Pennsylvania’s bad faith statute permits claims of fi rst party bad faith in actions “arising under an insurance policy.” Practitioners have debated the scope of this language virtually since the bad faith statute was enacted in 1990. Many insurers have contended that there must fi rst be a claim denial before a policyholder may assert bad faith. Policyholders, on the other hand, have often maintained that a bad faith claim may be appended to any cause of action relating to an insurance policy. A decision in the case of Toy v. Metropolitan Life Ins. Co., Nos. 33 & 34 WAP 2005, 2007 Pa. LEXIS 1463 (Pa. Super. Ct. July 18, 2007), appears to have settled this issue in favor of insurers.
The plaintiff in Toy purported to assert multiple causes of action against the insurer based on alleged misrepresentations by the sales agent. In particular, Plaintiff alleged that “Defendants undertook a marketing scheme to disguise the true nature of the Policy and misrepresent it to be a savings or investment vehicle; that Defendants’ misrepresentations about the Policy led her to believe that she was investing in a savings plan; that due to Defendants’ misrepresentations she purchased life insurance she did not want; [and] that Defendants’ misrepresentations prevented her from securing the types of retirement product she needed.” 2007 Pa. LEXIS 1463 at * 6. Plaintiff asserted, inter alia, that Defendants’ conduct constituted unfair insurance practices, giving rise to a claim for bad faith under Pennsylvania’s bad faith statute, 42 Pa.C.S. § 8371.
Defendants moved for summary judgment, arguing that the bad faith statute is limited to claims in which an insurer fails to provide an insured with the benefi ts of coverage. Defendants asserted that although § 8371 applies to actions “arising under an insurance policy,” such language should be construed narrowly and limited to actions alleging bad faith in connection with the refusal to pay the proceeds of a policy. The trial court disagreed with Defendants’ construction of § 8371, but granted Defendants’ motion for summary judgment on other grounds. On appeal, although the Superior Court did not discuss the trial court’s construction of the bad faith statute, it noted that one required element of a bad faith claim is that the insurer refused to provide benefi ts. The Superior Court affi rmed the dismissal of Plaintiff’s complaint.
The Supreme Court of Pennsylvania granted Plaintiff’s Petition for Allowance of Appeal to consider, inter alia, “whether the Superior Court’s decision that a claim under § 8371 is limited to the unreasonable refusal by an insurance company to pay a valid claim confl icts with Pennsylvania law and the reasoned decisions of other appellate courts[.]” 2007 Pa. LEXIS 1463 at *19. Because the interpretation of § 8371 is an issue of statutory construction, the Supreme Court analyzed the issue under the Statutory Construction Act of 1972, 1 Pa.C.S. § 1501, et seq. Id. at *21-22. The Court primarily relied on § 1903(a) of the Act, that provides that “technical words and phrases and such others as have acquired a peculiar and appropriate meaning . . . shall be construed according to such peculiar and appropriate meaning or defi nition.” 1 Pa.C.S. § 1903(a).
In analyzing the historical application of § 8371, the Court found that the terms “arising under an insurance policy” contained in § 8371 had a peculiar and appropriate meaning that relates to “the amount of the claim from the date the claim was made by the insured.” 2007 Pa. LEXIS at *23 (emphasis added). The Court therefore held that § 8371 is limited to actions involving allegations that an insurer refused to pay the proceeds of a policy. According to the Court, the Legislature did not intend to provide insureds with a remedy under § 8371 for deceptive or unfair practices in soliciting the purchase of a policy.