Insurance Bad Faith Demand Letter - Pennsylvania

INSURANCE BAD FAITH DEMAND LETTER

Commonwealth of Pennsylvania — 42 Pa.C.S. § 8371

[LAW FIRM LETTERHEAD]

PRIVILEGED AND CONFIDENTIAL
SETTLEMENT COMMUNICATION — FOR RESOLUTION PURPOSES ONLY
PROTECTED UNDER Pa.R.E. 408 AND F.R.E. 408

VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED
AND VIA EMAIL TO: [________________________________]

Date: [__/__/____]

[INSURANCE COMPANY NAME]
[________________________________]
[________________________________]
[________________________________], [____] [________]

Attention: [________________________________], [________________________________]
Claim Number: [________________________________]
Policy Number: [________________________________]

Re: FORMAL BAD FAITH DEMAND — 42 Pa.C.S. § 8371 — COMMONWEALTH OF PENNSYLVANIA
Insured/Claimant: [________________________________]
Date of Loss: [__/__/____]
Policy Limits: $[________________________________]
Amount of Claim: $[________________________________]
Response Deadline: [__/__/____] at 5:00 p.m. Eastern Time

Dear [________________________________]:

I. INTRODUCTION AND NATURE OF DEMAND

This firm represents [________________________________] ("our client") in connection with the above-referenced insurance claim under a policy issued by [________________________________] ("the Company" or "[________________________________]") governed by the laws of the Commonwealth of Pennsylvania.

This letter serves as a formal demand for payment of all policy benefits wrongfully withheld and provides notice of [________________________________]'s bad faith in handling our client's claim in violation of 42 Pa.C.S. § 8371 — Pennsylvania's insurance bad faith statute — as well as the Pennsylvania Unfair Insurance Practices Act, 40 P.S. § 1171.5, and the Pennsylvania Insurance Department's regulatory standards at 31 Pa. Code § 146.7.

Pennsylvania enacted § 8371 specifically to deter and punish the precise conduct [________________________________] has engaged in here. The statute authorizes — and courts do not hesitate to impose — interest at the prime rate plus 3%, punitive damages, court costs, and attorney fees. These are not theoretical consequences. They are direct and substantial financial penalties for what [________________________________] has done to its own insured.

This demand expires at 5:00 p.m. Eastern Time on [__/__/____]. Payment of the full amount demanded and resolution of all claims arising from this loss must be received by that deadline. Failure to respond fully and favorably will result in the immediate filing of suit in the Court of Common Pleas of [________________________________] County, Pennsylvania.

II. PENNSYLVANIA BAD FAITH LAW — 42 Pa.C.S. § 8371

A. The Statute

42 Pa.C.S. § 8371 provides:

"In an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith toward the insured, the court may take all of the following actions: (1) Award interest on the amount of the claim from the date the claim was made by the insured in an amount equal to the prime rate of interest plus 3%. (2) Award punitive damages against the insurer. (3) Assess court costs and attorney fees against the insurer."

B. The Controlling Legal Standard — Terletsky and Rancosky

Pennsylvania courts apply the two-part test established in Terletsky v. Prudential Property & Casualty Insurance Co., 649 A.2d 680 (Pa. Super. 1994), and authoritatively resolved by the Pennsylvania Supreme Court in Rancosky v. Washington National Insurance Co., 170 A.3d 364 (Pa. 2017).

To prevail on a bad faith claim under § 8371, an insured must prove by clear and convincing evidence that:

Prong 1 (Objective): The insurer did not have a reasonable basis for denying or delaying payment of benefits under the policy; AND

Prong 2 (Subjective): The insurer knew of, or recklessly disregarded, its lack of a reasonable basis in handling the claim.

Rancosky resolved a longstanding circuit split and held that proof of the insurer's subjective motive of self-interest or ill will is NOT required. Reckless disregard of the insurer's own lack of a reasonable basis is sufficient to satisfy the second prong. This ruling substantially lowered the bar for Pennsylvania policyholders establishing bad faith.

C. Remedies Available Under § 8371

If the Court finds bad faith, it shall award:

Note on Punitive Damages: Pennsylvania courts assess punitive damages under § 8371 based on the degree of reprehensibility of the insurer's conduct, the duration of the bad faith, whether the insurer acted in a calculated or deceitful manner, and the insurer's financial resources. See Birth Center v. St. Paul Companies, 787 A.2d 376 (Pa. 2001).

Current § 8371 Statutory Interest Exposure:

• Claim made: [__/__/____]
• Days elapsed as of demand date: [____] days
• Daily interest on $[________________________________] at [____]%: approximately $[________________________________] per day
• Total interest accrued to date: approximately $[________________________________]

This amount continues to grow every day [________________________________] fails to act.

D. Pennsylvania Unfair Insurance Practices Act — 40 P.S. § 1171.5

Pennsylvania's Unfair Insurance Practices Act (UIPA), 40 P.S. § 1171.5(a)(10), enumerates specific prohibited unfair claims practices. Although the UIPA does not create a private right of action, violations are admissible as evidence of bad faith under § 8371, are enforceable by the Pennsylvania Insurance Department, and may result in license suspension, fines, and public regulatory sanctions against [________________________________].

E. Pennsylvania Insurance Department Regulatory Standards — 31 Pa. Code § 146.7

The Insurance Department's binding regulations at 31 Pa. Code § 146.7 establish specific time standards for Pennsylvania insurers:

III. POLICY INFORMATION

A. Policy Details

B. Coverage — The Policy Covers This Claim

The policy provides coverage for [DESCRIBE COVERED LOSS TYPE]. This loss falls squarely within the policy's insuring agreement. [________________________________] has:

☐ Acknowledged coverage in writing on [__/__/____]
☐ Issued partial payment of $[________________________________], confirming coverage
☐ Assigned a claim number and opened a claim file, indicating coverage acceptance
☐ Declined to issue a formal reservation of rights, confirming no coverage defense
☐ [________________________________]

Having acknowledged coverage — or having failed to timely disclaim coverage — [________________________________] is obligated under Pennsylvania law to:

1. Conduct a thorough, fair, and objective investigation of all aspects of the claim
2. Evaluate the claim in good faith based on all available evidence
3. Promptly pay all amounts owed under the policy
4. Communicate honestly, accurately, and completely with the insured
5. Avoid unreasonable delays in claim resolution
6. Refrain from misrepresenting policy provisions or facts to defeat coverage

IV. FACTUAL BACKGROUND AND CLAIM HISTORY

A. The Underlying Loss

On [__/__/____], [DESCRIBE THE UNDERLYING LOSS EVENT — fire, auto accident, disability onset, death, property damage, liability claim, etc. in detail]:

[________________________________]
[________________________________]
[________________________________]

The loss/event qualifies for coverage under the policy because: [________________________________]

B. Complete Chronological Timeline of Bad Faith Conduct

The following timeline documents [________________________________]'s handling of this claim and identifies the specific acts and omissions constituting bad faith under Pennsylvania law:

V. SPECIFIC BAD FAITH CONDUCT

[________________________________]'s handling of this claim violates 42 Pa.C.S. § 8371 in the following specific, documented respects:

A. Unreasonable Denial or Delay Without Reasonable Basis

[DESCRIBE THE DENIAL OR DELAY IN DETAIL]

[________________________________] denied/delayed this claim on the basis of: [________________________________]

This basis is unreasonable because:

1. [________________________________]
2. [________________________________]
3. [________________________________]

Under both prongs of the Terletsky/Rancosky test: (1) [________________________________] had no reasonable basis for its denial/delay because [________________________________]; and (2) [________________________________] knew or recklessly disregarded this lack of reasonable basis because [________________________________].

B. Inadequate and Biased Investigation

[________________________________] failed to conduct the thorough, fair, and objective investigation required by Pennsylvania law and 31 Pa. Code § 146.7, specifically:

☐ Failed to inspect/examine the [________________________________] before denying the claim
☐ Relied exclusively on [________________________________]'s own hired expert, [________________________________], without consideration of our expert's findings
☐ Failed to interview material witness(es): [________________________________]
☐ Ignored documentation submitted by our client on [__/__/____]: [DESCRIBE DOCUMENTATION]
☐ Failed to obtain necessary records: [________________________________]
☐ Conducted an investigation designed to reach a predetermined outcome of denial/underpayment
☐ Failed to complete investigation within 30 days without issuing the required written extension notices — 31 Pa. Code § 146.7(b)
☐ [________________________________]

C. Misrepresentation of Policy Provisions — 40 P.S. § 1171.5(a)(10)(i); 31 Pa. Code § 146.5

[________________________________] misrepresented the following policy provision(s) to our client:

This conduct violates 40 P.S. § 1171.5(a)(10)(i) and 31 Pa. Code § 146.5, and satisfies both prongs of the bad faith test because [________________________________].

D. Unreasonable Settlement Offers — 40 P.S. § 1171.5(a)(10)(vii)-(viii)

[________________________________]'s settlement offers have been grossly inadequate, constituting an attempt to compel litigation and settle for substantially less than the amount owed:

[________________________________]'s offers represent only [____]% of the documented value of the claim. There is no reasonable basis for this disparity.

E. Failure to Communicate — 40 P.S. § 1171.5(a)(10)(ii); 31 Pa. Code § 146.7

[________________________________] has failed to acknowledge and act reasonably promptly on our client's communications:

☐ Letter/email dated [__/__/____] — no response as of [__/__/____] ([____] days)
☐ Letter/email dated [__/__/____] — no response as of [__/__/____] ([____] days)
☐ Phone calls on [__/__/____], [__/__/____], and [__/__/____] — not returned
☐ Claim not acknowledged within 10 working days as required by 31 Pa. Code § 146.7(a)
☐ Written investigation status updates not provided every 45 days as required by 31 Pa. Code § 146.7(b)
☐ [________________________________]

F. Failure to Provide Explanation — 40 P.S. § 1171.5(a)(10)(xi)

[________________________________] has failed to provide a reasonable, policy-based explanation for its denial or inadequate offer, in violation of 40 P.S. § 1171.5(a)(10)(xi). The denial letter(s) of [__/__/____] [DESCRIBE — failed to identify specific policy provisions, used boilerplate language, cited inapplicable exclusions, etc.].

G. Use of Pretextual Defenses

[________________________________] has asserted the following defenses that are pretextual, lacking any reasonable foundation in the policy or applicable law:

☐ [________________________________] — pretextual because [________________________________]
☐ [________________________________] — pretextual because [________________________________]
☐ The Examination Under Oath conducted on [__/__/____] was used as a [DESCRIBE — delay tactic / to manufacture a pretext for denial / not conducted in good faith], in violation of [________________________________]

H. Improper Reserve Practices (if applicable)

☐ [________________________________] set an initial reserve of $[________________________________] on this claim, which was grossly inadequate in light of the obvious value of the claim at the time of assignment, demonstrating that [________________________________] never intended to fully compensate our client.

☐ [________________________________] failed to timely increase reserves despite clear evidence of claim value, demonstrating reckless disregard for the insured's interests.

VI. REGULATORY VIOLATIONS — 40 P.S. § 1171.5 CHECKLIST

[________________________________]'s conduct violates the following specific subsections of the Pennsylvania Unfair Insurance Practices Act:

☐ § 1171.5(a)(10)(i) — Misrepresenting pertinent facts or policy provisions relating to coverages at issue: [DESCRIBE]

☐ § 1171.5(a)(10)(ii) — Failing to acknowledge and act reasonably promptly upon communications: [DESCRIBE]

☐ § 1171.5(a)(10)(iii) — Failing to adopt and implement reasonable investigation standards: [DESCRIBE]

☐ § 1171.5(a)(10)(iv) — Refusing to pay claims without conducting a reasonable investigation: [DESCRIBE]

☐ § 1171.5(a)(10)(v) — Failing to affirm or deny coverage within a reasonable time after proof of loss: [DESCRIBE]

☐ § 1171.5(a)(10)(vi) — Failing to effectuate prompt, fair, equitable settlements when liability is reasonably clear: [DESCRIBE]

☐ § 1171.5(a)(10)(vii) — Compelling insureds to litigate by offering substantially less than amounts ultimately recovered: [DESCRIBE]

☐ § 1171.5(a)(10)(viii) — Attempting to settle for less than a reasonable person would believe is owed: [DESCRIBE]

☐ § 1171.5(a)(10)(xi) — Failing to promptly provide a reasonable explanation of the basis for denial: [DESCRIBE]

VII. DAMAGES

A. Contract Damages — Unpaid Policy Benefits

B. § 8371 Statutory Interest

Interest continues to accrue at $[________________________________] per day until paid.

C. Consequential Damages

Pennsylvania recognizes consequential damages flowing from an insurer's bad faith beyond mere contract benefits. See Birth Center v. St. Paul Companies, 787 A.2d 376 (Pa. 2001). Our client has sustained the following consequential damages caused directly by [________________________________]'s bad faith:

D. Emotional Distress

☐ Our client has suffered significant emotional distress as a direct and foreseeable result of [________________________________]'s bad faith conduct, including [DESCRIBE — anxiety, depression, financial stress, inability to repair home/pay medical bills, etc.]. Pennsylvania courts have permitted emotional distress damages as consequential damages in appropriate bad faith cases.

E. Punitive Damages

Pennsylvania imposes punitive damages under § 8371 without a statutory cap. Punitive damages in this case are warranted because [________________________________]'s conduct was:

☐ Calculated and deliberate — not merely negligent
☐ Part of a pattern of practice applied to numerous similarly situated claimants
☐ Designed to maximize [________________________________]'s profits at the expense of its insureds
☐ Sustained over a prolonged period despite repeated notice and demands
☐ Accompanied by affirmative misrepresentations to our client and/or counsel

Based on [________________________________]'s conduct and financial resources (annual premium revenue of approximately $[________________________________]), punitive damages of $[________________________________] are warranted to deter future conduct.

F. Attorney Fees and Costs

Under 42 Pa.C.S. § 8371, attorney fees and court costs are mandatory upon a finding of bad faith. Our client has incurred fees and costs as follows:

These amounts will continue to grow through litigation.

G. Total Damages Summary

VIII. DEMAND

Based on the foregoing, we hereby demand:

A. Monetary Payment

Payment of the total sum of $[________________________________] as follows:

Note: Punitive damages are not included in this settlement demand but will be sought in full at trial if litigation is required.

B. Non-Monetary Terms

In addition to monetary payment, our client requires:

☐ A full and complete release of all claims and subrogation rights by [________________________________] against our client arising from this loss
☐ Withdrawal of any pending examination under oath or proof of loss demands
☐ Correction of any adverse information reported by [________________________________] to ISO ClaimSearch or other industry databases regarding this claim
☐ Written confirmation that no adverse action will be taken against our client's policy as a result of this claim
☐ [________________________________]

IX. TIME-LIMITED DEMAND — EXPIRATION AND CONSEQUENCES

THIS DEMAND EXPIRES AT 5:00 P.M. EASTERN TIME ON [__/__/____].

This is a time-limited demand under Pennsylvania law. Upon expiration of this deadline without full acceptance:

1. Suit will be filed immediately in the Court of Common Pleas of [________________________________] County, Pennsylvania, asserting:
   - Breach of contract for all unpaid policy benefits
   - Bad faith under 42 Pa.C.S. § 8371 seeking interest at prime + 3%, punitive damages, attorney fees, and court costs
   - Violations of 40 P.S. § 1171.5 (as evidence of bad faith)
   - All consequential and emotional distress damages

2. This demand will be withdrawn. After the deadline, our client will no longer be bound by the settlement amount stated herein and will seek the full measure of damages available under Pennsylvania law.

3. A formal complaint will be filed with the Pennsylvania Insurance Department, Bureau of Consumer Services:

Pennsylvania Insurance Department
Bureau of Consumer Services
1326 Strawberry Square
Harrisburg, PA 17120
Phone: 1-877-881-6388
Fax: 717-787-8585
www.insurance.pa.gov

The complaint will document each violation of 40 P.S. § 1171.5 and 31 Pa. Code Chapter 146 detailed in this letter and request investigation, regulatory sanctions, fines, and license action.

4. Media and public records: Pennsylvania Insurance Department complaint files are public records. Filed complaints become part of [________________________________]'s regulatory history.

X. DOCUMENT PRESERVATION — LITIGATION HOLD NOTICE

This letter constitutes a formal litigation hold notice to [________________________________]. All documents and electronically stored information (ESI) related to this claim must be immediately preserved without alteration, deletion, or destruction. The litigation hold encompasses:

Claim File Materials:
☐ Complete claim file — all versions, supplements, and drafts
☐ All adjuster activity logs, diary entries, and notes
☐ All internal emails, texts, instant messages, and voicemails regarding this claim
☐ Reserve worksheets and all reserve change documentation (including reserve setting rationale)
☐ Supervisor approvals, management review notes, and escalation records

Investigation Materials:
☐ All photographs, video, drone footage, and inspection reports
☐ All estimates, appraisals, and scope documents
☐ All expert reports, engineer reports, and IME reports
☐ Vendor files and vendor communications
☐ Any surveillance or recorded statements

Institutional Materials:
☐ Claim handling guidelines, manuals, and procedures in effect at the time of the claim
☐ Training materials for adjusters handling this claim type
☐ Quality assurance, audit, and file review records for this claim
☐ ISO ClaimSearch and industry database submissions/queries
☐ Communications with reinsurers regarding this claim

Destruction or alteration of any preserved materials after receipt of this notice will be treated as spoliation of evidence and will be the subject of appropriate sanctions motions.

XI. CERTIFICATE OF COMPLIANCE WITH § 8371

This letter is being transmitted to [________________________________] and to [________________________________]'s registered agent for service of process in Pennsylvania:

[________________________________]
[________________________________], PA [________]

This letter satisfies Pennsylvania's good faith pre-litigation notice requirements and documents our client's attempts to resolve this matter without litigation.

XII. CONCLUSION

Pennsylvania enacted 42 Pa.C.S. § 8371 to put teeth into the obligation of good faith that every insurer owes to every insured in this Commonwealth. [________________________________] sold our client a policy of insurance and collected premiums based on the promise that it would pay covered claims fairly, promptly, and in good faith.

Instead, [________________________________] has [SUMMARIZE BAD FAITH CONDUCT IN 2-3 SENTENCES].

This is precisely the conduct § 8371 was enacted to deter and punish. The Pennsylvania Supreme Court, in Rancosky, made clear that neither self-interest nor ill will must be proven — reckless disregard is sufficient. The evidence of reckless disregard here is substantial, documented, and will be presented to the jury.

[________________________________] has one final opportunity to resolve this matter equitably. We strongly urge [________________________________] to use it.

All communications regarding this matter must be directed to the undersigned. Do not contact our client directly.

Respectfully submitted,

[________________________________]

By: ___________________________________
[________________________________]
Pennsylvania Bar No. [________]
[________________________________]
[________________________________], PA [________]
Phone: [________________________________]
Fax: [________________________________]
Email: [________________________________]

Counsel for [________________________________]

ENCLOSURES:

☐ Policy declarations page and all applicable endorsements
☐ Complete claim correspondence chronology
☐ Proof of loss (submitted [__/__/____])
☐ All documentation submitted to [________________________________] in support of the claim
☐ Expert reports: [________________________________]
☐ Damage documentation and estimates
☐ Medical records/bills (if applicable)
☐ Itemization of attorney fees and costs
☐ [________________________________]

CC:

• [________________________________] (Client)
• [________________________________] (Registered Agent for [________________________________] in Pennsylvania)
• Pennsylvania Insurance Department — Bureau of Consumer Services (if complaint filed simultaneously)
• File

PENNSYLVANIA BAD FAITH LAW — QUICK REFERENCE

SOURCES AND REFERENCES

• 42 Pa.C.S. § 8371 — Insurance bad faith statute: https://codes.findlaw.com/pa/title-42-pacsa-judiciary-and-judicial-procedure/pa-csa-sect-42-8371/
• 40 P.S. § 1171.5 — Unfair Insurance Practices Act: https://codes.findlaw.com/pa/title-40-ps-insurance/pa-st-sect-40-1171-5/
• 31 Pa. Code § 146.7 — Standards for prompt, fair and equitable settlements: https://www.law.cornell.edu/regulations/pennsylvania/31-Pa-Code-SS-146-7
• 31 Pa. Code Chapter 146 — Unfair Insurance Practices: https://www.pacodeandbulletin.gov/Display/pacode?file=/secure/pacode/data/031/chapter146/chap146toc.html
• Terletsky v. Prudential Property & Cas. Ins. Co., 649 A.2d 680 (Pa. Super. 1994)
• Rancosky v. Washington National Ins. Co., 170 A.3d 364 (Pa. 2017): https://law.justia.com/cases/pennsylvania/supreme-court/2017/28-wap-2016.html
• Rancosky analysis — Post & Schell: https://www.postschell.com/insights/rancosky-v-washington-national-insurance-co-pennsylvania-supreme-court-finally
• Birth Center v. St. Paul Companies, 787 A.2d 376 (Pa. 2001) — consequential damages
• 42 Pa.C.S. § 5525 — Four-year contract limitations: https://law.justia.com/codes/pennsylvania/title-42/chapter-55/section-5525/
• Pennsylvania Insurance Department (regulatory complaints): https://www.insurance.pa.gov
• Chartwell Law — Pennsylvania Bad Faith Compendium: https://www.chartwelllaw.com/bad-faith-claims-map/pennsylvania
• Marshall Dennehey — § 8371 Standard Analysis: https://marshalldennehey.com/articles/pennsylvania-supreme-court-clarifies-standard-courts-must-use-when-considering-claims-made