In an effort to resolve a disputed issue in the area of bad faith litigation, the Pennsylvania Supreme Court recently decided the issue of whether an insured’s bad faith claims can be assigned to third party plaintiffs. In Allstate Property & Casualty Ins. v. Wolfe, ___ A.3d___, (Dec. 15, 2014), the Court found that an insured’s right to bad faith claims can, in fact, be assigned to a third party. The Court’s decision was primarily based on its interpretation of the legislative intent of the commonwealth’s Bad Faith Statute, 42 Pa.C.S.A 8371.
The underlying case involved a 2007 motor vehicle accident, where third party defendant and Allstate insured, Karl Zierle, rear ended the vehicle driven by third party plaintiff Jared Wolfe, injuring Wolfe. Allstate and Wolfe failed to settle the claim and the case went to trial. At trial, the jury awarded Wolfe $15,000 in compensatory damages and $50,000 in punitive damages. After the verdict was entered, Allstate satisfied the compensatory component of the judgment only, and did not indemnify Zierle for the punitive damages. Wolfe and Zierle then entered into an agreement whereby Wolfe agreed not to execute on the punitive damages portion of the verdict, in exchange for an assignment from Zierle of all his claims against Allstate. Wolfe then filed a bad faith action against Allstate.
The bad faith action proceeded to trial and the jury found bad faith on the part of Allstate and awarded Wolfe $50,000 in punitive damages. Allstate commenced an appeal in the Third Circuit Court of Appeals, in which the insurer maintained its continually held position that Wolfe lacked standing to sue Allstate. Acknowledging that there had been conflicting decisions in in Pennsylvania and federal courts concerning the assignability of a right to damages under 42 Pa.C.S.A. Sec. 8371, the Third Circuit lodged a certification petition with the Pennsylvania Supreme Court, which was then granted by the Court.
Appellant Allstate argued that sanctioning assignments of punitive-damages claims under Section 8371 would create trouble by encouraging plaintiffs to pursue unreasonable settlement demands and advance bad-faith claims that otherwise never would have been initiated. Wolfe, on the other hand, argued that allowing the transfer would advance public policy in encouraging settlement and fostering the efficient litigation of claims, along with serving Section 8371’s purpose of deterrence. Wolf also centered his argument on the public policies supporting the Pennsylvania Supreme Court’s prior determination that bad-faith claims grounded in contract theory are assignable.
The Court reasoned that because the statute said nothing about assignability of claims within its provision, the principles of statutory construction should apply. It then engaged in the determination of the intent of the legislature through the language of the Bad Faith Statue. In the end, the Court found in favor of Wolfe’s argument and held that the intent of the General Assembly was not to prevent such assignments and that doing so would neither hinder settlement nor encourage additional litigation. The Court then held that the entitlement to assert damages under the Pennsylvania Bad Faith Statute may be assigned to an injured plaintiff/judgment creditor by an insured.
