Most bad faith cases are dismissed, because bad faith statutes and the whole concept of bad faith is not designed to punish insurers for negligence or bad decisions. It’s intended to be a special remedy to provide a right of action to insureds only when bad faith insurance companies act unreasonably and without reasonable basis.
We’ll talk about, a little bit later, a recent case that I think illustrates that. Is that answer long enough? [laughs]
John: Yeah, that’s perfect. [laughs] Are there any bad faith decisions which stand out for you over the last year or so?
CJ: I’m going to be a little bit of a Homer here and mention a case in particular that seemed to create a little bit of buzz here in Pennsylvania. The name of the case is Rancosky v. Washington National Insurance. It was a Supreme Court case here in Pennsylvania, decided this year.
Basically, in that case, the court took up the issue of whether or not an insurer’s motive of ill will was a requirement of making out a bad faith case, as opposed to just a factor to be considered. While the opinion was considered to be an important one, the way the case ended, I don’t know that it made much of a change in Pennsylvania law.
The Supreme Court said that ill will or bad motive is not a requirement to be proved against the insurers in the handling of claims, but that it was a factor to be considered. In Pennsylvania, and truthfully in some form or another, the bad faith test, the criteria for making out a bad faith against an insurer is a two-step process.
The first of which is that the insurer lack a reasonable basis for a claims decision. Number two, did the insurer know or recklessly disregard the lack of a reasonable basis? Ultimately, Rancosky said that two- step test is still the test. It’s just that the insurer’s motive of ill will wasn’t a factor, didn’t have to be proved as an element, but certainly could be considered in the process.
If you want to ask whether there are any significant bad faith decisions, at least in my practice, Rancosky came down this year as one of those rules.
John: CJ, have there been any significant developments in insurance coverage decisions?
CJ: One of the things that I saw come out this year were some coverage suits over the opioid crisis and the opioid epidemic. There is a case in particular. It’s not the only case, but a case, I believe, California appeals court, Travelers versus Actavis, A-C-T-A-V-I-S.
It was decided I think in November. It’s a case where an opioid manufacturer sought coverage from its CGL insurer, Travelers, for a suit against the manufacturer about intentionally misrepresenting or over- marketing opioid drugs. It sought coverage for the suit, defense and indemnity, and Travelers declined.
The court found in favor of Travelers, saying that these kinds of suits don’t allege accidental conduct of any kind. They allege an intentional and deceptive pattern and practice on the part of the manufacturers to over sell and encourage the over prescription of these drugs.
The court said, “This is not an accident. This is not the kind of fortuitous event an insurance policy is designed to cover.” They also ruled that the liability policy that Actavis had also had an exclusion for completed operations.
In the opioid suits, one of the key things that you’re going to see is, “What are the specific allegations against the opioid manufacturer in the underlying case?” If they continue to be this intentional conduct, there’s not going to be coverage for them.
If, however, you start to see suits against drug companies for negligence or something in that vein, then I think the coverage case could come down differently. Certainly, it’d be much harder decision or ruling.