The Third Circuit has held that punitive damages cannot be awarded in a bad faith case against an insurer.  In Wolfe v Allstate, the plaintiff was injured when he was struck by a drunk driver.  Plaintiff sued the drunk driver and was awarded compensatory and punitive damages.

The driver’s insurer paid the compensatory damages.  However, the policy did not provide coverage for punitive damages, thus the insurer did not pay the punitive damages award.  The driver assigned his rights against its insurer to the plaintiff who filed an action against the insurer alleging bad faith and breach of contract for Allstate’s failure to pay the punitive damages award.  The court ruled that in a bad faith action, the plaintiff is not entitled to recover as compensatory damages the punitive damages that were awarded in an underlying lawsuit.

Thus, this case stands for the proposition that under Pennsylvania law, evidence of punitive damages should not be admitted in an insured’s bad faith claim against its insurer, as punitive damages cannot be awarded in a bad faith case.

Thanks to Colleen Hayes for her contribution to this post.