The Pennsylvania Supreme Court will soon tackle the issue of whether an insured tortfeasor can assign his or her bad faith claims against the insurer to the injured plaintiff.  The issue, which has caused a split in the in the Eastern and Middle districts of Pennsylvania, remains an unsettled issue of Pennsylvania law.

The underlying tort action involved a car accident in which intoxicated tortfeasor Karl Zierle injured plaintiff Jared Wolfe.  Wolfe’s counsel submitted a $25,000 settlement demand to Zierle’s insurance company, Allstate.  Believing that Wolfe had “minimal medical treatment, lack of out of pocket expenses, and pre-existing injuries,” Allstate’s claim adjuster authorized Zierel’s counsel, whom Allstate appointed,  to settle the case for only $1,200 – $1,400.  Wolfe rejected the offer and subsequently filed a claim against Zierle.

According to the Third Circuit’s opinion, there was “scant evidence” of communication between the parties regarding a possible settlement from the time the complaint was filed to the pre-trial conference.  Prior to trial, Zierle’s counsel requested that Allstate consider settling the case for $7,500 in light of the fact that the jury could possible hear about Zierle’s past history of driving under the influence. Allstate decline counsel’s request and the case went to trial. The jury awarded Wolfe $15,000 in compensatory damages and $50,000 in punitive damages against Zierle.  Allstate paid the compensatory damages but did not indemnify Zierle for the $50,000 in punitive damages.

Eager to avoid paying $50,000 in punitive damages, Zierle agreed to assign whatever rights he had against Allstate to Wolfe in exchange for Wolfe’s promise not to pursue punitive damages against him.  Wolfe subsequently filed suit against Allstate in the Pennsylvania Court of Common Pleas alleging, among other things, a bad faith claim pursuant to 42 Pa. Cons. Stat. Section 8371. The case was removed to the United States District Court of the Middle District of Pennsylvania based on diversity citizenship.

Allstate filed a motion to dismiss the bad faith claim on the grounds that the claim was not assignable. However, its motion was denied and the jury ultimately found that Allstate violated Pennsylvania’s bad faith insurance statue and awarded Wolfe $50,000 in punitive damages. Allstate appealed the award of damages and the court’s decision to deny its motion to dismiss the bad faith claim.

In its request to the state Supreme Court, the United States Court of Appeals for the Third Circuit explained that there is conflicting precedent on the issue of whether bad faith claims are assignable in both the courts of Pennsylvania and the federal courts within the Third Circuit.   On April 24, 2014, the state Supreme Court issued an order agreeing to decide the issue.

We will continue to follow this interesting issue and will post the Supreme Court’s decision.  Thanks to Sheri Flannery for her contribution to this post.  Please write to Mike Bono for more information.