Allstate Prop & Casualty Ins Co, Aplt v. Wolfe, J.

[J-63-2014]
IN THE SUPREME COURT OF PENNSYLVANIA
MIDDLE DISTRICT
CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, STEVENS, JJ.
ALLSTATE PROPERTY AND CASUALTY : No. 39 MAP 2014
INSURANCE COMPANY, :
:
Appellant : Appeal from the Order granting Petition
: for Certification of Question of Law
v. :
:
JARED WOLFE, :
:
Appellee : SUBMITTED: July 18, 2014
OPINION
MR. JUSTICE SAYLOR DECIDED: December 15, 2014
We accepted certification from a federal appeals court to clarify whether, under
Pennsylvania law, an insured may assign the right to recover damages from his
insurance company deriving from the insurer’s bad faith toward the insured.
In 2007, Jared Wolfe was injured when his vehicle was struck from behind by an
automobile driven by Karl Zierle. Wolfe attributed blame to Zierle and demanded
$25,000 from Zierle’s insurer carrier, Appellant Allstate Property and Casualty Insurance
Company, equating to half the liability limits under the applicable policy. Allstate
counteroffered $1,200, which Wolfe refused.
Wolfe then instituted a personal injury action against Zierle seeking
compensatory damages grounded in negligence. Allstate assumed Zierle’s defense
while maintaining its additional right, under the policy, to effectuate a settlement. See
Allstate Prop. & Cas. Ins. Co. Auto Policy, R.R. at 442a (“We may settle any claim or
suit if we believe it is proper.”).
In discovery, Wolfe confirmed that Zierle had been intoxicated at the time of the
collision and secured leave of court to amend the complaint to advance a claim for
punitive damages. Allstate, in turn, advised Zierle that indemnification for exemplary
awards was unavailable under his policy and, therefore, Zierle might wish to consult
with a personal attorney to address this aspect of the litigation.
Before trial, on at least one occasion, Wolfe again inquired into the possibility of
settlement. Neither he nor Allstate made additional, material monetary concessions,
however. A jury trial ensued, and Wolfe secured a verdict and judgment against Zierle
comprised of $15,000 in compensatory damages and $50,000 in punitive damages.
Allstate proceeded to satisfy the compensatory component of the judgment only. As to
the punitive-damages portion, Wolfe and Zierle entered into an agreement whereby
Wolfe committed to forbear from executing in exchange for an assignment from Zierle of
all claims arising under the policy which he might possess against Allstate.
Relying upon this assignment, Wolfe proceeded to commence a civil action
against Allstate in a Pennsylvania common pleas court, alleging that Allstate’s refusal to
settle reflected bad faith on the carrier’s part. Wolfe sought damages under common-
law contract theory, see Cowden v. Aetna Cas. & Sur. Co., 389 Pa. 459, 468, 134 A.2d
223, 227 (1957) (recognizing a cause of action grounded in contract theory for bad-faith
refusal by an insurer to settle a third-party action),1 and per Section 8371 of the Judicial
1
See generally Toy v. Metro. Life Ins. Co., 593 Pa. 20, 39, 928 A.2d 186, 198 (2007)
(explaining that, with Cowden, “Pennsylvania was joining the jurisdictions throughout
the country that had held that an insurer may be liable for the entire amount of a
judgment secured by a third party against the insured, regardless of any limitation in the
policy, if the insurer’s handling of the claim, including a failure to accept a proffered
(Icontinued)
[J-63-2014] - 2
Code, 42 Pa.C.S. §8371, which served 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. See generally Birth Center v. St. Paul Cos.
Inc., 567 Pa. 386, 402, 787 A.2d 376, 386 (2001).2 Allstate removed the litigation to a
federal district court.
During pretrial proceedings, Wolfe filed an amended complaint and Allstate
pursued summary relief, asserting that, as a third party to the Allstate/Zierle insurance
policy, Wolfe lacked standing to pursue damages under Section 8371. This position
was grounded on two main premises. First, Allstate explained, under Ash v. Continental
Insurance Co., 593 Pa. 523, 932 A.2d 877 (2007), Section 8371 created a form of an
unliquidated tort claim. See id. at 536, 932 A.2d at 885 (holding, in determining the
appropriate limitations period, that “an action under §8731 is a statutorily-created tort
action”). Second, per longstanding Pennsylvania law, unliquidated tort claims generally
are personal and cannot be assigned to third parties. See, e.g., Sensenig v. Pa. R.R.
Co., 229 Pa. 168, 172, 78 A. 91, 91 (1910) (“A right of action strictly personal is not
assignable and the general doctrine is, both in law and equity, that a right of action for
pure tort is not the subject of assignment[.]”). Indeed, Allstate emphasized, two federal
district judges in the Eastern District of Pennsylvania recently had applied these
precepts in determining that claims for damages under Section 8371 are unassignable.
See Feingold v. State Farm Mut. Auto. Ins. Co., Civ. No. 11-6309, slip op., 2012 WL
(continuedI)
settlement, was done in such a manner as to evidence bad faith on the part of the
insurer in the discharge of its contractual duty”).
2
Wolfe also asserted a claim under the Unfair Trade Practices and Consumer
Protection Law, 73 P.S. §201-1 - 201-9.3, which is outside the scope of our present
review.
[J-63-2014] - 3
1106653 (E.D. Pa. Apr. 3, 2012), aff'd, 517 Fed. Appx. 87 (3d Cir. 2013); Feingold v.
Liberty Mut. Grp., 847 F. Supp. 2d 772 (E.D. Pa. 2012), aff’d, 562 Fed. Appx. 142 (3d
Cir. 2014); accord Canale v. Allstate Ins. Co., No. 13-4398, slip op., (E.D. Pa. Nov. 21,
2013).
The district court rejected Allstate’s contentions, however, relying upon a contrary
pronouncement by the Superior Court in Brown v. Candelora, 708 A.2d 104 (Pa. Super.
1998). See Wolfe v. Allstate Prop. & Cas. Ins. Co., 877 F. Supp. 2d 228, 231 (M.D. Pa.
2012) (citing Brown, 708 A.2d at 110). The district court did not discuss Brown’s
reasoning or compare it with that of the Feingold courts. Rather, the district court
merely observed that, in Haugh v. Allstate Insurance Co., 322 F.3d 227 (3d Cir. 2003),
the United States Court of Appeals for the Third Circuit had cited Brown with approval.
See id. at 239 (“Under Pennsylvania law an insured’s claims . . . under section 8371 for
punitive damages . . . are assignable.” (citing Brown, 708 A.2d at 112)). This, the
district court concluded, “rebuts [Allstate’s] contention that a finding that §8371 claims
sound in tort necessarily prohibits the assignment thereof.” Wolfe, 877 F. Supp. 2d at
231.
The matter proceeded to trial, and a jury discerned bad-faith conduct on the part
of Allstate. As relevant here, the jury awarded Wolfe $50,000 in punitive damages, as
authorized under Section 8371.
Allstate commenced an appeal in the Third Circuit, in which the insurer
maintained its position that Wolfe lacked standing. In light of the conflicting decisions in
Pennsylvania and federal courts concerning the assignability of a right to damages
under Section 8371, the Third Circuit lodged a certification petition in this Court, see
Internal Operating Procedures of the Supreme Court §8, which we granted. See
Allstate Prop. & Cas. Ins. Co. v. Wolfe, ___ Pa. ___, 90 A.3d 699 (2014) (per curiam).
[J-63-2014] - 4
Presently, Allstate maintains that the two, undisputed premises which it raised in
the district court (resting upon Section 8371’s grounding in tort theory and the personal
character of unliquidated tort claims) dictate the outcome of our review. Allstate
explains that the prohibition against assignment of tort claims has been interposed to
preclude champerty, or the involvement of intermeddlers pursuing litigation for profit-
making purposes. See, e.g., Marsh v. W. N.Y. & Pa. Ry. Co., 204 Pa. 229, 231, 53 A.
1001, 1002 (1903) (“‘[N]o encouragement should be given to litigation by the
introduction of parties to enforce those rights which others are not disposed to enforce.’”
(quoting Prosser v. Edmonds, (1835) 160 Eng. Rep. 196, 203 (K.B.))). In this regard,
Allstate categorizes assignees who have received judgments in third-party tort actions
as such intermeddlers, since, according to the carrier at least, their only legitimate
expectation is to be compensated for their own injuries. Observing that such singular
interest can be wholly vindicated in an assignable contract-based action against the
tortfeasor’s insurer where there has been a bad-faith refusal to settle resulting in an
excess verdict, see Cowden, 389 Pa. at 468, 134 A.2d at 227; Gray v. Nationwide Mut.
Ins. Co., 422 Pa. 500, 511, 223 A.2d 8, 13 (1966), Allstate denominates attempts to
assign exemplary entitlements under Section 8371 as champertous. In this line of
argument, Allstate highlights that Pennsylvania courts have manifested a particular
aversion to assignment of personal causes of action seeking penalties. See, e.g.,
Sensenig, 229 Pa. at 173, 78 A. at 92 (“Counsel for appellant practically admit that the
treble damages imposed by the act of 1883 are to be regarded as a penalty, and that
the right to such damages is not assignable.”); Osborn v. First Nat’l Bank of Athens, 175
Pa. 494, 498-99, 34 A. 858, 859 (1896) (holding that the right to pursue a statutory
penalty for charging usurious interest was unassignable).
[J-63-2014] - 5
Allstate recognizes that there are conflicting judicial decisions concerning the
assignability of claims for damages asserted under Section 8371. Nevertheless, it
views the disharmony as a byproduct of the controversy, prior to the 2007 decision in
Ash, over whether such claims sounded in contract or tort. Again, it is Allstate’s position
that the definitive pronouncement in Ash settled the entire landscape.
In terms of public policy, Allstate believes that sanctioning assignments of
punitive-damages claims under Section 8371 would foster mischief by encouraging
plaintiffs to pursue unreasonable settlement demands and advance bad-faith claims
which otherwise never would have been initiated. See, e.g., Reply Brief for Allstate at 3
(“[T]he inevitable consequence of allowing assignment of §8371 claims will be that
persons bringing suits for injuries covered by a third party’s insurance will have powerful
incentives to be unreasonable in pretrial settlement negotiations.”). According to
Allstate:
Prohibiting assignment of §8371 claims preserves a much
better equilibrium among the interests of the various parties.
The insured’s right . . . to assign a common law contractual
bad faith claim provides the insured with the bargaining chip
to protect his personal assets from execution by the plaintiff.
At the same time, assignment of the common law claim
provides the plaintiff with a means to obtain the amount of
the verdict – the only monies to which they the injured
plaintiff has any legitimate claim. And, if the insured – the
person §8371 is meant to protect – feels aggrieved by the
insurer’s actions, the insured can bring a claim under §8371.
This is the truly fair result.
Id. at 6; accord id. at 8 (“Allowing the injured claimants to pursue the tort based claims
under §8371 unreasonably tips [the] long established balance in favor of a party who
needs no further protection.”). Allstate’s position, in these regards, is supported by its
amici, including various insurance-industry organizations, which also view the
assignment of claims for damages under Section 8371 as creating windfalls and
[J-63-2014] - 6
perverse incentives.3 Further, according to amici, by insulating the judicial proceedings
from the presence of an insured bearing personal culpability (which, as in Zierle’s case,
can be substantial), assignments “will likely distort the factfinder’s perception . . . by the
inherent sympathies created by the innocent claimant’s injuries.” Brief for Amici at 7.
Wolfe and his amici, on the other hand, eschew a “mechanistic rule” based
purely on the tort label affixed to claims for damages under Section 8371. Brief for
Amicus United Policyholders at 17. Rather, their arguments center on the public
policies supporting this Court’s determination that bad-faith claims grounded in contract
theory are assignable. See, e.g., Gray, 422 Pa. at 511, 223 A.2d at 13 (reasoning that
assignability “would put the claimant on more of an equal footing with the insured’s
insurance company in settlement negotiations without tipping the balance against the
insurer who can still refuse to settle in good faith”); Brown, 708 A.2d at 113 (positing
that assignments “equalize[] the strategic advantages between the insured and the
insurer,” where the insurer’s bad faith “exposes its policyholder to the sharp thrust of
personal liability” (quoting Smith v. State Farm Mut. Auto. Ins. Co., 7 Cal. Rptr. 2d 131,
136 (Cal. Ct. App. 1992))).4 Along these lines, Wolfe and his amici contend that
permitting assignment of the totality of an insured’s rights against its insurer to an
injured third-party plaintiff facilitates the orderly and complete determination of bad-faith
3
See, e.g.. Brief for Amici Pa. Defense Inst., Phila. Ass’n of Defense Counsel, Ins. Fed.
of Pa., Inc., Am. Ins. Ass’n, Prop. Cas. Insurers Ass’n of Am., and Pa. Ass’n of Mut. Ins.
Cos. (“Brief for Amici”) at 4-7; id. at 14-15 (predicting, if this Court sanctions the district
court’s approach to assignments, “a dramatic increase in litigation, as third-party
claimants would sue for settlement delay and low offers, despite the lack of an excess
verdict resulting in any exposure to the insured[,]” as well as a rise in insured losses
which “may be passed along to policyholders in the form of higher premiums”).
4
Cf. Brief for Amicus United Policyholders at 23 (“The Legislature concluded that
additional remedies were required to overcome insurance companies’ inherent
advantages in litigation expertise and resources to engage in coverage litigation[.]”).
[J-63-2014] - 7
claims in a more unitary fashion.5 The amici, in particular, also note that this Court
maintains an emphasis on the public policy favoring litigation settlements. See, e.g.,
Brief for Amicus United Policyholders at 25 (citing Gray, 422 Pa. at 511, 223 A.2d at
13).
Furthermore, Wolfe contends, assignments serve Section 8371’s aim of
deterrence. Cf. Brief for Amicus United Policyholders at 22 (“Punitive damages are
intended to deter and punish bad faith, and those goals are served regardless of what
party presses the claim against the insurance company.”). In this regard, Wolfe
explains that many tortfeasors are essentially judgment-proof and, thus, lack the
incentive to pursue damages under Section 8371 (since any resulting award would be
vulnerable to seizure by the injured plaintiff in his capacity as judgment creditor). Even
though they may be judgment proof, the argument continues, insureds nonetheless
suffer substantial harm by virtue of insurer bad faith, in the form of impaired credit
ratings and, in some instances, downsides associated with insolvency proceedings.
See Gray, 422 Pa. at 506, 510, 223 A.2d at 10, 12 (discussing such considerations in
determining that bad-faith claims grounded in contract theory are assignable).
Moreover, as Wolfe and his amici see it, the General Assembly already has rejected
5
See, e.g., Brief for Wolfe at 11 (“Neither judicial economy nor any other significant
public policy would be advanced by a rule permitting the assignment of common law
contract rights against a carrie[r] to an injured plaintiff after entry of judgment, but
requiring the policyholder themselves [sic] to bring a separate action seeking damages
under [Section] 8371.”); Brief for Amicus Pa. Ass’n for Justice at 8-9 (“Creating an
artificial distinction between the contractual bad faith remedies and the statutory
remedies with respect to assignments creates an unworkable and confusing dichotomy
which otherwise confounds the orderly working of the insurance system in
Pennsylvania.”); Brief for Amicus United Policyholders at 21 (“[I]t would make no sense
to treat statutory bad faith differently from common law bad faith where the conduct of
the insurer at issue is the same under both the common law and the statute.” (citing
Birth Center, 567 Pa. at 410, 787 A.2d at 391)).
[J-63-2014] - 8
Allstate’s position that compensatory damages for bad faith are sufficient to effectively
combat bad faith on the part of insurance carriers. See, e.g., supra note 4.
According to Wolfe, “putting [the] claim into the hands of an injur[ed] plaintiff,
already represented by counsel on the underlying claim, will . . . serve the [salutary]
purposes of encouraging good faith settlement negotiations, and punishing insurance
carrier abuse.” Brief for Wolfe at 15.6 Wolfe and his amici also dismiss Allstate’s
charge that a plaintiff taking an assignment engages in champerty, where it is the
plaintiff’s own personal injury action giving rise to an insured’s bad-faith refusal to settle,
and the plaintiff foregoes execution in exchange for the right to pursue the panoply of
remedies available to redress such wrongful conduct.7
Finally, in discussing the legislative intent underlying Section 8371, amicus
United Policyholders observes that, when the statute was enacted in 1990, the General
Assembly was aware that, per the 1966 Gray decision, this Court had approved of the
assignment of bad-faith claims for almost twenty-five years. See generally Birth Center,
6
Accord Brief for Amicus Pa. Ass’n for Justice at 14 (“Assignments permit the injured
party an expeditious route to recovery, grant the insured leverage to protect its interest
and provide the insurer with an incentive to act in good faith.”); Brief for Amicus United
Policyholders at 11 (“The right to make assignments protects the most financially
vulnerable policyholders from opportunistic breaches by their insurance companies at
the crucial moments when policyholders rightfully expect their insurers to protect them
as their fiduciaries.”); id. at 30 (“[T]he core problem with Allstate’s and the Insurance
Industry’s effort to bar assignments of statutory bad faith claims is doing so would shield
insurers from a range of important remedies the Legislature designed to further public
policy whenever a policyholder or insured is not financially capable of resolving an
excess verdict caused by the insurer’s bad faith settlement practices.”).
7
Accord Brief for Amicus United Policyholders at 21 (“[The plaintiff] is directly affected
by the insurer’s bad faith in failing to assist the policyholder in an earlier settlement, not
an officious gambler with nothing at stake.”); id. at 20 (“[W]hether a bad faith claim is
characterized as an action in tort or contract or both, vague assertions that public policy
would be harmed by assignment of these claims due to ‘promotion of champerty,’ have
not been borne out over years of experience with these assignments.”).
[J-63-2014] - 9
567 Pa. at 403-04, 787 A.2d at 387 (applying a conventional principle of statutory
construction in presuming that the legislative branch was familiar with the judicial
decisions arising in the bad-faith context at the time Section 8371 was enacted). Thus,
amicus asserts, if the Assembly had any concerns that statutory bad faith claims should
not be assignable along with the common-law claims, it would have so indicated in the
statute itself.
Upon consideration of the arguments presented, we agree with the proposition
that the most appropriate way to approach the assignability issue is as a matter of
statutory construction. Thus, the essential undertaking is to determine the intent of the
Legislature through the language of its prescriptions, where possible. See 1 Pa.C.S.
§1921(a), (b). Where the words of a statute are not explicit, we employ principles of
statutory construction, including, among other considerations: evaluation of the
occasion and necessity for the statute under review, contemplation of the object to be
attained, review of the previous legal landscape, and appreciation of the consequences
of the particular interpretation. See id. §1921(c)(1), (4)-(6). In terms of the former law,
this Court continues to highlight the importance of considering the extant common law
at the time of a statute's enactment. See, e.g., In re Rodriguez, 587 Pa. 408, 414–15,
900 A.2d 341, 344–45 (2003).
Section 8371 provides, in relevant part:
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 . . . [a]ward punitive damages against
the insurer.
42 Pa.C.S. §8371. Since the statute says nothing about assignability of claims asserted
per its provisions, we find that principles of statutory construction should apply.
[J-63-2014] - 10
The suggestion on Allstate’s side, particularly from its amici, is that statutory
causes of action, by their nature, are allocated to particular interests by the Legislature,
and, thus, transfers should not be sanctioned by the courts in the absence of express
legislative approval. A countervailing circumstance here, however, is that the opening
passage of Section 8371 -- “[i]n an action arising under an insurance policy” --
interweaves 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. See Gray, 422 Pa. at 511, 223 A.2d at 13. 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 (a practice which is strongly disfavored, see
Pa.R.C.P. No. 1020(d)).
The complexity arises, however, on account of the character of the statutory
supplemental remedies involved. In designing Section 8371, the Legislature apparently
was satisfied to leave in place the contract overlay which this Court had imposed on
insurance bad-faith litigation, see Gray, 422 Pa. at 508, 223 A.2d at 11,8 but it chose to
8
We realize that, conceptually, such overlay is by no means the only reasonable
treatment, and a number of other jurisdictions have recognized a common-law cause of
action grounded in tort theory arising out of bad-faith conduct of insurance companies
directed toward their insureds. See, e.g., Gruenberg v. Aetna Ins. Co., 510 P.2d 1032,
1037 (Cal. 1973); cf. Birth Center, 567 Pa. at 410-14, 787 A.2d at 391-93 (Zappala, J.,
dissenting, joined by Castille, J.) (positing that claims for bad-faith refusal to settle by
insurers sound in tort). Relative to underlying principles, however, our decision today is
constructed on the foundation of the present state of the law as it has developed in
Pennsylvania.
[J-63-2014] - 11
interpose additional conventions typically associated with tort law, see Ash, 593 Pa. at
536, 932 A.2d at 885. This aspect obviously puts into play the axioms upon which
Allstate quite reasonably relies.
We recognize that the policy considerations (which are ably developed in the
arguments of the litigants and their amici) are mixed in character. On balance,
however, 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 Wolfe’s position. 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. Certainly, if we are incorrect in our assessment in
this regard, the General Assembly may seek to implement curative measures pertaining
to future cases, subject to constitutional limitations.9
We conclude that the entitlement to assert damages under Section 8371 may be
assigned by an insured to an injured plaintiff and judgment creditor such as Wolfe.
Having answered the certified question, we return the matter to the Third Circuit.
Messrs. Justice Eakin and Baer, Madame Justice Todd and Mr. Justice Stevens
join the opinion.
Mr. Chief Justice Castille dissents.
9
Obviously, we have not undertaken to consider whether assignments should be
viewed as substantive or procedural for separation-of-powers purposes, see PA. CONST.
art. V, §10(c) (delegating procedural rulemaking authority to this Court), because it is
beyond the scope of our present inquiry. 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.
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