Marc R. Lynde, Esq.
Your house suffers water damage. You file a homeowners insurance claim. The adjuster inspects the damage, agrees it occurred, but then delays for months, refusing to accept your repair estimates, demanding endless inspections, or offering a settlement that is a fraction of the actual loss. This is not just poor customer service. This 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. Understanding when bad faith applies and how to prove it can mean the difference between recovering your full loss and accepting a lowball offer.
Bad faith is not mere breach of contract or denial of a claim you believe is valid. Bad faith requires proof that the insurer acted with intent to defraud or in a manner showing reckless disregard for the rights, safety, or welfare of others. Pennsylvania courts apply the Terletsky test (named from Terletsky v. Prudential Ins. Co. , a leading state case) to determine bad faith:
Together, 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). This explains why bad faith cases, while powerful, are not easy to win.
If you prove bad faith, 42 Pa.C.S. § 8371 permits the court to award:
Unreasonable delay: The insurer receives your claim, has all necessary documentation, but unreasonably delays payment for months or years without explanation or justification. Pennsylvania courts have found delay, standing alone, can constitute bad faith if the delay is prolonged and unjustified.
Denial without investigation: The insurer denies your claim without conducting any investigation, or denies it despite evidence in the claim file that supports the claim. Example: you file a water damage claim with photographs, repair estimates from three contractors, and testimony from your contractor. The insurer denies the claim without explanation. This suggests bad faith.
Lowball settlement offers: The insurer offers to settle your claim 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 inspection, effectively preventing the claim from being resolved.
Conflicted interests: In some cases, 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.
Bad faith claims frequently arise in property damage disputes. A homeowner files a claim for water damage, fire damage, wind damage, 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 insurance 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:
Bad faith can also arise in liability coverage disputes. Example: you are sued in a car accident. Your homeowners or auto policy has liability coverage. The insurer's defense counsel recommends settlement, but the insurer refuses to settle within policy limits, insisting on taking the case to 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.
Similarly, bad faith disputes arise over underinsured motorist (UIM) coverage. 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.
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.
The statute of limitations for a bad faith claim under § 8371 follows the ordinary contract statute of limitations: four years from the date the claim was made or the bad faith act occurred. However, discovery rules may extend this deadline if the bad faith is not immediately apparent. Consult an attorney promptly if you suspect bad faith; waiting too long risks losing your right to sue.
Bad faith claims give you significant leverage in settlement negotiations. If your insurance company 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:
Insurers have defenses to bad faith claims. If the insurer had a reasonable basis for denying or limiting your claim, even if ultimately you prove the claim was covered, bad faith does not lie. Example: the insurer denies a claim because it believes the loss is excluded under a policy exclusion. If a court later agrees with you that the exclusion doesn't apply, the insurer may still have had a reasonable basis for denial at the time, and bad faith will not be found.
Similarly, a mere difference of opinion about the value of a claim is not bad faith. If the insurer's estimate of damage is lower than yours, and both estimates are reasonable, the insurer's lower estimate does not constitute 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.
⚠ Act Quickly When Facing Claim Denial
If your insurance company denies your claim or offers significantly less than your documented loss, do not simply accept it. Bad faith cases turn on prompt documentation and action. The longer you wait, the more difficult it becomes to prove the insurer had no reasonable basis for its position. Consult an attorney as soon as you suspect bad faith.
Statutory content on this page was last verified against Pennsylvania statutes (42 Pa.C.S.): March 2026 . If you are reading this significantly after that date, confirm key provisions with current statute text or contact our office.
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