26 January 2015
Practice Group:
Insurance Coverage
Pennsylvania Supreme Court Holds Policyholders
May Assign Their Statutory Right to Recover
Punitive Damages Arising from Insurer’s Bad Faith
By Sara N. Brown
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.
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
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 punitivedamages 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.
Pennsylvania Supreme Court Holds Policyholders May
Assign Their Statutory Right to Recover Punitive Damages
Arising from Insurer’s Bad Faith
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
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 policyholders with an additional
bargaining chip (i.e., the ability to assign the totality of their rights) when settling with thirdparty 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.
Author:
Sara N. Brown
sara.brown@klgates.com
+1.412.355.7426
Additional Contacts:
David F. McGonigle
david.mcgonigle@klgates.com
+1.412.355.6233
Roberta D. Anderson
roberta.anderson@klgates.com
+1.412.355.6222
4
Wolfe, 39 MAP 2014, at *3.
5
Id. at *1.
6
Id. at *10–*12.
7
Id. at *10–*11.
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Pennsylvania Supreme Court Holds Policyholders May
Assign Their Statutory Right to Recover Punitive Damages
Arising from Insurer’s Bad Faith
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