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ALERT: Will the Supreme Court of PA Allow Assignment of Bad Fath Claims?

May 20, 2014

The Supreme Court of Pennsylvania has agreed to consider whether an injured party can take an assignment of a tortfeasor’s bad faith claim against its carrier.* The high court agreed after a request by the Third Circuit to take up the issue because of conflicting opinions on the issue in the Middle and Eastern Districts.

Specifically, in the Middle District, a defendant assigned his bad faith rights against his carrier after the carrier refused to settle with the claimant. The defendant was an alleged drunk driver and was insured for $50,000. The claimant demanded $25,000 to settle but the carrier would not offer more than $1,200.00. A jury awarded the claimant $15,000 plus $50,000 in punitive damages (though the policy would not have covered the punitive award). When the claimant took an assignment of the torfeasor’s bad faith rights and filed suit, the carrier moved for summary judgment. The court denied the motion holding that the insurer had a fiduciary duty to negotiate a settlement in good faith on behalf of its insured and that its own attorney had urged the carrier to offer more. Thus, the court found that the insured’s claim for punitive damages, counsel fees and interest are assignable under Pennsylvania’s bad faith statute.

But in the Eastern District a judge predicted that the Supreme Court would rule that Pennsylvania law does not allow the assignment of claims under the bad faith statute. That case involved a homeowner’s insurance policy. The claimant was injured when she fell down the steps in her home. The home had been owned by her aunt until the aunt passed away. The aunt had homeowner’s insurance on the home under which coverage was eventually sought when the home was “inherited” by the claimant’s cousin upon her aunt’s death. It was unclear whether the subsequent owner was living at the property at the time of the incident but he allowed the claimant to live there as part of family accommodation. The claimant sued him in negligence and the two settled the claim after the homeowner’s carrier would not defend him. He assigned his bad faith rights to the claimant. Standing in her cousin’s shoes, the claimant alleged that the carrier acted in bad faith when it denied him coverage under the policy and further sought a declaration that the policy did provide coverage to him. The carrier moved to dismiss the bad faith complaint which the court granted because, among other reasons, it argued statutory bad faith claims are not assignable. Noting that the Supreme Court has not yet ruled on the issue, the Eastern District predicted that it would find that these types of claims are not assignable. The court cited to decisions which hold that an unliquidated personal injury tort claim is not a property right and Pennsylvania Supreme Court authority which holds that claims under Pennsylvania’s bad faith statute are statutorily created torts to support this conclusion.

Consequently, the Supreme Court has certified the question of whether, under Pennsylvania law, an insured tortfeasor can assign his or her bad faith claim against an insurer, under 42 Pa.C.S. § 8371, to an injured third party?

Some pundits have suggested that if the Court holds in favor of assignment, this will cause carriers to take claims more seriously and increase the likelihood of settlement. Others surmise that if the Court rules against assignment, there will never be a just remedy because tortfeasors are often unable or unwilling to enforce their rights and claimants will lose a serious bargaining chip for negotiating settlements. Still others think that the Court may look to the exposure of the tortfeasor(s) to excess judgments if they are not permitted to assign their rights. Yet none are willing to predict which way the Court will rule.

The court has not yet set a briefing schedule but it has invited the insurance commissioner to file an amicus brief. Keep an eye on our insurance blog for updates on this issue and reporting on the eventual outcome as this will seriously impact the considerations carrier clients will face when considering their settlement options.

*Note, the underlying cases and petition for certification to the Pennsylvania Supreme Court are not cases handled by Zarwin Baum attorneys.

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