Unfair Insurance Practices Act (“UIPA”), 40 P.S. § 1171.2, was enacted to define and prohibit practices in Pennsylvania that constitute unfair or deceptive acts for the insurance business.  Formerly, Pennsylvania courts looked to UIPA terms for guidance on determining whether an insurer acted in bad faith because Pennsylvania’s bad faith statute, 42 Pa.C.S. § 8371, failed to provide a standard.

In 1994, the court in Terletsky v. Prudential Property & Casualty Co established the test for determining bad faith in Pennsylvania.  Under Terletsky, “an insured seeking to establish bad faith 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.” Therefore, bad faith in Pennsylvania is measured by the Terletsky standard.

In Moore v. State Farm Fire Casualty Co., the plaintiff alleged that a violation of the UIPA was evidence of insurer bad faith.  The insurer moved to dismiss the bad faith claim based on a violation of the UIPA.  The court, held that a violation of the UIPA is neither per se evidence of bad faith, nor was the plaintiff prevented from using the violation as evidence of bad faith.

The court clarified that the question relevant to a bad faith determination is “whether the particular conduct (that may or may not violate the UIPA) is relevant to show that the insurer lacked a good faith basis for denying benefits or recklessly disregarded that fact.”

The takeaway is that analyzing a bad faith claim, a violation of the UIPA can be evidence of bad faith, but does not automatically constitute bad faith.

Thanks to Coleen Hill for her contribution to this post.