In an issue of first impression, the Pennsylvania Supreme Court recently held in Allstate Prop. & Cas. Ins. Co. v. Wolfe [1] that a policyholder may assign statutory bad faith claims under Pennsylvania’s bad faith statute, Section 8371, [2] to a third party claimant. Importantly, Wolfe resolves the conflict among Pennsylvania and federal decisions regarding the assignability of the right to recover statutory bad faith damages, and allows assignees to seek punitive damages under the statute against an insurer who acts in bad faith.

In Wolfe, the insured, Jared Wolfe, was injured in a car collision caused by a drunk driver (Karl Zierle) who was insured under an insurance policy issued by Allstate Property and Casualty Insurance Company (“Allstate”), with limits of $50,000. Mr. Wolfe demanded half of the policy’s limits ($25,000), refused Allstate’s counteroffer ($1,200), and subsequently brought suit against Zierle seeking compensatory and punitive damages. Mr. Wolfe won, obtaining a verdict for $15,000 in compensatory damages and $50,000 in punitive damages. Allstate paid only the compensatory portion of the award. Thereafter, Mr. Wolfe and Mr. Zierle entered into an agreement related to the punitive-damages portion of the award in which Mr. Zierle assigned his policy rights to Mr. Wolfe in exchange for Mr. Wolfe’s forbearance from executing on the judgment.

Wolfe brought an action against Allstate alleging that Allstate’s refusal to settle was in bad faith and seeking damages under both common-law contract theory and Section 8371. [3] Allstate argued that Wolfe lacked standing to pursue damages under Section 8371, on the purported basis that “Section 8371 created a form of an unliquidated tort claim” and “per longstanding Pennsylvania law, unliquidated tort claims generally are personal and cannot be assigned to third parties.” [4] The district court disagreed, and the jury awarded Mr. Wolfe $50,000 in punitive damages. Upon Allstate’s appeal, and in light of the conflict among Pennsylvania and federal courts, the Third Circuit lodged a certification to the Supreme Court of Pennsylvania to clarify “whether, under Pennsylvania law, an insured may assign the right to recover damages [arising from an insurer’s] bad faith toward the insured”, which the Court granted. [5]

Finding that the statute’s plain language did not expressly address the assignability of claims, the Court engaged in statutory construction to determine the Legislature’s intent. [6] The Court rejected Allstate’s (and its amici’s) arguments that these sort of assignments should not be sanctioned by courts in the absence of express legislative approval and determined instead that “the Legislature apparently was satisfied to leave in place the contract overlay which this Court had imposed on insurance bad-faith litigation, but it chose to interpose additional conventions typically associated with tort law[.]” [7] The Court concluded that “that the entitlement to assert damages under Section 8371 may be assigned by an insured to an injured plaintiff and judgment creditor such as Wolfe” and invited the Legislature to implement curative measures if the Court’s assessment was incorrect.

Conclusion
Wolfe protects Pennsylvania’s public policy favoring settlement by eviscerating the arguably artificial distinction between contractual versus statutory bad faith remedies where the insurer’s underlying conduct is the same. Further, itprovides policyholders with an additional bargaining chip (i.e., the ability to assign the totality of their rights) when settling with third-party claimants. Wolfe also empowers assignees by putting them on more equal footing with an insurer during settlement negotiations. As such, Wolfe should be viewed as a welcomed addition to Pennsylvania’s insurance coverage jurisprudence.

Notes:
[1] Allstate Prop. & Cas. Ins. Co. v. Wolfe, No. 39 MAP 2014 (Pa. 2014).

[2] Section 8371 provides that:

In an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith toward the insured, the court may take all of the following actions:

(1) Award interest on the amount of the claim from the date the claim was made by the insured in an amount equal to the prime rate of interest plus 3%.

(2) Award punitive damages against the insurer.

(3) Assess court costs and attorney fees against the insurer.

42 Pa. Cons. Stat. Ann. § 8371. As explained by the Court, Section 8371 “serve[s] to supplement the remedies previously available to insureds in certain scenarios involving bad-faith conduct by their insurers, inter alia, by authorizing punitive-damages awards.” Wolfe, No. 39 MAP 2014, at *3.

[3] Wolfe also asserted a claim under Pennsylvania’s Unfair Trade Practices and Consumer Protection Law, 73 P.S. §§ 201-1 to -9.3, which was not a part of the Court’s review.

[4] Wolfe, 39 MAP 2014, at *3.

[5] Id. at *1.

[6] Id. at *10–*12.

[7] Id. at *10–*11.