PA High Court Gives Green Light to Assignment of Bad Faith Claims

In Allstate Prop. & Casualty Insurance Co. v. Wolfe, No. 39 MAP 2014, 2014 Pa. LEXIS 3309 (Pa. Dec. 15, 2014), the Pennsylvania Supreme Court, in deciding a certified question from the Third Circuit, ruled that statutory bad faith claims under 42 Pa. C.S.A. § 8371 are assignable.

The underlying dispute arose from a motor vehicle collision involving an intoxicated driver, Zierle, who was insured by Allstate.  After settlement attempts failed, Wolfe, the tort claimant, sued Zierle for compensatory and punitive damages.  Following a judgment including both types of damages, Allstate paid for the compensatory damages only.  Consequently, Zierle assigned his bad faith claim against Allstate to Wolfe in exchange for a covenant not to execute on the punitive damages award against Zierle.

Wolfe then brought this action against Allstate alleging a bad faith refusal to settle.  Allstate removed the suit to federal court, and the district court found Zierle’s bad faith claim was assignable.  The case reached the Third Circuit, and because of conflicting decisions regarding the assignability of claims, the Third Circuit certified the question to the Pennsylvania Supreme Court.

Faced with a matter of first impression under Pennsylvania law, the high court determined that an insured may assign a bad faith claim under Section 8371, Pennsylvania’s insurance bad faith statute (42 Pa. C.S. § 8371).  The court reasoned that prior to the statute’s enactment, Pennsylvania had viewed bad faith claims as contractual claims and thus freely assignable.  The court further reasoned that the statutory intent was not to change an insured’s ability to assign claims but to supplement available remedies. With regard to public policy, the Supreme Court explained, “[W]e 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 assignment of pre-existing causes of action in connection with settlements or the splitting of actions. Certainly, if we are incorrect in our assessment in this regard, the General Assembly may seek to implement curative measures pertaining to future cases, subject to constitutional limitations.”

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