May I collect Bad Faith damages against a long term disability insurance company that has unfairly denied my claim?

Federal laws are laws of the United States government passed by the United States Congress.  In Pennsylvania, state laws are passed by the Pennsylvania State General Assembly.

If you purchase personal disability insurance coverage (not through your employer), your benefits are governed by state law.  If you purchase disability coverage through your employer, it is likely that your benefits will be governed by federal law.

Why does it matter?  Under federal law, long term and short term disability benefits are administered by your employer, which has the right to purchase disability insurance coverage from an insurance company and can permit the insurance company to make all determinations concerning eligibility.  Where this occurs, your employer or the insurance company is both the judge who is supposed to determine whether your claim is valid and the party that has to pay the claim.  This is an obvious conflict of interest.  Can you imagine going to court after suing someone who injures you in a car accident only to find out that the judge is the person that caused your injuries?

Under Pennsylvania law and the law of many states, however, you have rights you do not have under federal law.  Under Pennsylvania law, the insurance company has an obligation to negotiate your claim in good faith.  If they exhibit bad faith in the negotiations, you have a potential cause of action against the insurance company for punitive damages in addition to your claim for benefits.

Greg Boles
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Partner at The Boles Firm | Experience Matters