Haugh v. Allstate Ins Co

Opinions of the United
2003 Decisions States Court of Appeals
for the Third Circuit
2-28-2003
Haugh v. Allstate Ins Co
Precedential or Non-Precedential: Precedential
Docket 01-4197
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PRECEDENTIAL
Filed February 28, 2003
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 01-4197
DENNIS HAUGH
Appellant
v.
ALLSTATE INSURANCE COMPANY
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civ. No. 99-cv-01731)
District Judge: Honorable Gary L. Lancaster
Argued December 17, 2002
BEFORE: SLOVITER, RENDELL, and GREENBERG,
Circuit Judges
(Filed: February 28, 2003)
Vincent A. Coppola (argued)
Pribanic & Pribanic
513 Court Place
Pittsburgh, PA 15219
Attorneys for Appellant
Anthony J. Williott (argued)
Dickie, McCamey, & Chilcote, P.C.
Two PPG Place, Suite 400
Pittsburgh, PA 15222
Attorneys for Appellee
OPINION OF THE COURT
GREENBERG, Circuit Judge:
This matter comes on before this court on an appeal from
an order of the district court entered October 22, 2001,
granting summary judgment in favor of Allstate Insurance
Company in this insurance policy bad faith action
predicated on Allstate’s failure to settle a claim asserted by
appellant Dennis Haugh against its insured, Theodore
Uher. The district court held that the statute of limitations
barred Haugh’s statutory bad faith claim against Allstate
and rejected his argument that as Uher’s assignee he can
assert a separate common law cause of action for breach of
Allstate’s duty to act in good faith toward Uher. For the
reasons set forth herein we disagree with the district court
as we cannot say at this time that the action is time barred
and we conclude that Haugh adequately has pled a viable
common law action. Accordingly, we will reverse the order
of October 22, 2001, and remand the case to the district
court for further proceedings.
I. BACKGROUND
A. FACTUAL AND PROCEDURAL HISTORY
On September 7, 1993, in McKeesport, Pennsylvania,
Uher struck and severely injured Haugh with his
automobile. Uher reported the accident to his insurance
carrier, Allstate, which assigned Veronica Clarke, an
Allstate claims adjuster, to investigate the accident. Based
on a visit to and photographs of the accident scene,
observation of the damage to Uher’s motor vehicle, Uher’s
and an eyewitness’s accounts of the accident, and a police
report Clarke determined that Uher was not liable to
Haugh.
Following this investigation when Haugh’s counsel, Victor
Pribanic, contacted Clarke to discuss Haugh’s claim Clarke
informed him that Allstate had decided to deny the claim
based on its determination that Uher was not liable for the
accident. Pribanic, however, informed Clarke during the
2
conversation that there were several witnesses who would
state that Uher was speeding and had crossed the center
line of the roadway where he hit Haugh. In what ultimately
proved to be a critical step in his representation of Haugh,
Pribanic later wrote Clarke a letter dated March 2, 1994,
indicating that his client would be willing to settle his claim
on the basis of Allstate paying Uher’s policy limit which in
fact was $15,000 for a single injured claimant. The letter
stated that the offer to settle for the policy limits would be
revoked automatically in 30 days if not accepted. Allstate
did not advise Uher of this settlement offer and on March
23, 1994, Clarke, without Uher’s knowledge, sent Pribanic
a letter reiterating Allstate’s position that Uher was not
liable for the accident. Thereafter by letter dated May 16,
1994, Pribanic informed Clarke that the offer to settle for
the policy limits was withdrawn.
Inasmuch as the matter had not been settled, Haugh
filed suit against Uher on July 14, 1994, in the Court of
Common Pleas of Allegheny County, Pennsylvania, seeking
to recover damages for his injuries. Thereafter, Joseph
Toth, an Allstate insurance adjuster assigned to handle the
claim in litigation, informed Uher in writing that Allstate
had hired an attorney to represent him in the suit, the
insurance policy limits of $15,000 might be inadequate for
the amount claimed as damages, a verdict that exceeded
the policy limits would result in personal liability, and he
had the right to retain his own counsel. The letter, however,
did not advise Uher that Allstate had declined to settle the
case for $15,000 before Haugh filed his action. On
September 13, 1995, Allstate reversed its position regarding
settlement as it offered to settle the case with Haugh for the
$15,000 policy limits. Haugh, however, rejected the offer.
Subsequently, Haugh’s case came on for a trial at which he
obtained a verdict on March 13, 1998, for $740,000. 1
_________________________________________________________________
1. Even though Haugh indicates that the verdict against Uher was for
$740,000 the assignment agreement he subsequently reached with Uher
recites that 95% of the verdict was against Uher and 5% was against the
Commonwealth of Pennsylvania, Department of Transportation. On this
appeal we do not explore this discrepancy further as we have no need to
do so.
3
The verdict led to negotiations between Haugh and Uher
resulting in the execution of an assignment agreement on
May 28, 1999, in which Haugh acquired Uher’s right to any
potential bad faith claims against Allstate in exchange for
Haugh’s promise to refrain from executing on the judgment
against Uher. Haugh, however, did not sign this agreement
but rather authorized his sister to sign his name to it and
she did so. Insofar as we are aware neither Haugh nor Uher
ever has challenged the validity of this agreement by reason
of Haugh’s sister having signed it or for any other reason.
On October 22, 1999, Haugh, as Uher’s assignee, filed a
bad faith action against Allstate in the district court
pursuant to the Pennsylvania bad faith statute, 42 Pa.
Cons. Stat. Ann. S 8371 (West 1998),2 claiming that Allstate
exhibited bad faith in failing to settle the claim against
Uher for the $15,000 policy limits. Haugh also advanced a
separate common law cause of action for breach of
Allstate’s contractual duty to act in good faith. 3 Allstate
subsequently moved for and then obtained a summary
judgment on October 22, 2001, the district court granting
its motion on the grounds that Haugh’s claim brought
under the Pennsylvania bad faith statute was subject to a
two-year statute of limitations and was time barred and
that Pennsylvania did not recognize a separate common law
bad faith action predicated on Allstate’s initial refusal to
settle the case. In concluding that the action was time
barred, the district court held that the bad faith claim
accrued at the latest when Pribanic informed Clarke by his
May 16, 1994 letter that he was withdrawing the offer to
_________________________________________________________________
2. Section 8371 provides:
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 attorneys fees against the insurer.
3. Actually the complaint did not refer specifically to the bad faith statute
but the court treated it as making claims both under the statute and at
common law.
4
settle for $15,000. Haugh timely filed a notice of appeal on
November 19, 2001.
B. JURISDICTION
We have jurisdiction over this matter pursuant to 28
U.S.C. S 1291. The district court had subject matter
jurisdiction over this diversity of citizenship case pursuant
to 28 U.S.C. S 1332.
II. DISCUSSION
A. STANDARD OF REVIEW
Our review of the district court’s grant of a motion for
summary judgment is plenary and we apply the same
standard employed by the district court under Fed. R. Civ.
P. 56(c). See Northview Motors, Inc. v. Chrysler Motors Corp.,
227 F.3d 78, 87-88 (3d Cir. 2000). Accordingly, we will
affirm the district court’s grant of summary judgment in
favor of Allstate if it appears that "there is no genuine issue
as to any material fact and that [it] is entitled to a judgment
as a matter of law." Fed. R. Civ. P. 56(c). In reviewing the
record, we are required to view the inferences to be drawn
from the underlying facts in the light most favorable to
Haugh, as the party opposing the motion, and to take his
allegations as true when supported by proper proofs
whenever these allegations conflict with those of Allstate.
See Meritcare, Inc. v. St. Paul Mercury Ins. Co., 166 F.3d
214, 223 (3d Cir. 1999).
B. ACCRUAL OF THE STATUTE OF LIMITATIONS
We first consider when the statute of limitations started
to run.4 The district court found that the "bad faith claim
accrued, at the latest, in 1994 when plaintiff withdrew the
offer to settle the claim for the policy limits." Op. at 8.
While Haugh agrees with the district court that Allstate’s
breach of fiduciary duty "necessarily crystalized on May 16,
1994 when Mr. Haugh withdrew his offer to settle within
the meager limits of Mr. Uher’s auto policy," Br. of
Appellant at 17, Haugh argues that Uher was unaware of
_________________________________________________________________
4. We are deciding all statute of limitations issues in this case under
Pennsylvania law as the parties’ briefs treat that law as applicable.
5
Allstate’s breach of fiduciary responsibility until 1998, well
within the two-year statute of limitations that the district
court applied, and that the district court should have
applied the discovery rule and tolled the running of the
statute of limitations until that time.
In making this contention Haugh views the matter from
Uher’s perspective. We agree with this approach for Haugh
brings this suit as assignee of Uher’s cause of action
against Allstate and thus "stands in [Uher’s] shoes." See
Banks v. Chiffy, 24 Pa. D.&C.4th 340, 343-44 (Ct. C.P.
Dauphin Co. 1995).5 Inasmuch as Haugh does not argue
that the bad faith cause of action did not accrue until after
the excess judgment was rendered, for purposes of this
appeal the bad faith claim against Allstate arose in 1994
when Allstate declined to accept Haugh’s offer to settle for
the policy limits and accordingly Uher could have sued
Allstate at that time.6
The general rule is that the statute of limitations begins
to run as soon as a right to institute and maintain suit
arises, Crouse v. Cyclops Industries, 745 A.2d 606, 611 (Pa.
2000), and, as we have indicated, for purposes of this
appeal Uher could have sued Allstate in 1994 when it
rejected Haugh’s settlement offer. Nevertheless the statute
of limitations may not have started running in 1994
because Pennsylvania law recognizes that "in some
_________________________________________________________________
5. In these circumstances it is not material that Haugh knew in 1994
that Allstate had refused to settle his claim for $15,000 because Haugh
could not have brought this action before Uher assigned his claim to
him. See Brown v. Candelora, 708 A.2d 104, 111-12 (Pa. Super. Ct.
1998).
6. Haugh apparently believes that the bad faith claim against Allstate
accrued in 1994 on the basis of the Superior Court of Pennsylvania’s
decision in Adamski v. Allstate Ins. Co., 738 A.2d 1033 (Pa. Super. Ct.
1999). We nevertheless point out that there is authority holding that an
insured’s claim for its insurer’s bad faith refusal to settle does not
accrue until the excess judgment in the underlying case becomes final.
See, e.g., Torrez v. State Farm Mut. Auto. Ins. Co., 705 F.2d 1192, 1202
(10th Cir. 1982); Boyd Bros. Transp. Co., Inc. v. Fireman’s Fund Ins. Co.,
540 F. Supp. 579, 582 (M.D. Ala. 1982), aff ’d, 729 F.2d 1407 (11th Cir.
1984); Taylor v. State Farm Mut. Auto. Ins. Co. , 913 P.2d 1092, 1095-96
(Ariz. 1996).
6
circumstances, although the right to institute suit may
arise, a party may not, despite the exercise of diligence,
reasonably discover that he has been injured." Id. In such
cases, the discovery rule applies. Id. As the Pennsylvania
Supreme Court explained in Crouse, "[t]he discovery rule is
a judicially created device which tolls the running of the
applicable statute of limitations until the point where the
complaining party knows or reasonably should know that
he has been injured and that his injury has been caused by
another party’s conduct." Id. In disputed cases the trier of
the facts must determine the point at which a party
reasonably should have been aware that he suffered an
injury. See id. Once the running of the statute of limitations
properly is tolled, "only where the facts are so clear that
reasonable minds cannot differ may the commencement of
the limitations period be determined as a matter of law." Id.
Allstate argues that the discovery rule is not applicable
because Uher "was aware that the claim had not been
settled." Br. of Appellee at 14. While it is true that Uher
knew that the claim was proceeding to trial and therefore
had not been settled in 1994, or indeed anytime before
trial, the critical question is when Uher knew or should
have known that Haugh had offered to settle for the policy
limits and Allstate rejected this offer. We are satisfied that
for purposes of Allstate’s summary judgment motion the
discovery rule should be applied to toll the running of the
statute of limitations in this case because Uher’s deposition
testimony makes clear that he was not aware of Haugh’s
offer to settle in 1994. Moreover, Allstate has not offered
evidence to contradict Uher’s deposition. The fact is that we
cannot from the record before us determine conclusively
when Uher knew or should have known of Allstate’s
possible breach of fiduciary obligation in failing to settle
Haugh’s claim thus terminating the tolling of the statute of
limitations on Uher’s claim against Allstate and in
particular cannot say that he knew or should have known
of Allstate’s rejection of Haugh’s settlement offer more than
two years before Haugh brought this case.7 Thus, this
_________________________________________________________________
7. In his deposition Uher testified that he was not aware of Haugh’s offer
at the time it was made, but that he assumed that such information
7
factual matter must be resolved at a trial and the district
court erred in granting Allstate summary judgment. See
Sadtler v. Jackson-Cross Co., 587 A.2d 727, 732 (Pa. Super.
Ct. 1991).
Allstate argues that even if we apply the discovery rule in
this matter "it is very clear that Mr. Uher, at the latest, was
on reasonable notice of facts and circumstances upon
which a possible right of recovery could be based no later
than Allstate’s issuance of a letter to him regarding the
possibility of an excess verdict in July or August, 1994." Br.
of Appellee at 15. We, however, reject a contention that this
letter which did not contain any reference to the specifics of
Haugh’s claim and did not make reference to Haugh’s offer
to settle for the policy limits put Uher on notice that
Allstate might have breached its duty of good faith by
failing to settle the claim for the policy limits.
Finally, Allstate argues that the discovery rule is not
applicable because "Haugh and his counsel ‘manufactured’
this bad faith claim by arbitrarily creating a narrow window
of time during which they claimed they would settle for
policy limits when they knew that Allstate was unwilling
and/or unable to settle for policy limits during that narrow
window." Br. of Appellee at 16. Allstate’s argument is
without merit. First, while Allstate may have been
"unwilling" to settle the claim for the modest $15,000 policy
limits within the 30-day period Pribanic specified we do not
know why it was "unable" to do so for any reason external
to its operations. It does not, after all, point to any
provision of a statute or regulation barring it from settling
the claim. Moreover, we dismiss out of hand any concept
that it can rely on its internal determinations and policies
_________________________________________________________________
reached him "when [he] was given an attorney by Allstate." App. at 64.
When asked whether he remembered that Allstate had hired an attorney
by the name of Susan O’Connell to represent him, Uher replied that he
did not recall Allstate having done so, and that"[i]f they did, I don’t
remember even talking to her. The first one I remember talking to is
John Sieminski." Id. at 66. John Sieminski entered his appearance in
the state court action on Uher’s behalf on February 27, 1998. Haugh
argues that this testimony indicates that Uher remained unaware of
Allstate’s breach of fiduciary duty until 1998. Br. of Appellant at 18.
8
in defense of a contention that it was unable to settle the
claim because Haugh predicates his bad faith action on
those very factors.
In any event, in 1994 Haugh had no way of knowing that
four years later he would prevail in his action against Uher
and that Uher thereafter would execute an assignment
agreement with him so that he would be in a position, as
Uher’s assignee, to sue Allstate for bad faith. In addition, as
Haugh correctly points out, Allstate responded to and
rejected his offer to settle within the time Pribanic specified
in the March 2, 1994 letter and Allstate neither asked for
additional time in which to consider the offer nor attempted
to accept it before Haugh formally withdrew it on May 16,
1994. Reply Br. of Appellant at 14. To the contrary, Allstate
made a conscious determination to reject the offer to settle
and did not make its own offer to pay the policy limits until
18 months after Haugh made his initial offer. Id. During
those 18 months Haugh had to spend time and effort
developing his case that would have been unnecessary if
Allstate had accepted his March 1994 settlement offer. In
the circumstances it is not surprising that when Allstate
finally did offer to settle the claim for $15,000, Haugh
rejected the offer. See Gray v. Nationwide Mut. Ins. Co., 223
A.2d 8, 10 n.5 (Pa. 1966). Overall, we are satisfied that
Allstate’s argument that Haugh manufactured this claim is
not meritorious. Indeed, it should be evident to anyone
studying this case that Allstate by its conduct precipitated
the claim here.
In the circumstances, we hold that the district court
erred when it granted summary judgment on a statute of
limitations basis in the face of Haugh’s invocation of the
discovery rule as the court should not have held as a
matter of law on the record here that the bad faith claim
accrued at the latest when Pribanic informed Clarke on
May 16, 1994, that he was withdrawing his settlement
offer. The question of when Uher knew or should have
known of Allstate’s breach of fiduciary obligation so that
the statute of limitations would start running is a question
of fact to be determined by the trier of the fact. See Sadtler
v. Jackson-Cross Co., 587 A.2d at 732.
9
C. STATUTE OF LIMITATIONS APPLICABLE TO
SECTION 8371 ACTIONS
The next question that we must answer is what statute
of limitations is applicable to this action. In an unfortunate
omission which has caused considerable confusion, the
legislature did not include a statute of limitations in
Pennsylvania’s bad faith statute, 42 Pa. Cons. Stat.S 8371.
Furthermore, the Supreme Court of Pennsylvania has not
determined which of several potential limitation periods
applies to actions under the statute. See Lochbaum v.
United States Fid. & Guar. Co., 136 F. Supp. 2d 386, 387
(W.D. Pa. 2000). The possibilities include the two-year
period applicable to "action[s] upon a statute for a civil
penalty" and tort actions, 42 Pa. Cons. Stat.SS 5524(5),
5524(7) (West Supp. 2001),8 the four-year period applicable
to contract actions, 42 Pa. Cons. Stat. S 5525(8) (West
Supp. 2001),9 and the six-year"catchall" period applicable
to actions that do not fall into an enumerated category and
are not excepted from the application of a limitations
period, 42 Pa. Cons. Stat. S 5527 (West Supp. 2001).10 See
id. at 387-88.
_________________________________________________________________
8. In pertinent part, section 5524 provides:
The following actions and proceedings must be commenced within
two years: . . . (5) An action upon a statute for a civil penalty or
forfeiture . . . (7) Any other action or proceeding to recover damages
for injury to person or property which is founded on negligent,
intentional, or otherwise tortious conduct or any other action or
proceeding sounding in trespass, including deceit or fraud, except
an action or proceeding subject to another limitation specified in
this subchapter.
9. In pertinent part, section 5525 provides:
[T]he following actions and proceedings must be commenced within
four years: . . . (8) An action upon a contract, obligation or liability
founded upon a writing not specified in paragraph (7), under seal or
otherwise, except an action subject to another limitation specified in
this subchapter.
10. Section 5527 provides:
Any civil action or proceeding which is neither subject to another
limitation specified in this subchapter nor excluded from the
application of a period of limitation by section 5531 (relating to no
limitation) must be commenced within six years.
10
In the absence of an opinion from a state’s highest court
on a matter of state law, a federal court determining state
law must predict how that court would rule on the matter
if confronted with it. See Packard v. Provident Nat’l Bank,
994 F.2d 1039, 1046-47 (3d Cir. 1993). In making this
determination, the federal court must consider "relevant
state precedents, analogous decisions, considered dicta,
scholarly works, and any other reliable data tending
convincingly to show how the highest court in the state
would decide the issue at hand." Id. (quoting McKenna v.
Ortho Pharm. Corp., 622 F.2d 657, 663 (3d Cir. 1980)). Of
course, a court of appeals makes a de novo review of a
district court’s determination of state law. Salve Regina
College v. Russell, 499 U.S. 225, 231, 111 S. Ct. 1217,
1221 (1991).
The Pennsylvania state courts that have applied a statute
of limitations in cases involving section 8371 claims have
reached conflicting conclusions. See Susich v. Prudential
Prop. & Cas. Ins. Co., 35 Pa. D. & C.4th 178, 181-82 (Ct.
C.P. Beaver Co. 1998) (applying a two-year period on
ground that bad faith claims fall into both the"civil
penalty" and tort categories); Trujillo v. State Farm Mut.
Auto. Ins. Co., 54 Pa. D.& C.4th 241 (Ct. C.P. Phil. Co.
2001) (applying a six-year period on the ground that bad
faith claims sound in both tort and contract); Mantia v.
Northern Ins. Co. of New York, 39 Pa. D. & C.4th 71 (Ct.
C.P. Lanc. Co. 1998) (applying a six-year period on ground
that bad faith claims embody elements of both tort and
contract).
Likewise, the federal courts in Pennsylvania that have
considered the issue have divided between the two- and six-
year possibilities. See Nelson v. State Farm Mut. Auto. Ins.
Co., 988 F. Supp. 527 (E.D. Pa. 1997);11 Friel v. UNUM Life
Ins. Co. of Am., No. 97-1062, 1998 U.S. Dist. LEXIS 18578
(E.D. Pa. Nov. 17, 1998); McCarthy v. Scottsdale Ins. Co.,
No. 99-978, 1999 U.S. Dist. LEXIS 12899 (E.D. Pa. Aug.
16, 1999); Mantakounis v. Aetna Cas. & Sur. Co. , No. 98-
4392, 1999 U.S. Dist. LEXIS 12214 (E.D. Pa. Aug. 10,
_________________________________________________________________
11. In Northview Motors, 227 F.3d at 90, we cited Nelson with apparent
approval.
11
1999); Liberty Mut. Fire Ins. Co. v. Corry Indus., No. 97-
172E, 2000 U.S. Dist. LEXIS 11735 (W.D. Pa. Mar. 30,
2000); Lochbaum v. United States Fid. & Guar. Co., 136 F.
Supp. 2d 386 (each applying a two-year period), and Woody
v. State Farm Fire & Cas. Co., 965 F. Supp. 691 (E.D. Pa.
1997); Miller v. Cincinnati Ins. Co., No. 97-CV-1223, 1997
U.S. Dist. LEXIS 23725 (E.D. Pa. July 9, 1997) (each
applying a six-year period).
The district court in this case relying on Lochbaum
applied the two-year statute of limitations. The Lochbaum
court determined that Pennsylvania’s bad faith statute
sounded exclusively in tort and therefore concluded that if
the Pennsylvania Supreme Court were presented with the
issue, it would hold that the two-year statute of limitations
applies. See Lochbaum, 136 F. Supp. 2d at 390. We
affirmed the judgment in Lochbaum in a not precedential
opinion and thus the issue is open in this court. Lochbaum
v. United States Fid. & Guar. Co., 265 F.3d 1055 (3d Cir.
2001) (table).
Haugh argues that the district court applied the wrong
statute of limitations and that Pennsylvania’s six-year
"catchall" statute of limitations applies to recovery of
damages for bad faith under section 8371. See Br. of
Appellant at 27. In support of this argument, he suggests
that we should adopt the analysis of the Common Pleas
Court of Philadelphia County in Trujillo, 54 Pa. D. & C.4th
241.12 While we regard certain aspects of the Trujillo court’s
reasoning as convincing, for example its criticism that some
courts that have found that section 8371 sounds in tort
have failed to highlight the similarities between bad faith
claims and contract claims, more significant aspects of its
reasoning are inconsistent with our precedents. For
example, Haugh puts great weight on the fact that Trujillo
discredits those cases that interpret section 8371"as a
legislative attempt to create a ‘new tort’ in response to
_________________________________________________________________
12. The Superior Court of Pennsylvania reversed Trujillo in part and held
that a two-year statute of limitations applied. See No. 269 EDA 2002,
2002 PA Super. LEXIS 2599 (Sept. 3, 2002). The Superior Court,
however, promptly withdrew the opinion. See No. 269 EDA 2002, 2002
PA Super. LEXIS 3705 (Sep. 4, 2002).
12
certain language appearing in D’Ambrosio v. Pennsylvania
Nat’l Mut. Casualty Ins. Co., 431 A.2d 966 (Pa. 1981)." Br.
of Appellant at 27. However, as discussed below, we have
endorsed this interpretation that Trujillo discredits.
Contrary to Haugh’s suggestion that "the Supreme Court
recently laid this issue to rest in Birth Center ", Br. of
Appellant at 28, apparently by recognizing a contractual
basis for a bad faith claim, the majority opinion in Birth
Center v. St. Paul Companies, Inc., 787 A.2d 376 (Pa. 2001),
did not by its treatment of the bad faith claim there point
to the statute of limitations applicable to section 8371
claims. See Birth Center, 787 A.2d at 389. Indeed, contrary
to Haugh’s position, three of the seven justices in Birth
Center made clear their belief that section 8371 sounds in
tort, a conclusion that suggests that a two-year statute
applies. See id. at 390-91.
Justice Nigro was one of the three justices that made
clear his belief that section 8371 sounds in tort. In his
concurring opinion in Birth Center Justice Nigro explained
that section 8371 sounds in tort because the section
"appears to have been enacted in response to D’Ambrosio
and because it permits the insured to recover punitive
damages, which are typically a remedy only in tort actions."13
_________________________________________________________________
13. The following factors also support the application of a two-year
statute of limitations: (1) courts historically have treated bad faith
causes of action as torts, Mantakounis v. Aetna Cas. & Sur. Co., 1999
U.S. Dist. LEXIS 12214, at *13; (2) the nature of a bad faith action
suggests that it is based upon a standard of conduct imposed by society
and is therefore similar to a tort, id. at *13-14; (3) the "emerging
jurisprudence" among the lower courts in Pennsylvania treats an action
for bad faith under section 8371 as a separate and distinct cause of
action from the underlying contract claim, Nelson v. State Farm Mut.
Auto. Ins. Co., 988 F. Supp. at 532; (4) the vast majority of states which
have recognized a cause of action for bad faith have chosen to
characterize the cause of action as a tort, see id. at 533; and (5) courts
have a duty to construe section 8371 so as not to produce an absurd or
unreasonable result; thus, as the court stated in Nelson, "[i]t is hard to
conceive that the Pennsylvania General Assembly could have intended to
provide a six year limitations period for a bad faith claim under S 8371
if the cause of action sounded in areas of the law with only two and four
year limitations periods. Put another way, given the options of two or
four years, it does not strike us as a reasonable reading to add the two
periods together." Id. at 534 n.11.
13
Id. at 391 n.3. We have supported the interpretation of
section 8371 as being a direct response to D’Ambrosio. See
Polselli v. Nationwide Mut. Fire Ins. Co., 23 F.3d 747, 750
(3d Cir. 1994). We also have recognized that under
Pennsylvania law punitive damages are typically a remedy
only in tort actions. See Murray v. Commercial Union Ins.
Co., 782 F.2d 432, 436 (3d Cir. 1986). After considering the
germane precedents we conclude that the district court
correctly predicted that the Supreme Court of Pennsylvania
would hold that an action under section 8371 sounds in
tort and thus is subject to a two-year statute of limitations
under 42 Pa. Cons. Stat. S 5224(7).
D. COMMON LAW BREACH OF CONTRACT CLAIM
In addition to his statutory claim, Haugh asserts that he
has a separate common law cause of action for breach of
the duty to act in good faith in accordance with Cowden v.
Aetna Casualty & Surety Co., 134 A.2d 223 (Pa. 1957), and
its progeny. The district court dismissed the argument in a
footnote, stating: "The Cowden decision, however, predates
the promulgation of the Pennsylvania bad faith statute, and
Pennsylvania no longer recognizes a common law remedy
for bad faith against insurance companies." Op. at 8-9 n.6.
Clearly the district court misstated the Pennsylvania law,
though in fairness it must be stated that we largely reach
that conclusion on the basis of Birth Center, a decision
rendered after the court ruled here. In Birth Center, the
Supreme Court of Pennsylvania’s most recent decision
addressing bad faith failure to settle, the court explicitly
rejected the interpretation of Pennsylvania law that the
district court made here. In Birth Center the insurer argued
that D’Ambrosio barred the plaintiff ’s claim for breach of
the obligation to act in good faith. The Supreme Court
stated that "where an insurer acts in bad faith, by
unreasonably refusing to settle a claim, it breaches its
contractual duty to act in good faith, and its fiduciary duty
to its insured." Birth Center, 787 A.2d at 389. The court
specifically stated that "Section 8371 . . . does not alter The
Birth Center’s common law contract rights . . . . The statute
does not reference the common law, does not explicitly
reject it, and the application of the statute is not
14
inconsistent with the common law. Consequently, the
common law remedy survives." Id. at 386.
Allstate argues that Birth Center "simply broadens the
scope of recoverable compensatory damages for bad faith
under 42 Pa. C.S.A. S 8371 to include contractual type
damages over and above the excess verdict. Birth Center
does not hold that a bad faith action is in the nature of an
assumpsit action." Br. of Appellee at 18. But contrary to
Allstate’s argument, the majority opinion and Justice
Nigro’s concurring opinion in Birth Center make clear that
section 8371 does not supply the exclusive cause for action
for suing an insurer for breach of the duty to act in good
faith and make clear that an insurer’s bad faith refusal to
settle a claim can give rise to a contract cause of action.14
While, as we have indicated, the Supreme Court decided
Birth Center after the district court released its
memorandum and order on summary judgment in this
case, the Supreme Court made clear that its discussion
regarding the survival of the common law contract claim
confirmed existing Pennsylvania law and was not a change
in law.15 In addition, in Birth Center the Supreme Court
affirmed the Superior Court which issued a decision that
indicated, contrary to the district court’s decision in this
case, that it was at that time "well-settled Pennsylvania
law" that insurers have a contractual duty to act in good
faith when making decisions to settle. See Birth Center v.
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14. The majority opinion in Birth Center states that "[t]he dissent would
hold that an insurer’s bad faith refusal to settle a claim against its
insured does not give rise to a contract cause of action. For the reasons
set forth in this opinion, we respectfully disagree." Birth Center, 787 A.2d
at 389. Justice Nigro wrote separately to emphasize his belief that "the
law in this Commonwealth establishes that there are two separate ‘bad
faith’ claims that an insured can bring against an insurer-- a contract
claim for breach of the implied contractual duty to act in good faith, and
a statutory bad faith tort claim . . . under 42 Pa. C.S. S 8371." Id. at 390.
15. In a footnote the court noted that Justice Cappy, in his concurring
opinion in Johnson v. Beane, 664 A.2d 96, 101-02 (Pa. 1995), correctly
examined this issue. Birth Center, 787 A.2d at 386 n.12. In Johnson
Justice Cappy observed that "for almost four decades, we have
recognized a common law action for bad faith sounding in contract."
Johnson v. Beane, 664 A.2d at 101.
15
St. Paul Cos., Ins., 727 A.2d 1144, 1159 n. 9 (Pa. Super. Ct.
1999). The Supreme Court’s decision in Birth Center makes
clear that even if it ultimately is held that the statute of
limitations bars Haugh’s section 8371 claim this bar will
not impair his right as Uher’s assignee to recover a
deficiency judgment from Allstate under a breach of
contract theory. Rather, he may have a viable contract
claim as Pennsylvania’s statute of limitations with respect
to express contracts or contracts implied in law is four
years. 42 Pa. Cons. Stat. S 5525.16
E. WHETHER ALLSTATE ACTED IN GOOD FAITH
Although the district court did not address this issue,
Allstate argues that it was entitled to summary judgment
for Haugh cannot show, by clear and convincing evidence,
that Allstate acted in bad faith with respect to its insured,
Uher. Br. of Appellee at 20. As the Superior Court explained
in Birth Center, an insurer assumes a fiduciary
responsibility towards its insured and therefore is obligated
to act in good faith and with due care when it represents
the interests of the insured when dealing with third-party
claims brought against the insured. See Birth Center, 727
A.2d at 1155. Thus, "Pennsylvania law makes clear that an
insurer may be liable regardless of the limits of the policy
for the entire amount of the judgment entered against the
insured if it unreasonably refuses an offer of settlement."
Id. at 1157.
While it is true that an insurer is not under an absolute
duty to settle a claim when a possible judgment against the
insured may exceed the amount of coverage, LaRocca v.
State Farm Mutual Automobile Insurance Co., 329 F. Supp.
163, 168 (W.D. Pa. 1971), we are satisfied that under
Pennsylvania law an insurer does not comply with the good
faith standard when it refuses to settle merely because it
believes that its insured is not liable for the claim asserted.
See Shearer v. Reed, 428 A.2d 635, 638 (Pa. Super. Ct.
1981). "An insurer does not satisfy the good faith standard
_________________________________________________________________
16. It is possible, of course, that a contractual claim could be barred by
the statute of limitations here as Haugh brought this action more than
four years after Allstate rejected his settlement offer.
16
merely by showing that it acted with sincerity." Birth
Center, 727 A.2d at 1156.
Allstate believes that it had "a reasonable basis for
denying Mr. Haugh’s claim" because it "properly and
thoroughly investigated this accident." Br. of Appellee at 21.
Allstate argues that it is entitled to summary judgment
because "[a]ll that is required is that the claim denial, when
made, had a reasonable foundation." Id. at 22.
Pennsylvania law, however, requires more. Even assuming
that the quality of Allstate’s investigation was reasonable,
which Haugh disputes, and that Allstate had a reasonable
basis for believing that Uher was not liable for the injuries
attributable to the accident, there were other factors that
Allstate was required to assess before refusing the offer to
settle within policy limits. See Shearer, 428 A.2d at 638.
Yet the record can support a conclusion that Allstate based
its decision to reject Haugh’s offer to settle for the policy
limits on the sole factor that it did not believe Uher was
liable for the accident. App. at 45.
In fact, an insurer acting in good faith must consider "all
of the factors bearing upon the advisability of a settlement
for the protection of the insured." Shearer , 428 A.2d at 638
(quoting Rova Farms Resort, Inc. v. Investors Ins. Co. of
Am., 323 A.2d 495, 503 (N.J. 1974)). As the court stated in
Shearer, "[w]hile the view of the carrier or its attorney as to
liability is one important factor, a good faith evaluation
requires more. It includes consideration of the anticipated
range of a verdict, should it be adverse; the strengths and
weaknesses of all of the evidence to be presented on either
side so far as known; the history of the particular
geographic area in cases of similar nature; and the relative
appearance, persuasiveness, and likely appeal of the
claimant, the insured, and the witnesses at trial." Id.
(quoting Rova Farms, 323 A.2d at 503-04). Therefore,
Haugh is correct that there is at least a question of fact on
this record as to whether Allstate’s refusal to accept
Haugh’s offer was reasonable and therefore in good faith.
Haugh argues that Allstate’s failure to timely apprise
Uher of Haugh’s 1994 settlement offer provides a separate
basis upon which a jury could conclude that Allstate did
not discharge its duty of good faith. Reply Br. of Appellant
17
at 6. Because an insured contractually surrenders
responsibility to its insurance company for defense of the
underlying claim, the duty of good faith and fair dealing
requires that the insurer reasonably inform the insured of
significant developments bearing on the settlement of
claims against the insured. See WALL, LITIGATION AND
PREVENTION OF INSURER BAD FAITH S 3.03 (2d ed.
1994).17
Indeed, a failure to notify the insured of significant
settlement negotiations is a contravention of Allstate’s own
policy manual18 and Joseph Toth, the Allstate adjuster who
handled Haugh’s claim against Uher in litigation, testified
that Allstate’s failure to notify Uher of the settlement offer
did not comport with his understanding of Allstate’s good
faith obligations. App. at 57-58. As Haugh points out,
Allstate’s failure to notify takes on additional significance
given that it occurred before Allstate apprised Uher that he
could retain private counsel to oversee his interests. Reply
Br. of Appellant at 6. Haugh is correct that Allstate’s failure
to inform Uher of Haugh’s settlement offer could constitute
evidence of bad faith. See Smith v. General Accident Ins.
Co., 697 N.E.2d 168, 171 (N.Y. 1998); Annot., 40 A.L.R. 2d
168, S 17; WALL, LITIGATION AND PREVENTION OF
INSURER BAD FAITH S 3.07 (2d ed. 1994).
Finally, there is no merit to Allstate’s suggestion that it
might have been acting in bad faith if it had accepted
Haugh’s offer to settle for the policy limits. See Br. of
Appellee at 22. As Haugh points out, the cases that Allstate
cites in support of this argument are inapposite as the
insureds’ interests involved in those cases, Bleday v. OUM
Group, 645 A.2d 1358 (Pa. Super. Ct. 1994), and Maguire v.
_________________________________________________________________
17. Wall defines the insurer’s duty more expansively to require it
"continually" to inform the insured of "all" developments but we doubt
that the Supreme Court of Pennsylvania would go that far.
18. Allstate’s policy manual provides in relevant part that "in any suit in
which it appears probable that an amount in excess of the limit of the
policy is involved, the company or its attorney should inform the insured
or any additional attorney retained by the insured at his own expense of
significant settlement negotiations, whether within or beyond the limits
of the policy." App. at 80.
18
Ohio Casualty Insurance Co., 602 A.2d 893 (Pa. Super. Ct.
1992), are completely dissimilar to Uher’s in this case.
Reply Br. of Appellant at 9. Indeed, we hardly can conceive
that if Allstate had sought Uher’s views on whether it
should settle for $15,000 when Haugh offered that
settlement, that Uher would not have urged it to do so.19
We are satisfied that there is sufficient evidence to create
a genuine issue of material fact as to whether or not
Allstate acted in good faith. This evidence includes: (1)
proof that Allstate did not consider factors other than
liability, including the impact that the failure to settle
would have on Uher given the serious personal injuries
suffered by Haugh and the minimal policy limits; (2)
Allstate’s failure to timely notify Uher regarding Haugh’s
settlement offer; and (3) evidence that Allstate may have
done a less than satisfactory investigation as to liability.20
F. THE ASSIGNMENT
Allstate also argues that it is entitled to summary
judgment on the theory that the agreement by which Uher
assigned his rights against Allstate to Haugh is invalid.
Under Pennsylvania law an insured’s claims against his
insurer for breach of contract and breach of fiduciary duty,
and his claims under section 8371 for punitive damages,
counsel fees and interest are assignable. Brown v.
Candelora, 708 A.2d 104, 112 (Pa. Super. Ct. 1998). While
the Supreme Court of Pennsylvania has not decided the
issue, the Pennsylvania Superior Court has held that an
injured third-party claimant is prohibited from asserting a
bad faith action against the tortfeasor’s insurance company
unless these rights have been expressly assigned by the
policyholder. See id. at 111-12. Thus, if we held that the
assignment was invalid Allstate would be entitled to
summary judgment.
_________________________________________________________________
19. Of course, Allstate does not suggest that it needed Uher’s permission
to settle Haugh’s claim for $15,000 in 1994 or later when it attempted
to do so.
20. Haugh argues that "Ms. Clarke’s investigation was tantamount to no
investigation at all." Reply Br. of Appellant at 7. The evidence in the
record is not sufficient for us to determine whether or not Allstate
adequately investigated Haugh’s claim.
19
Allstate predicates its argument that the assignment
agreement between Uher and Haugh is invalid and
unenforceable on the theory that Haugh, instead of signing
the agreement himself, authorized his sister to sign his
name to the agreement. As Haugh points out, Allstate’s
argument is based on an assumption that Uher would not
have executed the assignment had he known that Haugh
had not in fact signed the agreement himself21 and this
contention raises a question of fact that cannot be resolved
on a motion for summary judgment. See Reply Br. of
Appellant at 15.
III. CONCLUSION
For the foregoing reasons, we will reverse the order of
October 22, 2001, and remand the matter to the district
court for further proceedings.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
_________________________________________________________________
21. It seems highly unlikely that Uher would prefer, as Allstate’s
argument suggests, not to be bound by the assignment agreement and
instead to be subject to a massive deficiency judgment.
20