Insurance Bad Faith Claims in Pennsylvania

Your house suffers water damage. You file a homeowners insurance claim. The adjuster inspects, agrees the damage occurred, but then delays for months, refusing your repair estimates, demanding endless inspections, or offering a fraction of the actual loss. This is worse than poor customer service. It may be bad faith , and Pennsylvania law provides powerful remedies.

Under 42 Pa.C.S. § 8371 (Actions on Insurance Policies), if an insurance company acts in bad faith toward the insured, you can recover not only the claim amount but also interest at the prime rate plus 3%, punitive damages, and attorney fees. Knowing when bad faith applies, and how to prove it, is the difference between recovering your full loss and eating a lowball offer.

What Is Bad Faith Under Pennsylvania Law?

Bad faith is not mere breach of contract or denial of a claim you believe is valid. Bad faith requires clear and convincing evidence that (1) the insurer had no reasonable basis for denying benefits, and (2) the insurer knew of or acted in reckless disregard of its lack of a reasonable basis. A plaintiff need not prove intent to defraud, ill will, or self-interest. Pennsylvania courts apply the Terletsky test (named from Terletsky v. Prudential Ins. Co. , a leading state case) to determine bad faith:

• First prong: The insured must show, by "clear and convincing evidence," that the insurer had no reasonable basis for denying benefits. This prong is objective: it looks at whether a reasonable basis existed, not at what the insurer subjectively knew. A mere difference of opinion about the claim's merit is not bad faith.
• Second prong: The insured must prove that the insurer knew there was no reasonable basis for denying the claim, or acted in reckless disregard of whether a reasonable basis existed. This element addresses the insurer's subjective intent or state of mind .

The Terletsky test is stringent. You must prove both that the insurer's denial was unreasonable (objective standard) and that the insurer knew it was unreasonable or acted recklessly (subjective standard). That is why bad faith cases, while powerful, are not easy to win.

Remedies Under 42 Pa.C.S. § 8371

If you prove bad faith, 42 Pa.C.S. § 8371 permits the court to award:

1. Interest on the claim amount from the date the claim was made, at a rate equal to the prime rate of interest plus 3% . This is substantial. If you filed a $100,000 claim and the insurer wrongfully delayed for two years, you could recover years of interest at prime + 3% running from the date the claim was made, easily tens of thousands added to your recovery.
2. Punitive damages. Unlike ordinary contract disputes, bad faith cases permit punitive damages, designed not to compensate you but to punish the insurer for its wrongful conduct. They are typically awarded when the insurer's conduct is particularly egregious or shows disregard for the rights of the insured.
3. Court costs and attorney fees. You may recover the reasonable costs of litigating the bad faith claim, including your attorney's fees. This makes the litigation more viable for claimants and gives insurers an incentive to settle rather than fight.

Common Bad Faith Scenarios

Unreasonable delay: The insurer has your claim and all necessary documentation but unreasonably delays payment for months or years without explanation. Pennsylvania courts have found that delay alone can constitute bad faith if it is prolonged and unjustified.

Denial without investigation: The insurer denies your claim without any investigation, or denies it despite evidence in the claim file that supports it. Example: you file a water damage claim with photographs, repair estimates from three contractors, and testimony from your contractor, and the insurer denies it without explanation. This suggests bad faith.

Lowball settlement offers: The insurer offers to settle at a fraction of the reasonable value without justification. If the actual loss is $50,000 but the insurer offers $10,000 and refuses to explain its reasoning or consider additional evidence, bad faith may be present.

Misrepresentation or concealment: The insurer misrepresents policy coverage, misrepresents the scope of damage, or conceals evidence favorable to the claim. Example: the adjuster tells you that a certain type of water damage is excluded when your policy actually covers it.

Abuse of the claims process: The insurer requires excessive inspections, demands impossible documentation, or imposes unreasonable conditions not required by the policy. Example: the insurer demands an inspection every two weeks and changes its position after each one, effectively preventing the claim from being resolved.

Conflicted interests: The insurer has a conflict of interest, such as using its own adjusters or contractors who have an incentive to minimize the claim, and allows that conflict to influence the claim decision.

Property Damage and Homeowners Claims

Bad faith claims frequently arise in property damage disputes. A homeowner files a claim for water, fire, wind, or other covered loss. The insurer's adjuster inspects and agrees the loss occurred, but then refuses to pay the full amount, disputes repair estimates, or takes months to issue payment without reason.

Homeowners policies typically cover "sudden and accidental" loss. When a pipe bursts and floods your basement, or a tree falls on your roof during a storm, the loss is covered. Bad faith occurs when the insurer, having received proof of the loss, delays, lowballs, or denies without reasonable basis.

To strengthen your bad faith claim in a property damage case:

• Obtain written repair estimates from licensed contractors
• Document all communication with the insurer (save emails, keep phone records, note dates and times of calls)
• Keep photographs of the damage and any temporary repairs
• Preserve the insurer's denial letter or lowball offer in writing
• Have your own expert review the insurance company's estimate if it is significantly lower than independent estimates

Liability Coverage Disputes and UIM Claims

Bad faith can also arise in liability coverage disputes. Example: you are sued in a car accident, and your homeowners or auto policy has liability coverage. The insurer's defense counsel recommends settlement, but the insurer refuses to settle within policy limits and insists on trial. The plaintiff obtains a judgment exceeding your policy limits, and you are liable for the excess. This can be bad faith if the insurer's refusal to settle was unreasonable.

Bad faith disputes also arise over underinsured motorist (UIM) coverage, where your claim for UIM benefits is denied or drastically reduced without reasonable basis. If you can show the insurer had no reasonable basis for the denial, you may pursue a bad faith claim in addition to the underlying UIM dispute.

The Burden of Proof and Statute of Limitations

To prevail on a bad faith claim, you must prove bad faith by clear and convincing evidence , a higher standard than the ordinary "preponderance of the evidence" used in contract cases. This reflects the seriousness of the allegation.

A statutory bad faith claim under § 8371 is a tort, not a contract claim, so it is governed by the two-year statute of limitations in 42 Pa.C.S. § 5524. The Pennsylvania Supreme Court so held in Ash v. Continental Insurance Co., 932 A.2d 877 (Pa. 2007), reasoning that § 8371 creates a statutory tort duty imposed as a matter of social policy rather than by mutual consent. The two-year clock generally runs from the date of the insurer's bad faith conduct. Consult an attorney promptly; waiting too long risks losing your right to sue.

Settlement Strength and Litigation Strategy

Bad faith claims give you significant power in settlement negotiations. If your insurer denies or underpays your claim and you can make a plausible bad faith argument, the insurer faces exposure not only for the claim amount but also for interest, punitive damages, and attorney fees. Many insurers will settle disputed claims to avoid the risk of a bad faith verdict.

Strategic considerations:

• Document bad faith carefully. Keep records of every email, letter, and phone call with the insurer.
• Hire a public or independent adjuster to prepare your own damage estimate. If it is significantly higher than the insurer's, that supports a bad faith argument.
• Send a demand letter setting out your position, citing the policy language, the evidence supporting your claim, and the insurer's lack of reasonable basis for denial. It may persuade the insurer to reconsider, and it creates a written record.
• Consider hiring an attorney who handles insurance bad faith. Insurers change their tone when you are represented.
• Evaluate the strength of your bad faith argument before filing suit. These cases are time-consuming and expensive to litigate. If yours is weak, settling the underlying claim may be preferable.

Defenses and Limitations

Insurers have defenses to bad faith claims. If the insurer had a reasonable basis for denying or limiting your claim, bad faith does not lie even if you ultimately prove the claim was covered. Example: the insurer denies a claim because it believes the loss falls under a policy exclusion. If a court later agrees with you that the exclusion does not apply, the insurer may still have had a reasonable basis for denial at the time, and bad faith will not be found.

A mere difference of opinion about the value of a claim is not bad faith. If the insurer's damage estimate is lower than yours and both are reasonable, the lower estimate is not bad faith even if you ultimately win in litigation.

Attorney fees and interest under § 8371 are not available if the insured is the party acting in bad faith. For example, if you submit a fraudulent claim, you cannot later sue for bad faith.

Statutory content on this page was last verified against Pennsylvania statutes (20 Pa.C.S.; 72 P.S. Art. XXI): Jun. 2026. If you are reading this significantly after that date, confirm key provisions with current statute text or contact our office.