Pennsylvania Supreme Court Holds that Statutory Insurance Bad Faith Claims Are Assignable

Deciding a certified question from the United States Court of Appeals for the Third Circuit, Pennsylvania’s Supreme Court ruled on December 15, 2014 that insurance bad faith claims arising under 42 Pa. C. S. § 8371 (1990) are freely assignable.

In Allstate Property and Cas. Ins. Co. v. Wolfe, No. 39 MAP 2014, Allstate was alleged to have acted in bad faith when an insured motorist suffered a $50,000 punitive damages award after Allstate failed to settle the claim within policy limits. After Allstate refused to pay the punitive damages award, the insured assigned its putative insurance bad faith claim to the tort victim/judgment creditor in exchange for a covenant not to execute against the insured motorist. Allstate argued that statutory bad faith claims are unliquidated personal tort claims that are unassignable under Pennsylvania law as a matter of public policy. The district court disagreed, relying on a line of state Superior Court and federal district court cases holding that such claims were assignable. On appeal, the Third Circuit certified the question to the Pennsylvania Supreme Court.

While the Court recited the competing public policy arguments advanced by the parties and their amici, the Court ultimately treated the case as involving an issue of statutory interpretation. The Court noted that, prior to the enactment of Section 8371, Pennsylvania’s courts had viewed claims of insurance “bad faith” through the lens of contractual claims, which historically were freely assignable. From that, the Court concluded that in enacting the statute, which provided additional remedies of punitive damages, attorneys’ fee-shifting, and presumptively-enhanced prejudgment interest, the legislature intended to supplement the pre-existing contract-based claims, not transform them into non-assignable tort claims.

Centrally, we simply do not believe the General Assembly contemplated that the supplementation of the redress available for bad faith on the part of insurance carriers in relation to their insureds would result either in a curtailment of assignments of pre-existing causes of action in connection with settlements or the splitting of actions. . . . Our fundamental conclusion here is, simply, that we discern 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.

Chief Justice Castille dissented without opinion from the Court’s 5-1 decision.