Here is an interesting question; can a policyholder assign their bad faith claim to someone else? I will discuss several states’ laws on this issue in upcoming posts. Recently the Pennsylvania Supreme Court said yes they can.1

The case involved a liability claim where the injured driver sued the negligent driver’s insurance carrier claiming its refusal to settle was in bad faith. The case was removed to federal court and following a jury trial, the driver was awarded $50,000 in punitive damages. Allstate appealed the outcome and the Third Circuit Court of Appeals sent a certified question to the Pennsylvania Supreme Court. That question was:

Under Pennsylvania law, can an insured tortfeasor assign his or her bad faith claim against an insurer, under 42 Pa. Cons. Stat. § 8371, to an injured third-party?

The injured driver pursued the bad faith action under an assignment he obtained from the negligent driver which was an “assignment of all claims arising under the policy which he might possess against Allstate.” He sought damages under Pennsylvania’s common law bad faith and statutory bad faith that provides for punitive damages. The Pennsylvania Supreme Court reviewed the language of the statute and noticed that it says nothing about assignability of claims. The Court further noted that the statute says “in an action arising under an insurance policy.” The Court noted this language weaves the statutory remedial scheme into the realm of contract-based actions that already were assignable under common law. However, the Court noted that it is a little more complex than that because the remedies imposed by the statute are those typically associated with tort law and the question arises with purely personal tort claims whether they can be assigned to another.

After a good discussion of these principles, the Pennsylvania Supreme Court concluded that an insured can assign their right to damages for bad faith claims handling under the statute to a third party.
1 Allstate Prop. & Cas. Ins. Co. v. Wolfe, 2014 WL 7088147 (Pa. Sup. Crt. December 15, 2014).