DECEMBER 2014 BAD FAITH CASES: PENNSYLVANIA SUPREME COURT RULES THAT STATUTORY BAD FAITH CLAIMS MAY BE ASSIGNED, FOCUSING ON LEGISLATIVE INTENT AND REMEDIAL NATURE OF STATUTE (Supreme Court of Pennsylvania)

In Allstate Property and Casualty Ins. Co. v. Wolfe, the Third Circuit had certified the issue to the Supreme Court of Pennsylvania as to whether an insured may assign the right to recover damages from his insurance company deriving from the insurer’s bad faith toward the insured, under 42 Pa.C.S. § 8371.  District Courts in the Third Circuit had split on the issue of whether relief under section 8371 represented an unliquidated tort claim which could not be assigned under Pennsylvania; a number finding no assignment possible under this theory.  Other Third Circuit and District Court cases found that section 8371 claims could be assigned, following Superior Court precedent.  The parties asserted various policies reasons for and against assignment.

The Supreme Court found that the “most appropriate way to approach the assignability issue is as a matter of statutory construction,” i.e., determining legislative intent.  The Court found it highly important to consider “the extant common law at the time of a statute’s enactment.”  The Court found that section 8371’s statutory language, “[i]n an action arising under an insurance policy,” was significant in interpreting the statute.  It interpreted that phrase as “interweav[ing] the statutory remedial scheme into the array of contract-based actions which already were assignable under the extant common law as of Section 8371’s enactment.”

The Court stated: “As such, to the degree that Section 8371 is regarded as ‘merely provid[ing] an additional remedy and authoriz[ing] the award of additional damages,’ Birth Center, 567 Pa. at 402, 787 A.2d at 386, this would seem to be a simple case. Per this line of reasoning, the Legislature’s mere supplementation of remedies should not be deemed to evince an unstated desire to disrupt the pre-existing degree of latitude in the assignment of underlying actions or to require the splitting of causes of action ….”

The Court then observed that the issue, however, was not so simple because of the intermingling of contract and tort concepts.  The Legislature had left in place the pre-statute Supreme Court case law which had placed a contract overlay on insurance bad faith claims, “but it chose to interpose additional conventions typically associated with tort law….”  The insurer opposing assignment was seen as reasonably relying on that phenomenon in making its argument.  However, it did not carry the day.

The Court ruled that: “On balance … we find that consideration of the occasion and necessity for Section 8371, the object to be attained, the previous legal landscape, as well as the consequences of our interpretation, favor” permitting assignment. The Court did not believe that the Legislature “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.”  The Court observed that if the Legislature found the Court’s interpretation incorrect, it “may seek to implement curative measures pertaining to future cases, subject to constitutional limitations.”

In addition to the holding, it is significant to observe that the Court focused on section 8371 as a remedial law, serving “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.”

Finally, there is much to be said for what can be achieved through the certification process, where the Third Circuit and Supreme Court work together to clarify issues in the law that otherwise could linger for years.  This is true in any context, but there are other issues in Pennsylvania’s statutory bad faith law, e.g., the split in the various courts over the extent to which the Unfair Insurance Practices Act may be considered in the statutory bad faith cases, in which such a process would be helpful to litigants and lower courts required to follow Pennsylvania.

Date of Decision:  December 15, 2014

Allstate Property and Casualty Insurance Company v. Wolfe, No. 39 MAP 2014 (Pa. Dec. 15, 2014)