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January 20, 2015

Rejecting the holdings of two recent decisions by the Eastern District of Pennsylvania, the Supreme Court of Pennsylvania held in a 5-to-1 ruling that claims under Pennsylvania’s Bad Faith Statute (42 Pa.C.S. § 8371) are assignable to injured third parties. The decision, Allstate Prop. & Cas. Ins. Co. v. Wolfe, 2014 Pa. LEXIS 3309 (Pa. Dec. 15, 2014), considered the case of Jared Wolfe, who was injured in a car accident after being struck by Karl Zierle’s vehicle. At trial, Wolfe was awarded $15,000 in compensatory damages, as well as $50,000 in punitive damages. When Zierle’s insurer, Allstate, failed to pay the punitive damage award, Zierle assigned his rights against Allstate to Wolfe, who then brought suit against Allstate. The matter was eventually appealed to the Third Circuit, which then certified the question of whether bad faith claims are assignable to the Pennsylvania Supreme Court.

The confusion existed because of the Pennsylvania Supreme Court’s decision in Ash v. Continental Insurance Co., 593 Pa. 523, 932 A.2d 877 (2007), in which the Court held that an action under Section 8371 is a statutorily-created tort claim. Non-liquidated tort claims are personal and generally cannot be assigned to third parties under Pennsylvania law. Neither can causes of action in the nature of a penalty. See Sensenig v. Pa. R.R. Co., 229 Pa. 168, 172, 78 A. 91, 91 (1910). However, an earlier decision of the Pennsylvania Superior Court held that “an insured’s claims against his or her insurer, in the nature of breach of contract, breach of fiduciary duty, and bad faith, as well as claims under Section 8371 of the Judicial Code for punitive damages, counsel fees and interest, are assignable.”  Brown v. Candelora, 708 A.2d 104, 111 (1998). The Pennsylvania Supreme Court resolved this apparent discrepancy by resorting to statutory construction, finding that there was “no legislative intent to preclude assignability of damages claims under Section 8371 to the degree these have been reposited into a pre-existing liability scheme which permits assignments.”

The Court ended its opinion with the invitation to the Legislature to “implement curative measures pertaining to future cases” if it did not agree with the ruling. It is very unlikely that the General Assembly will accept the Court’s invitation to play Scrooge anytime soon, however.

For any further questions, please contact Richard Gable, Jr.