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ALERT: Pennsylvania Supreme Court Has Ruled that Personal Injury Claimant May Accept Assignment of Tortfeasor’s Bad Faith Claim

January 8, 2015

On December 15, 2014, the Pennsylvania Supreme Court issued its ruling in the matter of Allstate Prop. & Cas. Ins. Co. v. Wolfe, 39 MAP 2014. In that case the Supreme Court took on the issue of whether, under Pennsylvania law, an insured could assign the right to recover damages from his or her insurer deriving from the insurer’s bad faith toward the insured. The Court held that the right to assert damages under the Bad Faith statute could be assigned by an insured to an injured plaintiff and judgment creditor.
 
In the underlying matter, 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). The carrier moved for summary judgment on the basis that bad faith claims are essentially unliquidated tort claims which cannot be assigned. The trial court denied that motion holding that such claims are assignable. The carrier appealed to the Third Circuit which certified the issue to the Pennsylvania Supreme Court.
 
In arguments to the Supreme Court on the issue, the carrier argued that sanctioning assignments of punitive damage claims under §8371 would foster mischief by encouraging plaintiffs to purse unreasonable settlement demands, in order to set-up bad faith claims. Claimant countered that assignability would place an injured third-party plaintiff on equal footing with a tortfeasor’s insurer at the outset of a claim, and “balance the scale” in terms of settlement negotiations, but not go over the tipping point against insurers, who can still refuse to settle in good faith. The claimant also asserted that the goal of §8371, deterrence and punishment of bad faith, are served whether it is the insured or some other party who prosecutes the claim.
 
The Supreme Court stated that the most appropriate way to approach the assignability issue was as a matter of statutory construction since bad faith claims are premised on statute and since the statutory language says nothing about the assignability of the claim. Those principles of statutory construction include consideration of the occasion and necessity for Section 8371, the object to be attained, the previous legal landscape and the consequences of the Court’s interpretation. On balance, the Supreme Court found review of these consideration favored the claimant’s position. The Court stated:  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 or pre-existing causes of action in connection with settlements or the splitting of actions. Having answered the certified question and having decided that bad faith claims could be assigned, the Court returned the matter to the Third Circuit. 
 
*This case was not handled by Zarwin Baum attorneys. 
 

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