The Pennsylvania Supreme Court recently clarified in
Allstate Property and Casualty Ins. Co. v. Wolfe, No. 39
MAP 2014, 2014 WL 7088147 (Pa. Dec. 15, 2014) that statutory bad
faith claims brought against insurers under 42 Pa. Cons. Stat.
§ 8371 can be assigned by insureds to injured third-party
claimants. The decision originated from a certified question from
the United States Court of Appeals for the Third Circuit.
Some background explains the conflicted decisions that gave rise to
the Third Circuit's request for guidance. Historically, bad
faith claims against insurers were grounded in contract law.
D'Ambrosio v. Pennsylvania Nat'l Mut. Cas. Ins.
Co., 431 A.2d 966 (Pa. 1981)(declining to create a tort of bad
faith to allow tort remedies). Accordingly, the insured – not
the third-party claimant – was the party injured by an
insurer's bad faith claim handling. Strutz v. State Farm
Mut. Ins. Co., 609 A.2d 569, 571 (Pa. Super. 1992)("the
duty to negotiate a settlement in good faith arises from the
insurance policy and is owed to the insured, not to a third-party
claimant.").
Reputedly in response to D'Ambrosio, the
Pennsylvania legislature enacted 42 Pa. Cons. Stat. § 8371,
the so-called statutory bad faith claim authorizing punitive
damages and attorneys fees. The Pennsylvania Supreme Court in
Ash v. Continental Ins. Co., 932 A.2d 877, 885 (Pa. 2007)
ruled that § 8371 claims sound primarily in tort. Notably,
§ 8371 confirms the insured's standing for statutory bad
faith claims because it applies to "action[s] arising under an
insurance policy," and requires that "the insurer has
acted in bad faith toward the insured." 42 Pa. Cons. Stat.
§ 8371 (emphasis added); see also Ash, 932 A.2d at
882 (§ 8371 "only permits a narrow class of plaintiffs to
pursue the bad faith claim against a narrow class of
defendants").
The conflict addressed by Allstate stemmed from federal
reliance on Ash's pronouncement that § 8371
sounded in tort and Pennsylvania authority precluding the
assignment of unliquidated tort claims. Some federal courts
concluded that § 8371 claims were not assignable. Feingold
v. Liberty Mutual Group, 847 F. Supp. 2d 772, 776 (E.D. Pa.
2012), aff'd, 562 Fed. Appx. 142 (3d Cir. 2014); Canale v.
Allstate Prop. And Cas. Ins. Co., No. 13-4398, 2013 WL 1002133
(E.D. Pa. Nov. 21, 2013). In contrast, the Pennsylvania Superior
Court has written that bad faith claims for amounts above policy
limits can be assigned. See Brown v. Candelora, 708 A.2d
104 (Pa. Super. 1998).
Allstate resolved this conflict in favor of the assignability. Rather than addressing the distinction between assigning contract and unliquidated tort claims, the Court relied on the legislative intent behind § 8371 discerned through statutory construction. The Court cited § 8371's purpose as a remedial statute woven into the framework of a pre-existing contract-based remedy. Although § 8371 does not expressly allow assignment, neither does it prohibit assignment, and the legislature must have been aware that contractual bad faith claims were assignable prior to § 8371. The reference in § 8371 to "an action under an insurance policy" further suggests an intersection of tort remedies and contract principles that should not disrupt the pre-existing availability of assignment. The Court reasoned that precluding assignment would not be in harmony with the legislature's overt efforts to broaden remedies through § 8371. The Court in Allstate made the "fundamental conclusion" that – based on § 8371's statutory objectives, the pre-existing legal landscape, as well as the potential consequences of its interpretation – "it discern[ed] no legislative intent to preclude the assignability of damages claims under Section 8371." Id. 2014 WL 7088147 at *5 n.9.
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