MARCH 2012 BAD FAITH CASES: FEDERAL DISTRICT COURT RULES THAT BAD FAITH CLAIMS NOT ASSIGNABLE TO THIRD PARTIES

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The court issued an opinion of potentially broad impact. On what appears as an unfavorable factual scenario for the assignee of a statutory bad faith claim, the court held that as a general rule bad faith claims under 42 Pa.C.S. § 8371 are not assignable by the insured.

The court refused to follow a series of Superior Court cases allowing such an assignment on the basis that the Pennsylvania Supreme Court’s 2007 opinion in Ash v. Continental Ins. Co., established that section 8371 was in the nature of a tort, which then formed the predicate of the Court’s argument that an unliquidated tort claim generally could not be assigned.

The federal district court cited Pennsylvania Supreme Court authority, going back to the 19th century in some instances, standing for the principle that unliquidated tort claims are not assignable. This rule, the court reasoned, was created to stop “profiteering in litigation by individuals who otherwise have no interest in the subject matter of the underlying claim.”

The court recognized a Pennsylvania Supreme Court decision that allowed the assignment of a legal malpractice claim, but distinguished that case. The court stated that “causes of action in the nature of a penalty are not assignable” because a statutory penalty is “a personal privilege of the party aggrieved.”

Therefore, the district court in this case granted the carrier’s motion to dismiss because the assignment was invalid, and the putative assignee lacking standing.

Comment: This is obviously a decision of considerable significance in light of the practice of insured’s assigning breach of contract and bad faith claims to settle cases.

Date of Decision: February 28, 2012

Feingold v. Liberty Mutual Group, No. 11-5364, 2012 U.S. Dist. LEXIS 25273 (E.D. Pa. Feb. 28, 2012) (Bartle, J.).

This case was affirmed by the Third Circuit, which commended Judge Bartle’s reasoning on the issue.

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