In another ground-breaking decision this week, the Pennsylvania Supreme Court addressed a certified question from the Third Circuit Court of Appeals about assigning bad faith claims in Pennsylvania. In another decision, the Pennsylvania Supreme Court affirmed a judgment based on a verdict against Walmart for $188 Million. Of greater importance to other participants in the judicial system if not to the litigants in that particular case, the Court approved the proofs of both liability and damages employed in that class action case. The Pennsylvania Supreme Court’s stunning new class action decision was addressed yesterday on Insurance Claims and Issues Blog.
In Allstate Prop. & Cas. Ins. Co. v. Wolfe, ___ A.3d ___, 2014 WL 7088147 *1 (Pa. December 15, 2014), in another decision this week the Supreme Court of Pennsylvania also addressed a certified question from the Federal Third Circuit Court of Appeals. The Third Circuit certified a question “to clarify whether, under Pennsylvania law, an insured may assign the right to recover damages from his insurance company deriving from the insurer’s bad faith toward the insured.”
The bad faith claim in the certified question case involves liability insurance and an alleged bad faith failure to settle. Karl Zierle was insured under an auto liability policy issued by Allstate Property and Casualty. Mr. Zierle was at the wheel of a vehicle which rear-ended Jared Wolfe’s vehicle. Mr. Wolfe sued Mr. Zierle for damages.
Allstate failed to settle the claims alleged by Mr. Wolfe against its insured, Mr. Zierle. A judgment was ultimately entered against Mr. Zierle which was broken out into a $15,000.00 award for compensatory damages and a $50,000.00 assessment of punitive damages. Allstate satisfied only the compensatory damages component and Zierle assigned any bad-faith rights he might have against Allstate to Wolfe in exchange for Wolfe’s forbearance on execution of the punitive damages component.
Mr. Zierle’s potential bad-faith claims in Pennsylvania apparently included rights under Pennsylvania’s bad-faith statute. In turn, Pennsylvania’s bad-faith statute allows for the assessment of punitive damages against an insurance carrier for its alleged bad faith.
After obtaining the assignment of Mr. Zierle’s bad-faith rights, Mr. Wolfe filed a claim against Allstate in Federal Court based on the Zierle-Wolfe assignment for alleged bad faith failure to settle. Wolfe alleged “that Allstate’s refusal to settle reflected bad faith on the carrier’s part” under both a “common-law contract theory” and under Pennsylvania’s bad-faith statute, Section 8371 of the Judicial Code, 42 Pa. Cons. Stat. § 8371. Allstate Prop. & Cas. Ins. Co. v. Wolfe, ___ A.3d ___, 2014 WL 7088147 *1 (Pa. December 15, 2014). “The matter proceeded to trial, and a jury discerned bad-faith conduct on the part of Allstate. As relevant here, the jury awarded $50,000 in punitive damages, as authorized under Section 8371.” Allstate Prop. & Cas. Ins. Co. v. Wolfe, ___ A.3d ___, 2014 WL 7088147 *2 (Pa. December 15, 2014).
Parenthetically, the jury in the later bad-faith case awarded the same amount of damage that was assessed against Mr. Zierle, Allstate’s insured, in the earlier liability case.
On appeal to the Third Circuit Court of Appeals in the Federal Court bad-faith case, Allstate argued that the Zierle-Wolfe assignment of bad-faith-failure-to-settle claim presented an open question of whether rights are assignable under Section 8371. Allstate contended that such a claim was not assignable and was invalid as a matter of Pennsylvania State law.
The Third Circuit certified the question to the Supreme Court of Pennsylvania whether this assignment is valid in Pennsylvania, and as noted, the Pennsylvania Supreme Court answered “Yes”:
We conclude that the entitlement to assert damages under Section 8371 may be assigned by an insured to the injured plaintiff and judgment creditor such as Wolfe. Having answered the certified question, we return the matter to the Third Circuit.
Allstate Prop. & Cas. Ins. Co. v. Wolfe, ___ A.3d ___, 2014 WL 7088147 *5 (Pa. December 15, 2014).
Insurability of punitive damages by another name, perhaps, as things turned out.
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