed in Rancosky v. Washington National Insurance Co. (Pa. 2017).
• Common bad faith scenarios include UM/UIM denials, PIP disputes, stacking waiver controversies, and unreasonable delays in investigating or paying clear-liability claims.
• Section 8371 authorizes interest on withheld benefits from the date they should have been paid, punitive damages if the conduct was egregious, and attorney fees—dramatically increasing the insurer's exposure.
• The insurer's internal claim file, emails, and adjuster depositions are critical evidence; Pennsylvania law allows broad discovery in bad faith cases because the insurer's state of mind is directly at issue.
• You can't file a bad faith claim until the insurer has denied or unreasonably delayed benefits; bad faith is a separate cause of action asserted after the underlying dispute arises.
• Document all communications with your insurer, respond promptly to reasonable requests, and consult an attorney if you suspect your insurer is acting in bad faith.
• Even if the insurer was wrong, you don't have a bad faith case unless the insurer's position was objectively unreasonable and the insurer knew or was reckless in not knowing its position lacked foundation.

Connect with a Pennsylvania Injury Attorney

If your insurer is stonewalling your UM/UIM claim, denying first-party medical benefits without explanation, or refusing to communicate after you've submitted everything requested, you may have a bad faith claim under Section 8371. The attorneys in PennsylvaniaAccidentAid.com's network have handled bad faith cases throughout Pennsylvania and know how to build a record that forces insurers to pay what's owed—plus interest, punitive damages, and fees.

Whether your underlying case involves Car Accidents, Truck Accidents, Motorcycle Accidents, or any other serious injury, bad faith claims give you leverage to hold insurers accountable when they breach their duties. PennsylvaniaAccidentAid.com connects injured Pennsylvanians in Philadelphia, Pittsburgh, Allentown, Erie, Reading, Scranton, Bethlehem, Lancaster, Harrisburg, York, and across the Commonwealth with experienced attorneys who understand both the insurance law and the litigation strategy required to win.

Don't let an insurer's delay tactics or lowball offers force you into an unfair settlement. Get matched with a Pennsylvania injury attorney who will investigate whether your insurer acted in bad faith and pursue every dollar you're entitled to under the law.

Related Pennsylvania Guides

• What Is Bad Faith and How Do I Prove It Against a Pennsylvania Insurer?
• Underinsured Motorist (UIM) Claims in Pennsylvania: A Complete Guide
• Recorded Statements to the Insurance Adjuster in Pennsylvania: When to Talk and When to Walk Away
• What Your Pennsylvania Auto Insurance Limits Actually Mean (And Why They Matter)