When Your Insurance Company Says No

A small business owner's guide to bad faith claims in Pennsylvania.

Most small business owners buy commercial insurance hoping never to use it. When the time comes to file a claim — a water main breaks, a fire damages inventory, a customer is injured — the assumption is that the policy will do what it was sold to do.

Sometimes it does. Sometimes it does not. And when an insurer denies, delays, or underpays a legitimate claim, Pennsylvania law gives the policyholder more leverage than most business owners realize.

What "bad faith" actually means

Pennsylvania has a specific statute — 42 Pa.C.S. § 8371 — that allows policyholders to sue their insurer for bad faith. The statute is short, but the remedies are unusually strong. If a court finds an insurer acted in bad faith, the policyholder can recover not only the amount that should have been paid on the claim, but also interest at the prime rate plus three percent, court costs, attorney's fees, and — in serious cases — punitive damages.

Bad faith is more than a wrong answer on a claim. It generally requires a showing that the insurer had no reasonable basis for denying or delaying payment, and that the insurer knew or recklessly disregarded that fact. That is a high bar, but it is also more flexible than many policyholders assume. Common patterns that point toward bad faith include:

• Denying a claim without reasonable investigation

• Delaying decisions for months without explanation

• Misrepresenting policy provisions or exclusions

• Lowballing damage estimates that bear no relation to the actual loss

• Refusing to defend a lawsuit the policy clearly covers

• Why this matters for small businesses

• Large companies have risk managers, brokers, and in-house counsel who push back when insurers behave badly. Small businesses usually do not. The result is that small policyholders are more likely to accept a denial at face value — even when the denial is wrong.

That asymmetry is exactly what § 8371 was written to address. Because the statute shifts attorney's fees to the insurer when bad faith is proven, it makes economic sense for small business owners to challenge denials they would otherwise have to absorb.

Deadlines that quietly kill claims

Two timing issues catch small businesses off guard. First, most commercial property policies contain a suit limitation clause — usually one or two years from the date of loss — that is shorter than the standard four-year contract statute of limitations. Miss it, and the underlying coverage claim may be barred.

Second, if the loss involves a municipal entity — a water main break, a sewer backup, a fall on city property — Pennsylvania's Political Subdivision Tort Claims Act requires written notice to the municipality within six months. That deadline is separate from anything the insurer is doing on the claim, and missing it can eliminate a parallel recovery that would otherwise offset the loss.

What to do when a claim goes sideways

Three steps make a meaningful difference in the outcome of a contested claim.

First, get the denial in writing and read the policy yourself — not the summary, the actual policy. Insurers are required to cite specific provisions when they deny coverage. Vague denials are themselves a sign of trouble.

Second, document everything. Calls, emails, photos, repair estimates, invoices, and adjuster correspondence are the record on which a bad faith case is later built or lost.

Third, get a second opinion early — from an attorney, not just the broker who sold the policy. The broker has a relationship with the carrier; you need someone whose only job is to read the policy in your favor.

This article is provided for general informational purposes only and is not legal advice. To discuss a specific insurance coverage matter, contact the Law Offices of Joel B. Albert, P.C. at 484-562-0473 or joel@albertlaw.com.