The Supreme Court of Pennsylvania has clarified the question of whether, under Pennsylvania law, an insured may transfer the right to recover damages against his or her insurance company in an insurance bad faith claim to a third party. In a recent decision in AllState Property and Casualty Insurance Company v. Jared Wolfe, No. 39 MAP 2014, 2014 WL 7088147 (December 15, 2014), the Supreme Court ultimately decided that yes, an insured may assign their rights to pursue an insurance bad faith action to a third party.
In 2007, plaintiff Jarred Wolfe in the underlying action had been hit by a car driven by Karl Zierle. Zierle was covered by AllState Property and Casualty Insurance Company, and Wolfe demanded $25,000, or half of the liability limits under Zierle’s policy. When AllState only offered $1,200, Wolfe refused and initiated a personal injury action against Zierle. During discovery in the personal injury action, Wolfe found that Zierle had been driving while intoxicated when the accident occurred, and was granted leave to amend the complaint to include a claim for punitive damages. At this point, AllState suggested that Zierle consult a personal attorney regarding the punitive damages.
Although Wolfe attempted to settle with AllState on various occasions, AllState would not agree to make any concessions from its $1,200 offer, which Wolfe refused to accept. The case ultimately went to trial, and Wolfe received a verdict in his favor and against Zierle for $15,000, along with $50,000 in punitive damages. AllState ended up paying the $15,000 compensatory portion of the judgment. Zierle, who was left responsible for the $50,000 punitive damages portion, entered into an agreement with Wolfe, in which Wolfe would not execute on the judgment in exchange for all claims Zierle may have against AllState under the policy. Wolfe eventually initiated an action in the Pennsylvania court of common pleas, alleging that AllState acted in bad faith by refusing to settle initially with Wolfe.
AllState moved for summary judgment, with the argument that Wolfe lacked the ability to pursue a claim under 42 Pa.C.S. § 8371, as § 8371 created a form of an unliquidated tort claim – which are unassignable to third parties per longstanding Pennsylvania law.
Because Pennsylvania law 42 Pa.C.S. § 8371 did not include clear language regarding the assignability of claims in insurance matters, however, the Supreme Court agreed with Wolfe’s proposition that the principles of statutory construction were necessary to accurately examine the question. AllState contended that statutory causes of action should be outside the scope of the court’s discretion, to be answered by the Legislature for its approval. Further, AllState argued that allowing transfers to third parties would cause potential plaintiffs to pursue unreasonable settlement demands, and in terms of policy, would allow for bad faith actions when there may not have been one.
Wolfe argued that allowing such transfers would allow for the insured to be placed on a more equal footing with their insurance carrier in these key moments. In this insurance bad faith action, Wolfe also pursued claims under the Pennsylvania Unfair Trade Practices and Consumer Protection Law (or UTPCPL), which the Supreme Court did not address. With the ability to place the insured on the same playing field as the insurance carriers, Wolfe argued, it would encourage settlement talks, which would in turn foster more efficient litigation claims.
The Supreme Court disagreed with AllState’s arguments, stating simply they did not believe the General Assembly, “contemplated the supplementation of the redress available for bad faith on the part of insurance carriers…” Stated another way, at the time the statute was created, the ability for an insured to find redress for a bad faith action by an insurance carrier through a third party had not been considered. The Supreme Court did include in its opinion that if their assessment was incorrect, the Legislature should, “implement curative measures pertaining to future cases, subject to constitutional limitations.”
At this time, however, based on the Supreme Court’s opinion, it is clear that third parties have a clear form of redress to pursue claims against insurance carriers. Whether this recent decision will spark an increase in insurance bad faith litigation in 2015 remains an open topic of discussion. Third parties to an action have tended to be placed on the outskirts of bad faith litigation, but the tides are turning.
In a similar action in September 2014, in which an insured assigned his rights to pursue an insurance bad faith claim to a third party, one of the largest reported bad-faith settlements in Pennsylvania history was recorded for $22 million. The consequence of acting in bad faith by, for example, failing to pay the obviously liable claim could end up causing the insurance company a lot more money at the end.