By John Rafferty — Nearly everyone who pays insurance premiums expects that when they submit a claim for a loss believed to be covered, the insurance company will, having been paid the premiums, cover the loss. Sometimes, when claims are denied, the reason given is that it was “not a covered loss.”
In some cases, the insurer has a reasonable basis for that conclusion. (A close look at many individual and commercial policies reveals that much of the coverage agreement between insurers and insureds are exclusions.) Courts do not tend to narrow or change exclusions, but rather uphold them, because the coverage agreement is treated as accurately expressing the negotiated terms of both parties.
In other cases however, under the terms of the agreement and its exclusions, the insurer lacks a reasonable basis to deny coverage. When this happens, Pennsylvania law (42 Pa.C.S.A. § 8371) permits residents to bring a bad faith claim against their insurer, arguing that although the insured paid their premiums every month, the insurance company exhibited bad faith by denying this claim, without a reasonable basis for doing so. In such claims, Pennsylvania also permits the insured to recover their attorneys’ fees expended in bringing the claim, under the theory that if bad faith was present, the insured should never have had to bring the suit in the first place.