When insurance companies act in bad faith and deny legitimate claims, they can cause significant harm to policyholders. Fortunately, there are legal remedies available to those affected by this unfair treatment. Bad faith cases often result in multiple types of damages, some directly linked to the insurance contract, while others address the additional losses caused by the insurer’s misconduct.
With conveniently located offices in Scranton, Berwick, Tunkhannock, and the Pocono Mountains, we’re here to help those who have undergone bad faith at the hands of insurance companies across all of Northeastern/Central PA and the Pocono Mountains region and surrounding counties including cities and towns such as Pittston, Wilkes-Barre, Scranton, Clarks Summit, Dallas, Kingston, Blakeslee, Shickshinny, Dunmore, Carbondale, Nanticoke, Bloomsburg, Hazelton, East Stroudsburg, Mountaintop, Jessup, Forest City, Montrose, and more.
Lenahan & Dempsey, P.C. will walk you through the damages typically associated with bad faith cases, helping you better understand your legal rights and options in such situations. Whether you’re a policyholder who suspects bad faith or a legal professional seeking more insights, our attorneys will clarify the main categories of damages applicable to these cases.
Understanding Bad Faith Cases and Damages
In Pennsylvania law, “bad faith” refers to an insurer’s deliberate refusal to fulfill its obligations under an insurance policy without a valid reason. Examples of bad faith include wrongfully denying a claim, unreasonably delaying payments, or misrepresenting policy terms to avoid responsibility.
To ensure accountability, legal systems allow claimants to pursue various types of damages in bad faith cases. These include contract damages, extracontractual damages, and punitive damages, each serving a different purpose in compensating the policyholder or penalizing the insurer.
What Are Contract Damages?
Contract damages are those directly tied to the terms of the insurance policy. These damages aim to compensate policyholders for the benefits they were entitled to but wrongfully denied.
Examples of Contract Damages
- Property Insurance: If your insurer denies a valid claim for fire damage to your home, your contract damages would include the cost of repairs or rebuilding.
- Health Insurance: An insurer refusing to pay for a covered medical procedure could be held liable for the medical expenses you had to pay out of pocket.
- Life Insurance: If a life insurance company denies a claim without a legitimate reason, contract damages would equal the value of the policy.
By holding insurers accountable for the agreed-upon benefits, contract damages essentially restore the financial position you would have been in had the company honored its obligations.
What Are Extracontractual Damages?
Extracontractual damages go beyond the terms of the insurance policy and address additional harm caused by the insurer’s bad faith. These damages are classified into several subtypes, including compensatory damages, emotional distress damages, consequential damages, and attorney’s fees.
Compensatory Damages
Compensatory damages cover financial losses you incur due to the insurer’s bad faith actions. For example:
- Out-of-Pocket Expenses: Costs like arranging temporary housing after a denied property insurance claim.
- Lost Income: Compensation for income lost while dealing with a wrongful denial or delay.
Emotional Distress Damages
The stress, anxiety, and frustration caused by bad faith practices can take a significant emotional toll on policyholders. Emotional distress damages are compensated for:
- Mental anguish.
- Pain and suffering caused by the insurer’s misconduct.
Imagine the distress a person might undergo if their health insurance denies payment for critical care or life-saving medication, leaving them in financial and emotional turmoil.
Consequential Damages
Consequential damages address indirect losses stemming from bad faith actions. For instance:
- A business owner might lose customers and revenue if their insurer delays payment for property damage critical to operations.
- Denied payments could lead to damaged credit scores if a policyholder is forced to delay other financial obligations as a result.
Attorney’s Fees and Legal Costs
Where an insurer acts in bad faith towards its policyholder, the bad faith statute in Pennsylvania, 42 Pa.C.S.A. §8371, allows policyholders to recover the legal expenses (attorneys’ fees and court costs) associated with both the underlying contractual claim and the bad faith claim.. This statute ensures access to justice while discouraging insurers from engaging in unfair practices.
What Are Punitive Damages?
The bad faith statute in Pennsylvania also allows policyholders to recover punitive damages where the insurer acted in bad faith. Punitive damages serve a dual purpose in bad faith cases:
- Punishment for the insurer’s egregious, malicious, or reckless behavior.
- Deterrence, sending a message that discourages similar misconduct by the insurer and others in the industry.
Factors in Awarding Punitive Damages
When determining whether to award punitive damages and their amount, courts consider:
- The Severity of the Insurer’s Actions: Did the insurer act with fraud, oppression, or outright malice against the policyholder?
- Financial Standing of the Insurer: How significant must the punitive damages be to serve as an effective deterrent based upon the net worth of the insurer?
- Harm to the Policyholder: The extent to which the insurer’s bad faith negatively impacted the claimant’s life.
Punitive damages can often far exceed the original claim amount, particularly in severe cases. Their primary aim is to set a precedent that deters insurers from exploiting policyholders in the future.
Empower Yourself in Bad Faith Cases
Understanding the types of damages applicable to bad faith cases can be instrumental in holding insurers accountable. From securing benefits owed under the policy to seeking punitive measures for egregious behavior, the legal remedies available provide vital protections for policyholders.
At Lenahan & Dempsey, we’ve played a key role in shaping bad faith law in Pennsylvania. In the landmark case of Hollock v. Erie, Managing Partner Timothy Lenahan and Attorney Christine S. Lezinski successfully represented the policyholder before the Pennsylvania Superior Court en banc (all nine Superior Court judges). Their victory established a precedent that insurers acting in bad faith can face significant penalties, including punitive damages far exceeding the original claim’s value. This ruling strengthened policyholder protections statewide and reinforced the obligation of insurers to act in good faith.
Attorney Timothy Lenahan was honored as Insurance Lawyer of the Year by Best Lawyers in America for 2024–2025, a recognition that reflects his exceptional contributions to insurance and bad faith law.
If you suspect unfair treatment by your insurance company, contact our qualified attorneys to explore your options. Bad faith cases don’t just ensure justice for individuals but also uphold fairness and accountability across the industry. Contact us today to schedule a consultation.
*Best Lawyers in America and Best Law Firms are trademarks of Woodward White. This trademark is used with permission. Details on Settlements & Verdicts are found at LenahanDempsey.com. All law firms are required to note that because the facts of each case are different, past performance is not a promise of a future outcome.
