Rancosky, M. v. Washington National , 130 A.3d 79 ( 2015 )

J-A19039-15
2015 PA Super 264MATTHEW RANCOSKY, : IN THE SUPERIOR COURT OF
ADMINISTRATOR DBN OF THE ESTATE : PENNSYLVANIA
OF LEANN RANCOSKY AND MATTHEW :
RANCOSKY, EXECUTOR OF THE ESTATE :
OF MARTIN L. RANCOSKY, :
:
Appellant :
:
v. :
:
WASHINGTON NATIONAL INSURANCE :
COMPANY, AS SUCCESSOR BY MERGER :
TO CONSECO HEALTH INSURANCE :
COMPANY, FORMERLY KNOWN AS :
CAPITOL AMERICAN LIFE INSURANCE :
COMPANY, :
:
Appellees : No. 1282 WDA 2014
Appeal from the Judgment entered on August 1, 2014
in the Court of Common Pleas of Washington County,
Civil Division, No. 2008-11797
BEFORE: BENDER, P.J.E., JENKINS and MUSMANNO, JJ.
OPINION BY MUSMANNO, J.: FILED DECEMBER 16, 2015
Matthew Rancosky, Administrator DBN1 of the Estate of LeAnn
Rancosky (“LeAnn”), and Executor of the Estate of Martin L. Rancosky
(“Martin”)2 (collectively “Rancosky”), appeals from (1) the March 21, 2012
Order granting summary judgment on Martin’s claims in favor of Washington
National Insurance Company (“Conseco”), as successor by merger to
1
De bonis non.
2
LeAnn and Martin instituted this lawsuit on December 22, 2008, by filing a
Praecipe to issue a writ of summons. LeAnn died on February 18, 2010, and
her Estate was substituted as a plaintiff. Martin died on June 24, 2013, and
his Estate was substituted as a plaintiff.
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Conseco Health Insurance Company (“Conseco Health”), formerly known as
Capital American Life Insurance Company (“Capital American”);3 and (2) the
Judgment on LeAnn’s bad faith claim, entered on August 1, 2014, in favor of
Conseco. We affirm the March 21, 2012 Order granting summary judgment
in favor of Conseco and dismissing Martin’s claims. We vacate in part the
Judgment entered on August 1, 2014, and remand for a new trial on LeAnn’s
bad faith claim.
In 1998, LeAnn purchased the Cancer Policy from Conseco Health.
LeAnn paid a monthly premium rate of $44.00 for the Cancer Policy. The
premiums for the Cancer Policy were paid through automatic bi-weekly
payroll deductions of $22.00, made by LeAnn’s employer, the United States
Postal Service (“USPS”).
The Cancer Policy provides certain limited benefits to an insured
diagnosed with an internal cancer while the policy is in effect including, inter
alia, cash benefits and payment of surgical, hospitalization and treatment
costs. The Cancer Policy requires notice of a claim, as follows:
3
LeAnn initially purchased a cancer insurance policy in 1992 from Capital
American. However, in 1998, Capital American changed its name to
Conseco Health. That same year, the policy was converted to a Conseco
Secure Pay II Family Cancer Policy, under policy No. 302-301-261, with an
“Effective Date” of October 24, 1998 (the “Cancer Policy”). Conseco Health
and Capital American were succeeded by Washington National Insurance
Company. However, because the parties and the trial court have referred to
Washington National Insurance Company as “Conseco” throughout these
proceedings, we will do the same.
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Written notice of a claim must be given within 60 days after the
start of an insured loss or as soon as reasonably possible. The
notice must be sent to us at our Administrative Office or to an
authorized agent. The notice should include your name and
policy number.
Cancer Policy, at 11.
The Cancer Policy requires proof of loss, in relevant part, as follows:
You must give us written proof, acceptable to us, within 90 days
after the loss for which you are seeking benefits. If it is not
reasonably possible to give written proof in the time required,
we shall not reduce or deny the claim for this reason if the proof
is filed as soon as reasonably possible. In any event, the proof
required must be given no later than one year plus 90 days from
the date of loss unless the Policyowner was legally incapacitated
during that time.
Id.4
The Cancer Policy contains a suit limitations clause, which provides as
follows:
You cannot take legal action against us for benefits under this
policy:
 within 60 days after you have sent us written proof of loss;
or
 more than three years from the time written proof is
required to be given.
Id.The Cancer Policy contains a Waiver of Premium (“WOP”) provision,
which provides as follows:
4
Commencing in 1998, when the Cancer Policy was converted to a family
policy, LeAnn and Martin each became insured under the Cancer Policy as a
“policyowner.” Cancer Policy, at 2.
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Subject to the conditions of this policy, premium payments will
not be required after the Policyowner is:
 diagnosed as having cancer 30 days or more after the
Effective Date; and
 disabled due to cancer for more than 90 consecutive
days[5] beginning on or after the date of diagnosis.
After it has been determined that the Policyowner is disabled, we
will waive premium payments for the period of disability, except
those during the first 90 days of such period.
Id. at 8 (footnote added).
Pursuant to the Cancer Policy, “disabled”
Means that:
 for the first 24 months after loss begins you are unable,
due to cancer, to perform all the substantial and material
duties of your regular occupation; and
After 24 months, “disabled” means that:
 you are unable, due to cancer, to work at any job for
which you are qualified by reason of education, training or
experience;
 you are not working at any job for pay or benefits; and
 you are under the care of a physician for the treatment of
cancer.
Id. at 3.
The WOP provision in the Cancer Policy requires proof of disability as
follows:
5
Because the WOP provision requires the policyowner to be disabled for a
period of more than 90 consecutive days, we will refer to this period as the
“90-day waiting period.”
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You must send us a physician’s statement containing the
following:
 the date the cancer was diagnosed;
 the date disability due to cancer began; and
 the expected date, if any, such disability will end.
Id.6
The Cancer Policy states that the term “physician”
Means a person other than you or your spouse, parent, child,
grandparent, grandchild, brother, sister, aunt, uncle, nephew or
niece who:
 is licensed by the state to practice a healing art[;]
 performs services which are allowed by that license; and
 performs services for which benefits are provided by this
policy.
Id. at 3.
On February 4, 2003, LeAnn, age 47, was taken to the emergency
room due to intense abdominal pain. On February 7, 2003, exploratory
surgery was performed, after which LeAnn was diagnosed with ovarian
cancer. LeAnn remained in the hospital until February 15, 2003.
On April 11, 2003, LeAnn contacted Conseco and requested claim
forms to seek benefits under the Cancer Policy. On April 12, 2003, Conseco
6
Conseco’s Claim Procedures and Claims Guideline Manual (“Manual”)
provides three ways to establish proof of disability: (1) a physician’s
statement; (2) a claim form; or (3) a phone call to the policyowner’s
physician. See Trial Court Opinion, 11/26/14, at 3 (citing Rancosky’s Exhibit
75 and N.T. (Breach of Contract Trial), 5/7/13, at 147-49).
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mailed LeAnn claim forms. On May 6, 2003, LeAnn mailed to Conseco two
signed and completed claim forms, along with supporting documentation.
Conseco received the claim forms and supporting documentation on May 13,
2003. In each of the claim forms, LeAnn indicated that she had been
“unable to work in [her] current occupation” since her admission to the
hospital on February 4, 2003. The supporting documentation provided by
LeAnn included operative records for surgeries she had undergone,
pathology reports indicating her diagnosis of Stage III ovarian cancer, and
billing records for multiple hospitalizations, surgeries and related medical
treatments.7
The claim forms initially submitted by LeAnn did not include any
section that was required to be completed by a physician. However, the
claim forms each included an authorization, signed by LeAnn, which
authorized “any medical professional, hospital, or other medical-care
institution, insurance support organization, government agency, insurance
7
The evidence of record indicates that, during the 90-day waiting period,
LeAnn had received extensive medical care, including February 4, 2003
through February 15, 2003 (hospitalized, exploratory surgery performed);
February 20, 2003 (port for chemotherapy inserted); February 25, 2003
(first chemotherapy treatment); February 26, 2003 (office visit); February
28, 2003 (mammogram); March 11, 2003 through March 19, 2003 (surgery
for blood clots in lungs, remained hospitalized); March 26, 2003 (surgical
staples taken out); April 2, 2003 (emergency room visit, chemotherapy
treatment), April 8, 2003 through April 10, 2003 (hospitalized,
chemotherapy treatment); April 18, 2003 to April 24, 2003 (daily blood
testing); April 30, 2003 through May 1, 2003 (hospitalized, chemotherapy
treatment).
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company, employer or other organization, institution or person that has any
information, records or knowledge of [LeAnn] or [her] health” to furnish
such information to Conseco. See Conseco Claim Form, No. CA-458
(07/02), at 1 (unnumbered).
On May 15, 2003, Conseco made its first payment on LeAnn’s claim in
the amount of $3,065.00. On May 20, 2003, Conseco paid an additional
$13,023.00 on LeAnn’s claim.8
LeAnn’s last day at work for USPS was February 4, 2003. However,
she had unused vacation and sick days, which extended her employment
status to June 14, 2003,9 despite the fact that she did not work after
February 4, 2003. As a result, LeAnn’s last payroll deduction was made on
June 14, 2003. On June 24, 2003, Conseco received LeAnn’s last payroll-
deducted premium payment on the Cancer Policy. However, because the
premium payments were made in arrears, the final premium payment
extended coverage under the Cancer Policy only to May 24, 2003.10
8
Conseco’s records indicate that these payments were made for three
hospitalizations and three dates of medical care, as well as for the maximum
amount of chemotherapy treatments covered per year by the Cancer Policy.
9
LeAnn had applied for disability retirement, and on June 14, 2003, her
application was approved.
10
Utilizing February 4, 2003 as the inception of LeAnn’s disability, the trial
court determined that, by the time LeAnn’s last payroll-deducted premium
payment was received by Conseco, extending coverage under the Cancer
Policy until May 24, 2003, the 90-day waiting period had expired. See Trial
Court Opinion, 11/26/14, at 4.
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Pursuant to a Conversion provision in the Cancer Policy, when LeAnn’s
payroll-deducted premium payments stopped in June of 2003, if additional
premiums were due, Conseco was required to provide LeAnn with written
notice of the required premium:
CONVERSION: If this policy was issued on a payroll deduction …
and after at least one premium payment you are no longer a
member of that payroll group or organization, you may elect to
continue insurance on an individual basis by remitting your
premium through one of our standard direct payment methods.
Notice of the required premium will be mailed to you at your last
known address. Your premium rate will not be increased by this
conversion.
Cancer Policy, at 1; see also id. at 10 (providing for direct payment
methods upon transfer from payroll deduction).
Alternatively, the Cancer Policy provided that, if additional premiums
were due, Conseco could elect to pay any premium owed by making a
deduction from a claim payment to the insured: “[w]hen a claim is paid,
any premium due and unpaid may, at our sole discretion, be deducted from
the claim payment.” Id. at 11.
Despite the notice provision in the Conversion provision, Conseco did
not advise LeAnn that any premiums were due on the Cancer Policy following
Conseco’s receipt of the final payroll-deducted premium payment on June
24, 2003.
On May 20, 2003, LeAnn called Conseco and discussed WOP with a
Conseco representative. On that same date, Conseco sent LeAnn a WOP
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claim form. Conseco’s records indicate that it sent LeAnn an additional WOP
claim form on July 24, 2003.
On July 31, 2003, Conseco received another claim form from LeAnn,
dated July 25, 2003, seeking coverage for an additional $4,130.00 in costs
related to her initial hospitalization.11 The claim form included an
authorization, signed by Leann, which “authorize[d] any licensed physician,
medical practitioner, pharmacist, hospital, clinic, other medical or medically
related facility, federal, state or local government agency, insurance or
reinsuring company, consumer reporting agency or employer having
information available as to diagnosis, treatment and prognosis with respect
to any physical or mental condition and/or treatment of [LeAnn], and any
non-medical information about [LeAnn], to give any and all such information
to [Conseco].” See Conseco Claim Form, No. CA-458 (07/02), at 1. On
August 5, 2003, Conseco paid $1,035.00 on LeAnn’s claim.
On November 13, 2003, LeAnn called Conseco to inquire about her
WOP status, and was advised that no WOP claim form had been received by
Conseco. LeAnn also requested insurance identification cards from Conseco.
Conseco thereafter sent LeAnn another WOP claim form and identification
cards.
LeAnn filled out and signed a WOP claim form on November 18, 2003.
The WOP claim form included a section entitled “Physician Statement,” which
11
This claim form did not include a physician statement section.
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had been completed, and signed by one of LeAnn’s physicians on November
18, 2003. LeAnn believed that the completed WOP claim form had been
submitted to Conseco. LeAnn also believed that her premiums had been
waived, and that no further premiums were due on the Cancer Policy.
In May 2004, LeAnn’s cancer recurred, and she began another course
of chemotherapy treatment, wherein she was hospitalized overnight every
three weeks for a chemotherapy session from June 2004 through April 2005.
On October 28, 2004, while LeAnn was receiving ongoing
chemotherapy treatments, Martin was diagnosed with pancreatic cancer.
However, Martin did not contact Conseco regarding his diagnosis or submit a
claim for benefits.
In January 2005, eighteen months after Conseco had received LeAnn’s
last payroll-deducted premium payment, Conseco discovered that LeAnn’s
payroll deductions for the Cancer Policy had ceased. On January 28, 2005,
Conseco sent a letter to LeAnn informing her that her payroll-deducted
premium payments had stopped and that, in order to prevent the Cancer
Policy from lapsing, she was required to tender a premium payment of
$1,112.50 within 15 days. LeAnn did not respond to that correspondence.
On March 9, 2005, Conseco sent a letter to LeAnn indicating that it had
“recently conducted an audit of its cancer policies” and “[o]ur records
indicate that you previously owned this type of policy, but ceased paying
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premium on or about JUNE 24, 2003. This resulted in the lapsing of your
coverage.” Conseco Letter, 3/9/2005, at 1.12
On March 15, 2005, LeAnn called Conseco to inquire as to the status of
the Cancer Policy. A Conseco representative advised LeAnn that the Cancer
Policy had lapsed as of May 24, 2003. LeAnn indicated that she had been
told that her premiums would be waived if she was diagnosed with cancer
and totally disabled, and requested that the Cancer Policy be reinstated.
The Conseco representative advised LeAnn to send in a claim form, a
request to reactivate coverage, and a physician’s statement on letterhead
stating the date she was diagnosed and her disability dates.
On June 12, 2005, LeAnn sent Conseco a completed claim form,
medical bills from 2004 and 2005, and a handwritten letter indicating her
belief that she was on WOP status and requesting that the Cancer Policy be
reinstated. In that correspondence, LeAnn noted that “[i]n June 2003, I
spoke to a customer service associate about me going on disability and was
told that I had a waiver of premium in my policy and a claim form would be
sent out. My doctor and I filled out the form and returned it.” On June 16,
2005, Conseco received LeAnn’s correspondence and documentation. In the
Statement of Loss section of the claim form, LeAnn indicated that her
12
Despite Conseco’s decision to terminate the Cancer Policy, a Conseco
internal memo, issued in January 2004, acknowledged problems in the
billing process for payroll deduction policies, and indicated that “Conseco is
working with policyholders in an effort to allow their policy to remain current
as valid claims are considered.” Trial Court Opinion, 11/26/14, at 18.
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ovarian cancer had recurred and that she had begun treatments for the
cancer recurrence on June 9, 2004. The claim form submitted by LeAnn
included a “Cancer Physician Statement” section “to be completed by
Physician’s Office” and signed by a physician. The claim form instructed the
“Physician’s Office” to provide, inter alia, the date of first diagnosis and
hospital confinements.13 The completed statement, signed by one of
LeAnn’s physicians on April 27, 2005, indicated that LeAnn’s cancer had
recurred in May 2004. However, the statement incorrectly indicated that
LeAnn’s cancer was initially diagnosed on February 2, 2003, and omitted any
reference to her initial hospitalization from February 4, 2003 to February 15,
2003. The claim form also instructed the “Physician’s Office” to “give dates
of disability,” with no further instruction. In response, the statement
incorrectly indicated that LeAnn’s “dates of disability” were “July 1, 2003
until unknown future time.”
Conseco did not advise LeAnn that there was any problem with her
request for WOP or her claim submission. On July 18, 2005, Conseco paid
$16,200.00 on LeAnn’s claim for medical services she had received in 2004
and 2005, despite informing her four months earlier that the Cancer Policy
had lapsed in May 2003.
13
The filing instructions on the claim form indicate that “CONSECO
RESERVES THE RIGHT TO REQUEST ADDITIONAL INFORMATION ON ANY
CLAIM FOR DETERMINATION OF BENEFITS.” Conseco Claim Form, No. CA-
458 (08/04), at 1 (unnumbered).
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In February 2006, LeAnn’s ovarian cancer returned. On March 27,
2006, Conseco received a letter from LeAnn, dated March 24, 2006, wherein
she restated that the Cancer Policy contained a WOP provision. Attached to
the letter was another completed claim form, which included a “Cancer
Physician Statement” section “to be completed by Physician’s Office” and
signed by a physician. The claim form instructed the “Physician’s Office” to
“give dates of disability,” with no further instruction. The completed
statement, signed by one of LeAnn’s physicians on March 16, 2006,
indicated that LeAnn’s “date[] of disability” was February 8, 2006, due to
“ovarian cancer reoccurrence.” The claim form included an authorization,
signed by LeAnn, which was the same as the authorization signed by LeAnn
on July 25, 2003. See Conseco Claim Form, No. CA-458 (06/05), at 3
(unnumbered). A separate form entitled “Authorization for Claim Processing
Purposes,” also signed by LeAnn, was attached to the claim form, and
“authorize[d] any licensed physician, medical practitioner, hospital, clinic,
medical or medical related facility, the Veteran’s Administration, insurance
company, the Medical Information Bureau, Inc. (MIB), employer or
Government agency to disclose personal information about [LeAnn]” to
Conseco. See Authorization for Claim Processing Purposes, No. CIG-HIPAA-
CM-CHIC 09/03.
In correspondence dated April 12, 2006, Conseco denied LeAnn’s claim
for further benefits, stating “[y]our CANCER insurance coverage ended on 5-
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24-03. Therefore, we cannot pay any benefits to you for the claims you
submitted.” Conseco Letter, 4/12/06, at 1.
LeAnn contacted Conseco by telephone on April 17, 2006, and again
on May 10, 2006, each time restating her belief that she was on WOP status.
The May 2006 telephone call was escalated to a supervisor, who advised
LeAnn that Conseco had never received a completed WOP claim form, and
that the Cancer Policy was not on WOP status.
On July 12, 2006, LeAnn contacted Conseco by phone and advised that
she had a completed WOP claim form that she would be mailing to Conseco.
On July 17, 2006, Conseco received the November 18, 2003 WOP claim
form. The WOP claim form included a “Physician Statement” section “to be
completed by Physician’s Office” and signed by one of LeAnn’s physicians.
The WOP claim form directed the “Physician’s Office” to provide LeAnn’s
“starting disability date due to cancer,” with no further instruction. In the
completed statement, the “Physician’s Office” incorrectly indicated that
LeAnn’s “starting disability date due to cancer” was April 21, 2003.
Additionally, the WOP claim form included an authorization, signed by
LeAnn, which was the same as the authorization signed by LeAnn on July 25,
2003. See Waiver of Premium Claim Form, No. CA-4 (01/03), at 2.14
14
Additionally, the WOP claim form indicates that “Conseco Health reserves
the right to request additional information on any claim.” Waiver of
Premium Claim Form, No. CA-4 (01/03), at 1.
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Conseco mailed LeAnn additional claim forms on August 3, 2006 and
on August 24, 2006. On September 8, 2006, Conseco received another WOP
claim form signed by LeAnn on August 18, 2006. The WOP claim form
included a “Physician Statement” section “to be completed by Physician’s
Office” and signed by one of LeAnn’s physicians. The WOP claim form
directed the “Physician’s Office” to provide LeAnn’s “starting disability date
due to cancer,” with no further instruction. The completed statement,
signed by one of LeAnn’s physicians on August 27, 2006, incorrectly
indicated that LeAnn’s cancer was first diagnosed on December 7, 2003.
The statement also indicated that LeAnn’s “starting disability date due to
cancer” was March 27, 2006, due to her “new chemo regimen.” Attached to
the WOP claim form were two authorizations, signed by LeAnn, which were
the same as authorizations signed by LeAnn on November 18, 2003 and
March 24, 2006. On September 14, 2006, Conseco sent a letter to LeAnn
acknowledging its receipt of her recent claim filing, and indicating that her
“claim will be reviewed and processed in the order it was received.” Conseco
Letter, 9/14/06, at 1.
One week later, in correspondence dated September 21, 2006,
Conseco denied LeAnn’s claim for further benefits, stating “[y]our CANCER
insurance coverage ended on 5-24-03. Therefore, we cannot pay any
benefits to you for the claims you submitted.” Conseco Letter, 9/21/06, at
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1. On November 30, 2006, LeAnn sent Conseco a letter, wherein she
requested reconsideration of her claim denial, and noted, inter alia
My last day of work was 02/04/2003. Through [USPS,] I had
sick and annual leave which I used until my disability
[retirement] was approved. My last paycheck[,] in which your
premium was taken out[,] was June 14, 2003.
***
I am battling cancer. I shouldn’t have to battle an insurance
company who doesn’t honor their contracts. I signed your
contract in 1992 and had premiums paid through payroll
deduction until June 14, 2003[,] at which time I went on
disability retirement. I have filled out every form you sent me,
some twice. I feel my cancer insurance coverage has been
cancelled in error and believe my policy should be reinstated and
reimbursed for the claims I submitted in March, 2006.
LeAnn’s Letter, 11/30/06, at 1.
Conseco assigned Compliance Department analyst Dustin Kelso
(“Kelso”) to respond to LeAnn’s November 30, 2006 letter. On December
20, 2006, Kelso sent LeAnn a letter indicating that “we are still researching
your request and require additional time to respond.” Conseco Letter,
12/20/06, at 1. In conducting such “research,” Kelso reviewed the claim
file, the Cancer Policy, the premium history, and documents in Conseco’s
central records department. On January 5, 2007, Kelso sent another letter
to LeAnn, wherein he confirmed Conseco’s position that the Cancer Policy
had lapsed on May 24, 2003. Kelso faulted LeAnn for failing to notify
Conseco that her premium payments had stopped in June of 2003, stating
that “this is the insured’s responsibility” to notify us “if an employee has
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been terminated or went on a leave of absence.” Conseco Letter, 1/5/07, at
1. Kelso indicated that the claim payment of $16,200.00, made on July 18,
2005, had been paid in error, but that because it was Conseco’s error, it
would not seek reimbursement from LeAnn. Kelso made no reference to
LeAnn’s representations in her November 30, 2006 letter that her last day of
work was February 4, 2003, or that she had used accrued sick and annual
leave from that date until her application for disability retirement was
approved. Instead, Kelso simply indicated that LeAnn was not eligible for
WOP because “the physician that completed the [WOP claim] form gave a
disability date of April 21, 2003[,]”15 and “the [Cancer P]olicy lapsed during
the 90-day period before disability benefits are [sic] begin.” Id.16
Conseco made no further payment on LeAnn’s claim. Conseco never
offered to allow LeAnn to pay a premium payment that would cover the
period from May 24, 2003 to July 21, 2003, which was the end of the 90-day
15
Notably, the WOP claim form directs that it is “to be completed by
Physician’s Office,” and there is no evidence that the disability date supplied
in that form was provided by a physician, as opposed to office personnel.
16
As stated above, the final payroll-deducted premium payment, made in
June 2003, had extended coverage under the Cancer Policy to May 24, 2003.
Using the April 21, 2003 date provided in the first completed WOP claim
form as LeAnn’s starting disability date, the 90-day waiting period required
to trigger the waiver of LeAnn’s premiums would not expire until July 21,
2003, a date beyond the period for which premiums for the Cancer Policy
had been paid. Conseco “accepted” April 21, 2003 as the starting date for
LeAnn’s disability. See Trial Court Opinion, 11/26/14, at 6. Accordingly,
Conseco deemed the Cancer Policy to have lapsed on May 24, 2003, due to
non-payment of premiums prior to the expiration of the 90-day waiting
period on July 21, 2003.
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waiting period triggered by the April 21, 2003 disability date “accepted” by
Conseco. Nor did Conseco deduct any premium owed by LeAnn from the
$16,200 claim payment it made to her after it had discovered the premium
deficiency. Nor did Conseco ever tell LeAnn that, in order to waive her
premiums, it simply needed a physician’s statement indicating that she
became disabled on or before February 24, 2003.
In June 2008, Conseco sent LeAnn a letter indicating that it had
discovered an overage in premium payments made on her account, and that
it was refunding $63.95 to her. A check in this amount was enclosed with
the letter. Conseco admitted that it took five years for it to discover the
overage issue. A Conseco employee stated that even if it had applied the
overage to LeAnn’s account, it would have been insufficient to pay the full
amount of premium required for the 90-day waiting period extending from
the April 21, 2003 disability date “accepted” by Conseco.17
On December 22, 2008, LeAnn and Martin instituted this action against
Conseco.18 In their Complaint, LeAnn and Martin alleged breach of contract,
17
Conseco maintained that if it had applied the overage as a premium
payment for the Cancer Policy, it would have extended the coverage only to
June 24, 2003. See Trial Court Opinion, 11/26/14, at 8. As noted above,
using the April 21, 2003 disability date, the 90-day waiting period required
to trigger the waiver of LeAnn’s premiums would not expire until July 21,
2003.
18
LeAnn and Martin also brought claims against National Insurance Benefit
Coordinators and Jack Clifford. However, these parties were dismissed prior
to trial and are not parties to this appeal.
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bad faith, fraud, negligent misrepresentation, negligent supervision, breach
of fiduciary duty, and violations of the Unfair Trade Practices and Consumer
Protection Law (“UTPCPL”).19 The Complaint was the first notice that
Conseco had received regarding Martin’s 2004 cancer diagnosis. After the
close of discovery, Conseco moved for summary judgment. On March 21,
2012, the trial court granted summary judgment in favor of Conseco on all
of Martin’s claims. The trial court also granted partial summary judgment in
favor of Conseco on all of LeAnn’s claims except for her breach of contract
and bad faith claims. Thereafter, LeAnn’s remaining two claims were
bifurcated. LeAnn’s breach of contract claim was set for a jury trial, to be
followed by a non-jury trial on her bad faith claim.
On May 14, 2013, following a trial, a jury returned a Verdict in favor of
LeAnn, following its determination that Conseco had breached the Cancer
Policy. The parties stipulated that the contractual damages were
$31,144.50. Conseco filed post-trial Motions, which the trial court denied.
A non-jury trial on LeAnn’s bad faith claim commenced on June 24,
2014, and concluded on June 27, 2014. On July 3, 2014, the trial court
entered a Verdict in Conseco’s favor. Rancosky filed post-trial Motions,
which the trial court denied. On August 1, 2014, the trial court entered
Judgment on both Verdicts. Rancosky filed a timely Notice of Appeal, and a
court-ordered Concise Statement of Matters Complained of on Appeal.
19
See 73 P.S. §§ 201-1 to 201-9.3.
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On appeal, Rancosky raises the following issues for our review:
1. [Whether t]he trial court’s July 3, 2014 Verdict and Finding
that Conseco had not acted in violation of 42 Pa.C.S.A.
§ 8371 is in error[,] since it is neither supported by the
evidence of record nor the Pennsylvania [a]ppellate [c]ourt’s
interpretations of what is meant by “a reasonable basis for
denying benefits[?]”
A. [Whether t]he trial court erred by finding it was
reasonable for Conseco to deny the claim on the basis
that the [Cancer P]olicy had [been] forfeited and
lapsed[?]
B. [Whether t]he trial court erred by finding it was
reasonable for Conseco to place its interests above
those of [LeAnn and Martin?]
C. [Whether t]he trial court erred by finding Conseco[’s]
investigation was reasonable[,] since it was performed
in an honest, objective and intelligent manner[?]
D. [Whether t]he trial court erred in failing to consider
[Conseco’s] conduct in light of the standards contained
in the Unfair Insurance Practices Act [“UIPA”], 40 P.S.
[§] 1171.5(a)[?]
E. [Whether t]he trial court erred by finding Conseco did
not commit insurance bad faith under 42 Pa.C.S.A.
§ 8371 through its actions of creating a reasonable
expectation of coverage[,] and then denying
coverage[?]
2. [Whether t]he trial court erred in failing to consider
[Conseco’s] conduct toward [LeAnn] during the pendency of
this litigation[,] in violation of [section] 8371[,] as interpreted
by Pennsylvania [a]ppellate [c]ourt decisions[?]
3. [Whether t]he trial court erred in granting [Conseco’s] Motion
for Summary Judgment[,] and dismissing the individual
claims of [] Martin [], for breach of contract and violations of
[section] 8371[?]
Brief for Appellant at 5.
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In his first issue, Rancosky contends that the trial court erroneously
determined that no bad faith occurred because he “failed to prove that
Conseco had a dishonest purpose” or a “motive of self-interest or ill-will”
against LeAnn. Brief for Appellant at 29. (citing Trial Court Opinion,
11/26/14, at 19). Rancosky asserts that, pursuant to prevailing
Pennsylvania law, bad faith is established when the insured demonstrates
that the insurer (1) lacked a reasonable basis for denying benefits under the
policy; and (2) knew or recklessly disregarded its lack of a reasonable basis
in denying the claim. Brief for Appellant at 30 (citing Terletsky v.
Prudential Prop. and Cas. Ins. Co., 649 A.2d 680, 688 (Pa. Super.
1994)). Rancosky claims that the trial court erred by determining that a
“dishonest purpose” or “motive of self-interest or ill-will” is a third element
required for a finding of bad faith, and that Rancosky failed to meet this
erroneous standard of proof. Brief for Appellant at 31. Rancosky argues
that a “dishonest purpose” or “motive of self-interest or ill-will” is merely
probative of the second prong of the test for bad faith, as identified in
Terletsky. Brief for Appellant at 30 (citing Greene v. United Servs. Auto.
Ass’n, 936 A.2d 1178, 1190-91 (Pa. Super. 2007)). Rancosky contends
that, rather than looking at Conseco’s improper conduct toward LeAnn, the
trial court erroneously looked for specific evidence of Conseco’s self-interest
or ill-will. Brief for Appellant at 34.
Our review in a nonjury case is limited to whether the
findings of the trial court are supported by competent evidence
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and whether the trial court committed error in the application of
law. We must grant the court’s findings of fact the same weight
and effect as the verdict of a jury and, accordingly, may disturb
the nonjury verdict only if the court’s findings are unsupported
by competent evidence or the court committed legal error that
affected the outcome of the trial. It is not the role of an
appellate court to pass on the credibility of witnesses; hence we
will not substitute our judgment for that of the fact[-]finder.
Thus, the test we apply is not whether we would have reached
the same result on the evidence presented, but rather, after due
consideration of the evidence which the trial court found
credible, whether the trial court could have reasonably reached
its conclusion.
Hollock v. Erie Ins. Exchange, 842 A.2d 409, 413-14 (Pa. Super. 2004)
(en banc) (citations omitted).
Because the cornerstone of Rancosky’s first issue is that the trial court
committed error in the application of law by requiring Rancosky to prove a
“dishonest purpose” or “motive of self-interest or ill-will” in order to establish
bad faith on the part of Conseco, this issue raises a question of law.
Accordingly, as with all questions of law, our standard of review is de novo,
and our scope of review is plenary. See Greene, 936 A.2d at 1187.
Insurance bad faith actions are governed by 42 Pa.C.S.A. § 8371,
which provides as follows:
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.
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(3) Assess court costs and attorney fees against the insurer.
42 Pa.C.S.A. § 8371.
The Pennsylvania legislature did not provide a definition of bad faith, as
that term is used in section 8371, nor did it set forth the manner in which an
insured must prove bad faith. While our Supreme Court has not yet
addressed these issues, this Court has ruled that, to succeed on a bad faith
claim, the insured must present clear and convincing evidence to satisfy a
two part test: (1) the insurer did not have a reasonable basis for denying
benefits under the policy, and (2) the insurer knew of or recklessly
disregarded its lack of reasonable basis in denying the claim. Terletsky,
649 A.2d at 688. “There is a requisite level of culpability associated with a
finding of bad faith. Merely negligent conduct, however harmful to the
interests of the insured, is recognized by Pennsylvania courts to be
categorically below the threshold required for a showing of bad faith.”
Greene, 936 A.2d at 1189. Bad faith claims are fact specific and depend on
the conduct of the insurer vis à vis the insured. Condio v. Erie Ins.
Exchange, 899 A.2d 1136, 1143 (Pa. Super. 2006). The fact-finder must
consider “all of the evidence available” to determine whether the insurer’s
conduct was “objective and intelligent under the circumstances.” Berg v.
Nationwide Mut. Ins. Co., 44 A.3d 1164, 1179 (Pa. Super. 2012)
(citations omitted).
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A “dishonest purpose” or “motive of self-interest or ill will” is not a third
element required for a finding of bad faith. Greene, 936 A.2d at 1191; see
also Nordi v. Keystone Health Plan West Inc., 989 A.2d 376, 385 (Pa.
Super. 2010). A “motive of self-interest or ill will” may be considered in
determining the second prong of the test for bad faith, i.e., whether an
insurer knowingly or recklessly disregarded its lack of a reasonable basis for
denying a claim. Greene, 936 A.2d at 1190.
Here, the trial court determined that Rancosky “failed to show by clear
and convincing evidence that [Conseco] did not have a reasonable basis for
denying benefits [to LeAnn] under the [C]ancer [P]olicy.” Verdict, 7/3/14,
at 1 (unnumbered). Thus, the trial court entered judgment in favor of
Conseco based on its determination that Rancosky failed to satisfy the first
prong of the test for bad faith. However, the trial court appears to have
reached this conclusion, at least in part, based on its determination that
“[Rancosky] failed to prove that Conseco had a dishonest purpose” through
“evidence of motive of self-interest or ill-will against [LeAnn].” Trial Court
Opinion, 11/26/14, at 19; see also id. at 14-15 (citing, in support of its
determination, Pennsylvania case law defining bad faith as conduct
importing a “dishonest purpose” and breach of a known duty “through some
motive of self-interest or ill-will”); Verdict, 7/3/14, at 1 (unnumbered)
(citing, in support of its determination, Pennsylvania case law defining bad
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faith as “conduct support[ing] a dishonest purpose and means a breach of
contract duty through some motive of self-interest or ill-will.”).
We conclude that the trial court’s verdict is faulty based on its
erroneous determination that Rancosky failed to establish the first prong of
the test for bad faith because he failed to prove that Conseco had a
dishonest purpose or a motive of self-interest or ill-will against LeAnn. As
noted above, a dishonest purpose or a motive of self-interest or ill-will is
probative of the second prong of the test for bad faith, rather than the first
prong. See Greene, 936 A.2d at 1191; see also Nordi, 989 A.2d at 385.
The trial court could not have considered whether Conseco had a dishonest
purpose or a motive of self-interest or ill-will unless it had first determined
that Conseco lacked a reasonable basis for denying benefits to LeAnn under
the Cancer Policy. However, because the trial court made no such
determination, its consideration of a dishonest purpose or a motive of self-
interest or ill-will was improper. Accordingly, we conclude that the trial
court erred as a matter of law by using standards applicable to the second
prong of the test for bad faith in its determination of whether Rancosky had
satisfied the first prong of the test for bad faith. See Greene, 936 A.2d at
1191; see also Nordi, 989 A.2d at 385.
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Moreover, after due consideration of the competent evidence of
record,20 we conclude that the evidence does not support the trial court’s
determination that Conseco had a reasonable basis for denying benefits to
LeAnn. See Trial Court Opinion, 11/26/14, at 19.
LeAnn was Conseco’s insured and, therefore, a heightened duty of good
faith was imposed on Conseco in this first-party claim because of the special
relationship between the insurer and its insured, and the very nature of the
insurance contract. See Romano v. Nationwide Mut. Fire Ins. Co., 646
A.2d 1228, 1231 (Pa. Super. 1994) (holding that an insurer must act with
the “utmost good faith” toward its insured).
Individuals expect that their insurers will treat them fairly
and properly evaluate any claim they may make. A claim must
be evaluated on its merits alone, by examining the particular
situation and the injury for which recovery is sought. An
insurance company may not look to its own economic
considerations, seek to limit its potential liability, and operate in
a fashion designed to “send a message.” Rather, it has a duty to
compensate its insureds for the fair value of their injuries.
Individuals make payments to insurance carriers to be insured in
the event coverage is needed. It is the responsibility of insurers
to treat their insureds fairly and provide just compensation for
covered claims based on the actual damages suffered. Insurers
do a terrible disservice to their insureds when they fail to
evaluate each individual case in terms of the situation presented
and the individual affected.
Bonenberger v. Nationwide Mut. Ins. Co., 791 A.2d 378, 382 (Pa.
Super. 2002).
20
The trial judge in this case found certain witnesses to be more credible
than others. Thus, the credibility determinations by the trial judge will not
be disturbed. See Hollock, 842 A.2d at 414.
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Section 8371 is not restricted to an insurer’s bad faith in denying a
claim. See Condio, 899 A.2d at 1142 (holding that the term “bad faith”
encompasses a wide variety of objectionable conduct). Indeed, “the broad
language of [s]ection 8371 was designed to remedy all instances of bad faith
conduct by an insurer.” Hollock, 842 A.2d at 415 (emphasis added).
Implicit in section 8371 is the requirement that the insurer properly
investigate claims prior to refusing to pay the proceeds of the policy to its
insured. Bombar v. West Am. Ins. Co., 932 A.2d 78, 92 (Pa. Super.
2007). Accordingly, bad faith conduct includes lack of good faith
investigation into the facts. See Condio, 899 A.2d at 1142; see also
Hollock, 842 A.2d at 415 (stating that an action for bad faith may also
extend to the insurer’s investigative practices); O’Donnell ex rel. Mitro v.
Allstate Ins. Co., 734 A.2d 901, 906 (Pa. Super. 1999) (same). Bad faith
conduct also includes evasion of the spirit of the bargain, lack of diligence
and slacking off, willful rendering of imperfect performance, abuse of a
power to specify terms, and interference with or failure to cooperate in the
other party’s performance. See Zimmerman v. Harleysville Mut. Ins.
Co., 860 A.2d 167, 172 (Pa. Super. 2004); see also Terletsky, 649 A.2d at
688 (defining bad faith on the part of an insurer as any “frivolous or
unfounded refusal to pay proceeds of a policy”).
Here, the WOP provision of the Cancer Policy requires a determination
that the policyowner is “disabled,” as follows: “After it has been determined
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that the policyowner is disabled, we will waive premium payments for the
period of disability….” Cancer Policy, at 8. While the Cancer Policy does not
specify who is to make such determination, Conseco was ultimately
responsible for making that determination, and ensuring that such
determination was made diligently and accurately, pursuant to a good faith
investigation into the facts. See Condio, 899 A.2d at 1142; see also
Mohney v. Washington National Ins. Co., 116 A.3d 1123, 1135 (Pa.
Super. 2015) (holding that the insurer was required to conduct an
investigation sufficiently thorough to provide it with a reasonable foundation
for its actions); Bonenberger, 791 A.2d at 382 (holding that “[i]t is the
responsibility of insurers to treat their insureds fairly and provide just
compensation for covered claims based on the actual damages suffered.”).
Conseco premised its denial of claim benefits to LeAnn on the April 21,
2003 date of disability provided in the “Physician Statement” included in the
November 18, 2003 WOP claim form. Although the WOP provisions of the
Cancer Policy require the submission of a “physician’s statement,” the
Cancer Policy does not define “physician’s statement.” 21 However, the
21
Notably, the WOP provision of the Cancer Policy merely requires that the
insured provide a “physician’s statement.” Nowhere in the WOP provision of
the Cancer Policy does it specify that the only type of “physician’s
statement” that can be used is one that is included in a WOP claim form, as
opposed to one included in a another type of claim form supplied by
Conseco. Indeed, the “Physician Statement” section contained in the WOP
claim forms seeks virtually the same information as is requested in the
“Cancer Physician Statement” section contained in the other claim forms
provided by Conseco. Moreover, each of the four physician statements
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Cancer Policy defines a “physician” as a person who is (1) licensed by the
state to practice a healing art; and (2) performs services which are allowed
by that license and for which benefits are provided by the Cancer Policy.
See Cancer Policy, at 3. Notably, the WOP and other claim forms provided
by Conseco, which include a “physician’s statement” section, are to be
completed by the “Physician’s Office,” rather than by a “physician.” Thus,
while the WOP provisions of the Cancer Policy require a licensed physician to
provide a statement containing “the date disability due to cancer began,” the
claim forms provided by Conseco direct the “Physician’s Office” to provide
this crucial information.
Moreover, despite the occupation-related definitions for “disability” set
forth in the Cancer Policy, Conseco provided no explanation in any of its
claim forms that the term “disability” relates solely to the insured’s ability to
perform his or her occupational duties. Indeed, none of the claim forms that
Conseco provided to LeAnn, which included a physician’s statement,
explained that the “Physician’s Office” was initially required to identify the
“substantial and material duties” of LeAnn’s position with the USPS, and to
completed by LeAnn’s physicians, whether in a WOP claim form or other
claim form, appears to have been completed by the same “Physician’s
Office” personnel working in the same office.
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further determine when she first became unable to perform such duties.22
Having been given no instruction whatsoever regarding the Cancer
Policy definitions for the term “disabled,” the “Physician’s Office” was free to
attribute any potential definition to the term “disabled” when completing the
physician’s statement in LeAnn’s claim forms, including a definition unrelated
to her occupation or qualifications. Thus, Conseco improperly delegated to
the “Physician’s Office” the responsibility for making a determination as to
when LeAnn first became “disabled,” without providing the essential criteria
– as set forth in the Cancer Policy - to be used in making this determination.
See Hollock v. Erie Ins. Exchange, 54 Pa. D. & C. 4th 449, 508 (Com. Pl.
2002), affirmed, 842 A.2d 409 (Pa. Super. 2004) (en banc) (holding that an
insurer’s investigation can be inadequate when it relies on a physician’s
report without determining whether the physician has a complete
understanding of the insured’s occupation); see also Greco v. The Paul
Revere Life Ins. Co., 1999 U.S. Dist. LEXIS 110, **15-17 (E.D. Pa. 1999)
(wherein the district court held that the insurer’s reliance upon a physician’s
determination that the insured was not disabled, when the physician was not
provided with the correct policy definition of “disability,” did not have a
complete understanding of the insured’s occupation, and was not familiar
22
Nor did any of Conseco’s claim forms advise the “Physician’s Office” that,
after the first 24 months of LeAnn’s “loss” (i.e., after February 4, 2005),
they were required to identify her “qualifications,” “by reason of education,
training or experience,” and to thereafter determine whether she was unable
to perform any job for which she was qualified.
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with the important functions involved in some aspects of the insured’s
occupation, provided evidence from which a fact-finder could determine that
the insurer acted in bad faith when it ceased payments on the insured’s
claim).23 Accordingly, we conclude that the completed physician’s
statements received by Conseco did not indicate when LeAnn first became
“unable, due to cancer, to perform all the substantial and material duties of
[her] regular occupation,” and, therefore, did not provide Conseco with a
proper basis for determining when LeAnn first became “disabled” pursuant to
the terms of the Cancer Policy.
Notably, Conseco was informed by LeAnn, at the outset of her claim,
that she had been “disabled,” as that term is defined in the Cancer Policy,
for more than 90 consecutive days from her first hospitalization on February
4, 2003. LeAnn’s initial claim forms, signed by her on May 6, 2003, advised
Conseco that she had been “unable to work in [her] current occupation”
throughout the 90-day waiting period, which would have expired on May 5,
2003.24
23
Although this Court is not bound by federal court opinions interpreting
Pennsylvania law, we may consider federal cases as persuasive authority.
See Cambria-Stoltz Enters. v. TNT Invs., 747 A.2d 947, 952 (Pa. Super.
2000).
24
Notably, each of the claim forms completed and signed by LeAnn on May
6, 2003 included the following: “WARNING: Any person who knowingly
presents a false or fraudulent claim for payment of a loss or benefit or
knowingly presents false information in an application for insurance is guilty
of a crime and may be subject to fines and confinement in prison.” Conseco
Claim Form, No. CA-458 (07/02), at 1 (unnumbered).
- 31 -
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Conseco’s subsequent receipt of differing disability dates, which
indicated later dates for the start of LeAnn’s disability, should have
prompted Conseco to undertake an investigation into the starting date of
LeAnn’s disability. So too should the documentation attached to LeAnn’s
initial claim forms, which evidenced that, during the 90-day waiting period,
she spent a total of 26 days in the hospital and underwent numerous other
medical treatments and chemotherapy sessions. However, Conseco
conducted no such investigation. Rather, Conseco merely “accepted” April
21, 2003 as the starting date for LeAnn’s disability,25 thereby permitting
Conseco to maintain its position that the Cancer Policy had lapsed due to
non-payment of premiums prior to the expiration of the 90-day waiting
period.
Additionally, given the extensive documentation and medical records
that Conseco received and processed in order to approve claim payments to
LeAnn, Conseco should have recognized that some of the information
contained in the four physician’s statements it had received was incorrect
(i.e., that LeAnn was first diagnosed with ovarian cancer on December 7,
2003), thereby rendering the other information contained therein as suspect.
See Condio, 899 A.2d at 1145 (holding that, if evidence arises that
discredits the insurer’s reasonable basis, the insurer’s duty of good faith and
25
By the time Conseco decided to “accept” April 21, 2003 as the starting
date of LeAnn’s disability, it had received two other dates (i.e., February 4,
2003 and July 1, 2003) for the start of LeAnn’s disability.
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fair dealing requires it to reconsider its position); see also Hollock, 842
A.2d at 413 (noting the trial court’s determination that the insurer acted in
bad faith based on, inter alia, its failure to re-evaluate the value of the
insured’s claim, despite having received several pieces of information which
should have caused it to re-evaluate the claim value).
Conseco provided no reasonable or rational explanation for its delay in
investigating LeAnn’s claim. See Trial Court Opinion, 11/26/14, at 19
(concluding that “Conseco waited entirely too long to begin such an
investigation[,] given the number and frequency of [LeAnn’s]
communications with the company regarding her WOP provision”). The
record reflects that Conseco did not purport to conduct any investigation
regarding LeAnn’s claim until it received LeAnn’s request for reconsideration
in December of 2006, eighteen months after it had first received conflicting
information regarding the starting date of LeAnn’s disability. By that time,
Conseco had received eight authorizations signed by LeAnn, some under
threat of criminal penalties, each of which permitted Conseco to contact her
physicians, employer, and any other individual or entity that might possess
information regarding the date when she first became “unable, due to
cancer, to perform all the substantial and material duties of [her] regular
occupation.” However, despite requiring that LeAnn sign these
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authorizations,26 Conseco never bothered to use them to obtain the
information that it needed in order to make an accurate determination as to
the starting date of her disability.27
Indeed, when Conseco finally undertook to investigate LeAnn’s claim in
December 2006, Conseco did not contact LeAnn’s employer, USPS, to
determine the “substantial and material duties” of LeAnn’s position at the
time she was diagnosed with ovarian cancer, the last day she worked at
USPS, or whether she had, in fact, used annual and sick leave to extend her
payroll status to June 14, 2003. See Hollock, 842 A.2d at 413, 419-20(noting the trial court’s determination that the insurer had acted in bad faith
by, inter alia, refusing to contact the insured’s employer to determine the
extent of her inability to complete assigned tasks). Nor did Conseco contact
the Social Security Administration to determine the basis for its award of
disability retirement benefits to LeAnn, or the date of such award.
Nor did Conseco contact any of LeAnn’s physicians to determine when
LeAnn first became unable to perform the “substantial and material duties”
of her position at USPS. See Mohney, 116 A.3d at 1135 (holding that the
26
As noted previously, Conseco also repeatedly reserved its rights to request
additional information regarding LeAnn’s claim.
27
The trial court supported its determination that Conseco had a reasonable
basis for denying LeAnn’s claim by stating that that “Conseco did always
respond to [LeAnn’s] requests promptly, whether via telephone or in writing,
and it relied upon the terms of [the Cancer P]olicy.” Trial Court Opinion,
11/26/14, at 19. However, these actions, alone, were insufficient to satisfy
Conseco’s duty of good faith and fair dealing to LeAnn.
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insurer’s investigation was not sufficiently thorough to obtain the necessary
information regarding the insured’s ability to work, noting that the insurer
made no attempt to contact the insured’s physician to obtain clarifying
information, and terminated the insured’s benefits without obtaining an
independent medical examination); see also Mineo v. Geico, 2014 U.S.
Dist. LEXIS 95686 at *15, *22 (W.D. Pa. 2014) (denying the insurer’s
motion for partial summary judgment on the insured’s claim for bad faith,
and holding that the insurance company must conduct a “meaningful
investigation,” which may include an in-person interview, examination under
oath, medical authorizations, and/or independent medical examinations, and
noting that the insurer “did not attempt any of the foregoing.”);
Bonenberger, 791 A.2d at 381 (noting that the trial court determined that
the insurer acted in bad faith when it, inter alia, disregarded the insured’s
medical records, conducted no independent medical examination, and made
no reasonable evaluation based on the insured’s presentment).
Rather, Conseco, through Kelso, merely reviewed the claim file, the
Cancer Policy, the premium history, and documents in Conseco’s central
records department. See N.T. (Bad Faith Trial), 6/27/13, at 235-42;
6/26/13, at 122. In other words, Kelso, in conducting Conseco’s first
investigation of LeAnn’s claim, albeit in response to LeAnn’s request for
reconsideration, simply reviewed the limited and conflicting information in
Conseco’s records. See id. Kelso made no effort to obtain further
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information to resolve the discrepancies presented therein, and simply
reaffirmed Conseco’s prior denial of coverage based on the April 21, 2003
disability date provided in the “Physician Statement” contained in the
November 23, 2003 WOP claim form.28 See Conseco Letter 1/5/07, at 1;
see also Mohney, 116 A.3d at 1135-36 (holding that the insurer’s
investigation was neither honest nor objective, because the claims adjuster
focused solely on information that supported denial of the claim, while
ignoring the information that supported a contrary decision). Had Conseco
conducted a meaningful investigation into the starting date of LeAnn’s
disability, it would have determined that she had been “disabled due to
cancer for more than 90 consecutive days,” beginning on February 4, 2003,
and that she was entitled to the WOP benefit provided by the Cancer Policy.
For this reason, we conclude that the competent evidence of record
clearly and convincingly established that Conseco lacked a reasonable basis
to deny LeAnn benefits under the Cancer Policy. Conseco owed LeAnn a
duty of good faith and fair dealing, but failed to fulfill its statutory and
contractual obligations to her. When Conseco finally undertook to
investigate LeAnn’s claim in December of 2006, following its receipt of her
request for reconsideration, Conseco’s claim file contained conflicting facts
regarding LeAnn’s date of disability. When an insurer is presented with
conflicting facts that are material to the issue of coverage, the insurer may
28
As noted previously, we conclude that it was not reasonable for Conseco to
rely on the disability dates provided in the physician statements.
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not merely select or, as here, passively “accept,” a singular disputed fact,
which provides the insurer with a basis to deny coverage. Rather, the
insurer must actively undertake a meaningful investigation to obtain
accurate information bearing upon the coverage inquiry. Because Conseco
failed to undertake a meaningful investigation as to the date when LeAnn
first became “unable, due to cancer, to perform all the substantial and
material duties of [her] regular occupation,” despite being presented with
conflicting information regarding this crucial fact, it lacked a reasonable
basis to conclude that LeAnn was not disabled until April 21, 2003, and,
hence, not entitled to WOP.
Because the sole basis for the trial court’s verdict on LeAnn’s bad faith
claim against Conseco was that Rancosky failed to establish the first prong
of the test for bad faith (i.e., that Conseco lacked a reasonable basis for
denying benefits to LeAnn under the Cancer Policy), we need not determine
whether the evidence of record supports a finding regarding the second
prong (i.e., that Conseco knew of or recklessly disregarded its lack of a
reasonable basis in denying benefits to LeAnn). See Terletsky, 649 A.2d at
688.29 This issue must be determined by the trial court upon remand.
With regard to LeAnn’s bad faith claim, we acknowledge that Conseco
contends that her claim is barred by the two-year statute of limitations
29
Because we conclude that Conseco lacked a reasonable basis to deny
benefits to LeAnn under the Cancer Policy, raised as issue 1, we need not
address Rancosky’s sub-issues at 1.A. through 1.E.
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applicable to bad faith actions.30 Brief for Appellee at 37-43.31 However, we
conclude that LeAnn’s bad faith claim is not time-barred.
Generally, for purposes of applying the statute of limitations, a claim
accrues when the plaintiff is injured. See Adamski v. Allstate Ins. Co.,
738 A.2d 1033, 1042 (Pa. Super. 1999). In the context of an insurance
claim, a continuing or repeated denial of coverage is merely a continuation
of the injury caused by the initial denial, and does not constitute a new
injury that triggers the beginning of a new limitations period. See id. at
1042 (holding that the insured may not separate initial and continuing
refusals to provide coverage into distinct acts of bad faith).
However, there is an important distinction between an initial act of
alleged bad faith conduct and later independent and separate acts of such
conduct. See id. at 1040. When a plaintiff alleges a subsequent and
separately actionable instance of bad faith, distinct from and unrelated to
the initial denial of coverage, a new limitations period begins to run from the
later act of bad faith. See id. An inadequate investigation is a separate and
independent injury to the insured. See Romano, 646 A.2d at 1232 (holding
that bad faith conduct includes lack of good faith investigation).
30
See Ash v. Continental, 861 A.2d 979, 984 (Pa. Super. 2004) (holding
that bad-faith claims under section 8371 are subject to a two-year statute of
limitations).
31
Conseco raised this issue in a Motion for directed verdict during the bad
faith trial. The trial court took the matter under advisement, but never ruled
on the Motion. Instead, the trial court entered a Verdict in favor of Conseco
on LeAnn’s bad faith claim.
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Additionally, a refusal to reconsider a denial of coverage based on new
evidence is a separate and independent injury to the insured. See Condio,
899 A.2d at 1145 (holding that, if evidence arises that discredits the
insurer’s reasonable basis for denying a claim, the insurer’s duty of good
faith and fair dealing requires it to reconsider its position and act
accordingly, and noting that the section 8371 good faith duty is an ongoing
vital obligation during the entire management of the claim). The statute of
limitations for such injuries begins to run, in the first instance, when the
insurer communicates to the insured the results of its inadequate
investigation, and in the latter instance, when the insurer communicates to
the insured its refusal to consider the new evidence that discredits the
insurer’s basis for its claim denial. See Adamski, 738 A.2d at 1040.
Here, when Conseco first undertook to conduct an investigation
regarding LeAnn’s claim in December of 2006, it was presented with
conflicting information regarding the starting date of LeAnn’s disability, a
fact which ultimately provided the sole basis for Conseco’s denial of LeAnn’s
claim. Despite LeAnn’s representation in her initial claim forms that she had
been unable to work since February 4, 2003, Conseco had been presented
with conflicting evidence as to whether LeAnn continued to work beyond
February 4, 2003, including LeAnn’s continued payroll deductions through
June 14, 2003, and the differing disability dates provided in the physician’s
statements. Based on such conflicting information, when Conseco undertook
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to investigate LeAnn’s claim, it was required to conduct such investigation in
good faith, in order to accurately determine the starting date of LeAnn’s
disability. See Condio, 899 A.2d at 1142.
Moreover, in her November 30, 2006 letter, LeAnn advised Conseco,
for the first time, that, although her last day of work was February 4, 2003,
her automatic payroll deductions had continued until June 14, 2003, because
she used her accrued sick and annual leave from February 4, 2003, until
June 14, 2003, when her application for disability retirement status was
approved.32 This new information discredited Conseco’s basis for the denial
of LeAnn’s claim, which was premised on Conseco’s “acceptance” of the April
21, 2003 disability date provided in the November 18, 2003 WOP claim
form. As noted above, Conseco’s duty of good faith was an ongoing vital
obligation during the entire management of LeAnn’s claim, and such duty
required Conseco to reconsider its position and act accordingly. See id. at
1145.
As noted previously, when Conseco first undertook to investigate
LeAnn’s claim in December of 2006, it failed to contact USPS to determine
the “substantial and material duties” of LeAnn’s position at the time she was
diagnosed with ovarian cancer, the last day she worked at USPS, or whether
32
Although LeAnn advised Conseco in her initial claim forms that she “had
been “unable to work in current occupation” from February 4, 2003, until
May 6, 2003, Conseco was not previously advised that LeAnn had used sick
and annual leave until June 14, 2003, or that her application for disability
retirement status was approved on June 14, 2003.
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she had, in fact, used annual and sick leave to extend her payroll status to
June 14, 2003. Conseco also failed to contact the Social Security
Administration to determine the basis for its award of disability retirement
benefits to LeAnn, and the date of such award. Conseco further failed to
contact any of LeAnn’s treating physicians to determine when LeAnn first
became unable, due to her ovarian cancer, to perform the “substantial and
material duties” of her position at USPS.
If Conseco had conducted a meaningful investigation of LeAnn’s claim
or undertaken to “research” the new information supplied by LeAnn, such as
by contacting USPS, the Social Security Administration, or LeAnn’s treating
physicians, Conseco would have determined that LeAnn had, in fact, been
“unable due to cancer, to perform all the substantial and material duties of
[her] regular occupation” since February 4, 2003, and that she had
remained on the USPS payroll beyond that date by using her accrued sick
and annual leave until June 14, 2003, when her application for disability
retirement status was approved. Further, had Conseco conducted a good
faith investigation of LeAnn’s claim, it would have determined that premiums
had been paid on the Cancer Policy throughout the applicable 90-day waiting
period extending from LeAnn’s true disability date, February 4, 2003, and
that LeAnn was entitled to the WOP benefit provided by the Cancer Policy.
Conseco’s failure to conduct an meaningful investigation of LeAnn’s
claim when it undertook to do so in December 2006, and its refusal to
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reconsider its denial of coverage based on the new information provided by
LeAnn in her November 30, 2006 letter, constituted new injuries to LeAnn.
See Romano, 646 A.2d at 1232 (holding that bad faith conduct includes
lack of good faith investigation); see also Condio, 899 A.2d at 1145(holding that, if evidence arises that discredits the insurer’s reasonable basis
for denying a claim, the insurer’s duty of good faith and fair dealing requires
it to reconsider its position and act accordingly). Indeed, these injuries
constitute subsequent and separately actionable instance of bad faith,
distinct from and unrelated to Conseco’s initial denial of monetary benefits to
LeAnn or its decision to lapse the Cancer Policy. See Adamski, 738 A.2d at
1040. Thus, a new limitations period began to run on January 5, 2007,
when Conseco communicated to LeAnn (1) the results of its inadequate
investigation; and (2) its refusal to consider the new evidence she provided
that discredited Conseco’s basis for its denial of coverage. See id. (holding
that a new limitations period begins to run from later acts of bad faith).
Accordingly, LeAnn’s bad faith claim, commenced on December 22, 2008, is
not time-barred.33
33
Although the Cancer Policy contained a suit limitations clause, such clauses
operate to limit the insured’s claims arising under the policy, such as a
breach of contract claim. However, suit limitations clauses do not apply to
bad faith claims because such claims do not arise under the insurance
contract. See March v. Paradise Mut. Ins. Co., 646 A.2d 1254, 1256 (Pa.
Super. 1994) (holding that an insured’s claim for bad faith brought pursuant
to section 8371 is independent of the resolution of the underlying contract
claim).
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We note that the Dissent disagrees with our conclusion, and asserts
that LeAnn’s bad faith claim is time-barred. See Slip. Op. at 1-7. The
Dissent asserts that, to the extent that LeAnn asserts a bad faith claim
based on Conseco’s denial of monetary benefits, the limitations period for
such claim began to run on April 12, 2006, when Conseco first advised
LeAnn that it could not pay any benefits to her because her coverage ended
on May 24, 2003. Id. at 6. The Dissent also asserts that, to the extent that
LeAnn asserts a bad faith claim based on Conseco’s decision to lapse the
Cancer Policy, the limitations period for such claim began to run “either on
March 9, 2005, when Conseco first advised LeAnn that [the Cancer P]olicy
had lapsed, or on September 21, 2006, when Conseco denied LeAnn’s
request for WOP and advised her that coverage had ended on May 24,
2003.” Id.
However, the Dissent bases its conclusion on Conseco’s denial of
monetary benefits to LeAnn and its decision to lapse the Cancer Policy,
without considering LeAnn claim for bad faith based on Conseco’s lack of
good faith investigation. As noted above, a claim for bad faith may be based
on an insurer’s investigative practices. See Romano, 646 A.2d at 1232(holding that bad faith conduct includes lack of good faith investigation);
see also Condio, 899 A.2d at 1142 (holding that, if evidence arises that
discredits the insurer’s reasonable basis for denying a claim, the insurer’s
duty of good faith and fair dealing requires it to reconsider its position and
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act accordingly, and noting that the section 8371 good faith duty is an
ongoing vital obligation during the entire management of the claim). In
declining to acknowledge these tenets of Pennsylvania’s bad faith law, 34 the
Dissent has failed to acknowledge LeAnn’s claims for bad faith based on a
lack of good faith investigation, or identify the date(s) on which such claims
accrued. Thus, we abide by our conclusion that LeAnn’s bad faith claim is
not time-barred.
In his second issue, Rancosky contends that the trial court should have
considered Conseco’s conduct during the bad faith trial as further evidence
of its bad faith. Brief for Appellant at 61-65. Rancosky notes that that
Conseco’s Manual was admitted into evidence, without objection, at the
breach of contract trial. Id. at 62. Rancosky points out that the Manual
provides three ways to establish proof of disability: (1) a physician’s
34
While the Dissent cites several federal district court cases in support of its
position, none of those cases involved an inadequate initial investigation, nor
a request for reconsideration by an insured based on new information that
discredited the insurer’s basis for denial of the claim. Further, the Dissent’s
reliance upon Jones v. Harleysville Mut. Ins. Co., 900 A.2d 855 (Pa.
Super. 2006) is tenuous. Jones did not involve an inadequate initial
investigation by the insurer. Moreover, to the extent that Jones involved a
request for reconsideration, Jones was decided one week prior to Condio
and, hence, lacked the benefit of the Condio Court’s analysis. Further,
while the insured in Jones requested that the insurer reconsider its denial of
her property damage claim based on her acquittal of arson charges, there is
nothing in the case that indicates whether, in the course of reviewing the
transcript of the criminal proceedings, the insurer was presented with any
new information that discredited its prior denial of coverage, which was
based on multiple grounds, including arson, misrepresentation, fraud,
various policy conditions that had not been satisfied, and the insured’s
failure to cooperate.
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statement; (2) a claim form; or (3) a phone call to a policyowner’s
physician. See Trial Court Opinion, 11/26/14, at 3 (citing Rancosky’s Exhibit
75 and N.T. (Breach of Contract Trial), 5/7/13, at 147-49). Rancosky
asserts that, pursuant to the Manual, LeAnn’s initial claim forms established
her date of disability as February 4, 2003, and, accordingly, her entitlement
to WOP. Brief for Appellant at 63. However, Rancosky contends, during the
bad faith trial, Conseco’s counsel objected to the admission of the Manual,
and affirmatively stated that the Manual was not used by Conseco
employees in adjusting claims. Id. at 64. Rancosky asserts that the trial
court erred by not considering Conseco’s litigation strategy to disavow the
applicability of the Manual as further evidence of bad faith. Id. at 65.
Here, Rancosky did not raise this issue at any time before or during
the bad faith trial. Indeed, Rancosky did not raise this issue until after the
conclusion of the bad faith trial in a post-verdict Motion. In order to
preserve an issue for appellate purposes, the party must make a timely and
specific objection to ensure that the trial court has the opportunity to correct
the alleged trial error. See Shelhamer v. John Crane, Inc., 58 A.3d 767,
770 (Pa. Super. 2012); see also Pa.R.C.P. 227.1(b)(1); Pa.R.A.P. 302(a).
Because Rancosky failed to raise any objection to Conseco’s litigation
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strategy or the conduct of Conseco’s counsel until after trial, his claim is
waived. See Shelhamer, 58 A.3d at 770.35
In his final issue, Rancosky contends that the trial court erred by
entering summary judgment in favor of Conseco on Martin’s claims. Brief
for Appellant at 57. Rancosky asserts that, because LeAnn and Martin were
focused on LeAnn’s battle with ovarian cancer, they did not immediately
notify Conseco of Martin’s pancreatic cancer, which was diagnosed on
October 28, 2004. Id. at 58. Rancosky claims that, because Conseco
informed LeAnn of its decision to retroactively terminate the Cancer Policy
five months after Martin’s diagnosis, it would have been futile for Martin to
submit his claim on a canceled policy. Id. Rancosky argues that the
Complaint provided Conseco with notice of Martin’s claim, and Conseco was
provided with all of Martin’s medical records during the litigation of this
matter. Id. at 58-59. Rancosky contends that, despite the trial court’s
finding that Martin failed to provide Conseco with the correct form of notice
in order for Conseco to evaluate his claim, all of the information required in
a proof of loss form was provided to Conseco through litigation. Id. at 57-
35
Even if this issue had not been waived, we could not grant relief to
Rancosky. In the bad faith trial, David Rikkers (“Rikkers”), Conseco’s Legal
Interface Compliance Analyst, testified that the Manual “is not used for
adjudicating these types of claims.” Trial Court Opinion, 11/26/14, at 16-17
(citing N.T. (Bad Faith Trial), 6/27/14, at 78-79). Because the trial court
found Rikkers’s testimony to be “highly credible and informative,” Trial Court
Opinion, 11/26/14, at 16, we may not reweigh Rikkers’s testimony regarding
the Manual. See Hollock, 842 A.2d at 414.
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59. Rancosky asserts that Conseco was not prejudiced by Martin’s failure to
submit a claim after Conseco had indicated its decision to lapse and
retroactively terminate the Cancer Policy. Id. at 59.
In analyzing the order of [a] trial court that granted
summary judgment [], our scope of review is plenary. The
standard of review is clear; we will reverse the order of the trial
court only when the court committed an error of law or abused
its discretion. Summary judgment is appropriate only when the
record clearly shows that there is no genuine issue of material
fact and that the moving party is entitled to judgment as a
matter of law. The reviewing court must view the record in the
light most favorable to the nonmoving party and resolve all
doubts as to the existence of a genuine issue of material fact
against the moving party. Only when the facts are so clear that
reasonable minds could not differ can a trial court properly enter
summary judgment.
Kvaerner Metals Div. Kvaerner U.S., Inc. v. Commercial Union Ins.
Co., 908 A.2d 888, 895-96 (Pa. 2006) (internal citations omitted).
Here, the trial court dismissed Martin’s claims against Conseco on the
basis that he “never provided [Conseco] with written notice of a claim or
written proof of loss as required by the language of the [Cancer P]olicy.”
Trial Court Order, 3/21/12, at 1.
Pursuant to the Cancer Policy, Martin was required to provide written
notice of his claim to Conseco “within 60 days after the start of an insured
loss or as soon as reasonably possible.” Cancer Policy, at 11. Additionally,
Martin was required to provide written proof of loss to Conseco “within 90
days after the loss” or “as soon as reasonably possible” but “no later than
one year plus 90 days from the date of loss.” Id. Thus, Martin was
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permitted to provide written notice of his claim beyond 60 days after his loss
incepted, and written proof of loss beyond 90 days after his loss incepted, if
it was not “reasonably possible” for him to provide notice within those time
frames.
Here, Martin was diagnosed with pancreatic cancer on October 28,
2004. Five months later on March 9, 2005, Conseco retroactively
terminated the Cancer Policy. Due to the fact that both Martin and LeAnn
were battling cancer, it may not have been “reasonably possible” for Martin
to provide written notice of his claim to Conseco within 60 days or written
proof of loss within 90 days. Moreover, if it was not “reasonably possible”
for Martin to provide such notice prior to March 9, 2005, Martin may not
have been required to provide notice of his claim to Conseco, given
Conseco’s decision to retroactively terminate the Cancer Policy on that date.
See Arlotte v. Nat. Liberty Ins. Co., 167 A. 295, 296 (Pa. 1933) (holding
that “[a]n insurer will not be permitted to take advantage of the failure of
the insured to perform a condition precedent contained in the policy, where
the insurer itself is the cause of the failure to perform the condition.”); see
also Slater v. Gen. Cas. Co. of Am., 25 A.2d 697, 699-70 (Pa. 1942)
(holding that, following the insurer’s cancellation of the policy, the insured
was not required to inform the insurer of a lawsuit filed against him,
pursuant to the notice provisions of the policy, noting that the insured was
“not required to do a vain thing.”).
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However, Rancosky has failed to identify any evidence, raised in
opposition to Conseco’s Motion for Summary Judgment, demonstrating that
it was not “reasonably possible” for Martin to provide notice to Conseco
before Conseco retroactively terminated the Cancer Policy. See Pa.R.C.P.
1035.3 (providing that, in order to oppose a motion for summary judgment,
the adverse party may not rest upon mere allegations or denials of the
pleadings but must identify one or more issues of fact arising from evidence
in the record controverting the evidence cited in support of the motion, or
identify evidence in the record establishing the facts essential to the cause of
action). Because Rancosky has failed to identify any evidence, presented in
opposition to Conseco’s Motion for Summary Judgment, that it was not
“reasonably possible” for Martin to provide notice in compliance with the
terms of the Cancer Policy, Rancosky has failed to demonstrate on appeal
that he raised a genuine issue of material fact in the trial court. Thus,
viewing the record in the light most favorable to Rancosky, as the
nonmoving party, we cannot conclude that the trial court committed an error
of law or abused its discretion in granting summary judgment in favor of
Conseco and dismissing Martin’s claims.
Therefore, we affirm the trial court’s March 21, 2012 Order granting
Conseco’s Motion for summary judgment and dismissing Martin’s claims. We
also vacate in part the trial court’s Judgment entered on August 1, 2014,
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solely as it relates to LeAnn’s claim for bad faith, and remand for a new trial
on LeAnn’s claim for bad faith.36
Order affirmed. Judgment vacated in part. Case remanded for further
proceedings on LeAnn’s bad faith claim. Jurisdiction relinquished.
Bender, P.J.E., joins the opinion.
Jenkins, J., files a concurring and dissenting opinion.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 12/16/2015
36
The judgment entered on August 1, 2014, as it relates to the jury’s verdict
in the breach of contract trial, is not before us and remains unaffected by
our determination herein.
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