Pittsburgh, PAAllstate has filed a brief asking the Pennsylvania Supreme Court to stop a practice that allows policyholders to assign claims in a bad faith insurance lawsuit. The company argues that allowing bad faith claims to be assigned will create “potential windfalls” for plaintiffs.
The issue arises from a 2007 car accident. According to court documents, Jared Wolfe suffered soft tissue damage to his neck and back when his car was hit by a vehicle driven by Karl Zierle, who was driving while under the influence of alcohol and drugs. Zierle was covered by Allstate, with a limit of $50,000.
Wolfe asked for damages from Allstate in the amount of $25,000, but Allstate reportedly refused that amount and offered only $1,200. As a result, Wolfe filed a lawsuit against Zierle for compensatory and punitive damages. Court documents for Wolfe note that before trial, Zierle’s lawyers encouraged Allstate to increase their offer, but they did not.
The lawsuit went to a jury, and Wolfe was awarded $15,000 in compensatory damages and $50,000 in punitive damages. Although Allstate paid the $15,000, the company refused to pay the $50,000 punitive damages, arguing that punitive damages were not included in the policy coverage.
Zierle assigned his rights against Allstate to Wolfe, to allow Wolfe to file a claim of bad faith insurance against Allstate for refusing to settle the lawsuit within the $50,000 coverage limit. The new lawsuit went to a jury trial, where Wolfe was awarded $50,000, but Allstate appealed and the appeals court asked the state Supreme Court whether an insured can assign his or her bad faith claim to an injured third party.
Generally, bad faith insurance claims are filed against an insurer by the policyholder. They usually involve cases where an insurance company has refused to pay out a claim made by the policyholder. For example, a long-term insurance claimant who has been unfairly denied payout of a legitimate claim may file a bad faith insurance lawsuit against his or her insurance company for using unethical tactics (if they were used) to deny the claim.
In the case of this car accident, however, Wolfe filed a claim against Zierle’s insurance company because Zierle was responsible for the car accident (court documents note that responsibility for the accident is not in dispute). Because it is Zierle’s company the claim is filed against, Zierle had to assign his rights against Allstate to Wolfe, so the bad faith insurance claim could be filed.
Allstate argues that by allowing assignment of rights, the courts would open up the opportunity for people other than the insured to reap a substantial windfall because the scales would be tipped toward overcompensating injured plaintiffs.
But Wolfe’s attorneys argue that allowing assignment of rights allows all parties to have equal footing with the insurance carrier.
By refusing to settle the case prior to going to trial, “Allstate placed Zierle in the position of suffering a punitive damage verdict, for which he had no coverage.” The brief further argues that if Zierle had filed the bad faith claim himself, it is reasonable to assume Allstate would have been found liable to its own policyholder because the courts have already found that Allstate’s actions constituted bad faith.
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