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February 25, 2015 Practice Points

Pennsylvania Holds that Policyholders Can Assign Insurance Bad Faith Claims to Third Parties

The Pennsylvania Supreme Court has decided that policyholders can assign their statutory bad faith claims to third parties

by Andrew J. Kennedy

The Pennsylvania Supreme Court has decided that policyholders can assign their statutory bad faith claims to third parties. Allstate Prop. & Cas. Co. v. Wolfe, 2014 PA. LEXIS 3309 (Pa. December 15, 2014). The Third Circuit Court of Appeals had certified that question to the Pennsylvania high court. The decision settles conflicts that had arisen between the state’s intermediate appellate courts, which had held that allowed assignments of bad faith claims, and some recent decisions from federal courts, that had barred such assignments.

The decision clears the way for injured plaintiffs to settle claims from insured defendants by taking assignment of bad faith claims. Now they can settle cases by assigning both claims that arise under common law and those that arise under Pennsylvania’s bad faith statute, 42 Pa.C.S. Section 8371.

The case generated significant attention. Ten organizations participated in filing amicus briefs before the Supreme Court. The insurance industry argued that Pennsylvania’s bad faith statute, which allows an award of punitive damages against insurance carriers, was akin to a personal tort. Pennsylvania has long barred parties from assigning unliquidated personal tort claims on the grounds that allowing those would be contrary to public policy. Given that similarity, the insurance industry argued, statutory bad faith claims should be barred as well. Further, it suggested that allowing such assignments would encourage litigation, which is also against public policy.

The plaintiff and amici on his behalf argued that Pennsylvania has long allowed assignments of bad faith claims that arise under the common law. Further, they argued the state legislature was aware of this when it passed the bad faith statute in 1990. They argued that the statute was intended to deter bad faith, which would be accomplished by allowing policyholders to assign statutory bad faith claims. They also argued that the legislature, which knew that Pennsylvania had allowed common law bad faith claims to be assigned for many years, did not intend to split the cause of action. They also pointed out that Pennsylvania’s lower courts had been allowing assignments of statutory bad faith claims for many years without generating the mischief that the insurance industry feared.

 In a decision that freely quoted the briefs on both sides, the Pennsylvania Supreme Court sided with policyholders. The court focused on the intent of the legislature and the policy to be obtained by broadly interpreting the remedial purpose of the statute. The court reasoned that “consideration of the occasion and necessity of Section 8371, the object to be attained, and the previous legal landscape, as well as the consequences of our interpretation, favor Wolfe’s position.”

 This case, in which public policy was vigorously argued, stemmed from an ordinary car accident. In 2007, Jared Wolfe was injured when Karl Zierle rear-ended him. Wolfe demanded $25,000 from Zierle, which was half of his policy limit. Allstate offered him $1,200 to settle the case. Wolfe then sued Zierle and discovered that Zierle had been intoxicated at the time of the collision. Wolfe then obtained a jury verdict of $15,000 for compensatory damages and $50,000 in punitive damages. Allstate paid the $15,000 but refused to pay the $50,000 in punitive damages.

Wolfe then agreed to not execute against Zierle in exchange for an assignment of all of Zierle’s claims against Allstate. Wolfe sued Allstate for bad faith and a jury entered a verdict in his favor for $50,000. Allstate argued that Wolfe lacked standing on the grounds that claims arising under Section 8371 could not be assigned. The district court disagreed. When the case was appealed to the Third Circuit, the appeals court certified the question to the Pennsylvania Supreme Court.

The Pennsylvania Supreme Court’s decision reinforces the strong public policy that is the foundation for the statute: to deter and punish bad faith by insurers. That policy is rooted in Pennsylvania’s common law. Pennsylvania first recognized a claim for bad faith against an insurer in Cowden v. Aetna Cas. & Sur. Co., 39 Pa. 459, 134 A.2d 223 (Pa. 1957). In 1966, the Pennsylvania Supreme Court allowed policyholders to assign their bad faith claims.Gray v. Nationwide Mut. Ins. Co., 42 Pa. 500, 223 A.2d 8 (1966). But plaintiff insureds cannot obtain punitive damages or attorney’s fees under the common law. In 1990, the Pennsylvania legislature added Section 8371 to its code. Under Section 8371 courts may award punitive damages, interest, and attorney’s fees.

At the Pennsylvania Supreme Court, the insurance industry argued that while an insured defendant could assign her common law bad faith claim to settle a suit with an injured plaintiff, that public policy did not allow her to assign the statutory claim to settle the suit. The insured defendant would have to pursue the claim independently.

The Supreme Court disagreed. It reasoned that “we simply do not believe the General Assembly contemplated that the supplementation of the redress available for bad faith on the part of insurance carriers in relation to their insureds would result either in a curtailment of assignments of pre-existing causes of action in connection with settlements or the splitting of actions.”


Keywords: insurance; coverage; litigation; Pennsylvania; bad faith; statutory bad faith; assignment; tort; Section 8371

Andrew J. Kennedy, Colkitt Law Firm, P.C., Pittsburgh. The author represented amicus United Policyholders in the case discussed.

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