The Assignment Of Pennsylvania Statutory Bad Faith Claims: The Supreme Court Rules In Allstate Property And Casualty Ins. Co. v. Wolfe

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...