Allstate Insurance recently reached a settlement in a bad faith case for $22 million — the largest bad faith settlement recorded in Pennsylvania.

The underlying suit was brought by Patrick Hennessy, who lost his leg in a 2009 auto accident while a passenger of Ryan Caruso.  After Caruso rear-ended another car, Hennessy stepped outside to help push the other car from the road and was hit by a third car (who had no insurance).  Caruso was covered under a $250,000 Allstate policy, and Hennessy offered to settle with Allstate for policy limits, otherwise threatening to sue the Carusos and execute judgment on their personal assets.

Allegedly, Allstate failed to advise the Carusos that Hennessy was willing to settle his claim for the policy limit and did not respond to certain letters from its insured.  Hennessy later filed suit in the Philadelphia Court of Common Pleas in February 2011.  Right before jury selection, Hennessy rejected Allstate’s $250,000 settlement offer, instead demanding $5 million.  The case proceeded to trial which resulted in a verdict of $19.1 million dollars.

Thanks to Thalia Staikos for her contribution to this post.  Please write to Mike Bono for more information.

Caruso assigned his rights against Allstate to Hennesy following the trial. When Allstate refused to pay the judgment, Hennessy brought a bad faith action in the Philadelphia Court of Common Pleas. Allstate attempted to remove the case to federal district court in Philadelphia, but Hennessy joined certain Pennsylvania Allstate employees as defendants, thus defeating diversity jurisdiction which would make removal to federal court appropriate. Judge Stengel of the United States District Court for the Eastern District of Pennsylvania denied Allstate’s motion for removal, stating that all claims against the joined defendants were valid since they were specific to the employees’ conduct and were not frivolous.

In light of this ruling, Allstate decided to settle with Hennessy this fall for $22 million (which included interest and the like) rather than proceed to trial on its bad faith claims.