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The Insurance Coverage Law Information Center
PENNSYLVANIA SUPREME COURT HOLDS POLICYHOLDERS
MAY ASSIGN THEIR STATUTORY RIGHT TO RECOVER PUNITIVE
DAMAGES ARISING FROM INSURER’S BAD FAITH
Sara N. Brown and Roberta D. Anderson
March 2, 2015
In an issue of first impression, the Pennsylvania Supreme Court recently held in Allstate Prop. & Cas. Ins. Co. v. Wolfe[1]
that a policyholder may assign statutory bad faith claims under Pennsylvania’s bad faith statute, Section 8371,[2] to a third
party claimant.
Importantly, Wolfe resolves the conflict among Pennsylvania and federal decisions regarding the assignability of the right
to recover statutory bad faith damages, and allows assignees to seek punitive damages under the statute against an
insurer who acts in bad faith.
Background
In Wolfe, the insured, Jared Wolfe, was injured in a car collision caused by a drunk driver (Karl Zierle) who was insured
under an insurance policy issued by Allstate Property and Casualty Insurance Company (“Allstate”), with limits of $50,000.
Mr. Wolfe demanded half of the policy’s limits ($25,000), refused Allstate’s counteroffer ($1,200), and subsequently
brought suit against Zierle seeking compensatory and punitive damages. Mr. Wolfe won, obtaining a verdict for $15,000
in compensatory damages and $50,000 in punitive damages. Allstate paid only the compensatory portion of the award.
Thereafter, Mr. Wolfe and Mr. Zierle entered into an agreement related to the punitive-damages portion of the award
in which Mr. Zierle assigned his policy rights to Mr. Wolfe in exchange for Mr. Wolfe’s forbearance from executing on
the judgment.
Wolfe brought an action against Allstate alleging that Allstate’s refusal to settle was in bad faith and seeking damages
under both common-law contract theory and Section 8371.[3] Allstate argued that Wolfe lacked standing to pursue
damages under Section 8371, on the purported basis that “Section 8371 created a form of an unliquidated tort claim”
and “per longstanding Pennsylvania law, unliquidated tort claims generally are personal and cannot be assigned to third
parties.”[4] The district court disagreed, and the jury awarded Mr. Wolfe $50,000 in punitive damages. Upon Allstate’s
appeal, and in light of the conflict among Pennsylvania and federal courts, the Third Circuit lodged a certification to the
Supreme Court of Pennsylvania to clarify “whether, under Pennsylvania law, an insured may assign the right to recover
damages [arising from an insurer’s] bad faith toward the insured,” which the court granted.[5]
Supreme Court of Pennsylvania Decision
Finding that the statute’s plain language did not expressly address the assignability of claims, the court engaged in
statutory construction to determine the Legislature’s intent.[6] The court rejected Allstate’s (and its amici’s) arguments
that these sort of assignments should not be sanctioned by courts in the absence of express legislative approval and
determined instead that “the Legislature apparently was satisfied to leave in place the contract overlay which this court
had imposed on insurance bad-faith litigation, but it chose to interpose additional conventions typically associated with
tort law[.]”[7] The court concluded that “that the entitlement to assert damages under Section 8371 may be assigned by
an insured to an injured plaintiff and judgment creditor such as Wolfe” and invited the Legislature to implement curative
measures if the court’s assessment was incorrect.
Conclusion
Wolfe protects Pennsylvania’s public policy favoring settlement by eviscerating the arguably artificial distinction between
contractual versus statutory bad faith remedies where the insurer’s underlying conduct is the same. Further, it provides
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policyholders with an additional bargaining chip (i.e., the ability to assign the totality of their rights) when settling with
third party claimants. Wolfe also empowers assignees by putting them on more equal footing with an insurer during
settlement negotiations. As such, Wolfe should be viewed as a welcomed addition to Pennsylvania’s insurance coverage
jurisprudence.
Endnotes
[1] Allstate Prop. & Cas. Ins. Co. v. Wolfe, No. 39 MAP 2014 (Pa. 2014).
[2] Section 8371 provides that:
In an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith toward the
insured, the court may take all of the following actions:
(1) Award interest on the amount of the claim from the date the claim was made by the insured in an amount equal
to the prime rate of interest plus 3%.
(2) Award punitive damages against the insurer.
(3) Assess court costs and attorney fees against the insurer.
42 Pa. Cons. Stat. Ann. § 8371.
As explained by the Court, Section 8371 “serve[s] to supplement the remedies previously available to insureds in certain
scenarios involving bad-faith conduct by their insurers, inter alia, by authorizing punitive-damages awards.” Wolfe, No. 39
MAP 2014, at *3.
[3] Wolfe also asserted a claim under Pennsylvania’s Unfair Trade Practices and Consumer Protection Law, 73 P.S. §§ 201-1
to -9.3, which was not a part of the court’s review.
[4] Wolfe, 39 MAP 2014, at *3.
[5] Id. at *1.
[6] Id. at *10–*12.
[7] Id. at *10–*11.
About The Authors
Sara N. Brown is an associate at K&L Gates LLP, concentrating her practice in commercial litigation, with a particular focus
on insurance coverage litigation. She may be contacted at sara.brown@klgates.com.
Roberta D. Anderson is a partner at K&L Gates LLP, where she is a member of the firm’s global Insurance Coverage
practice group, and a co-founder of the firm’s global Cyber Law and Cybersecurity practice group. She may be contacted at
roberta.anderson@klgates.com.
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