MAY 2012 BAD FAITH CASES: BAD FAITH CLAIM CANNOT BE ASSIGNED, CONTINGENT FEE ATTORNEY NOT THIRD PARTY BENEFICIARY, CONTRACT CLAIM ASSIGNABLE BUT AGAINST PUBLIC POLICY TO DO SO (Philadelphia Federal)

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In Feingold v. State Farm Mutual Auto Insurance Company, the court partially granted the carrier’s motion to dismiss a breach of contract and bad faith suit brought by the insured and his alleged assignee, who was his prior case but had been subsequently disbarred. The case stems from a motor vehicle accident that occurred in 1998, where the insured was injured by an uninsured or underinsured motorist. The insured retained the assignee at that point prior to his disbarment.

After filing a motor for arbitration, the carrier never followed through with arrangements to schedule a medical exam. In 2010, the insured sought to schedule the arbitration but the carrier maintained that the statute of limitations on the insured’s claim had expired. The insured and his assignee then filed suit for breach of contract and bad faith. The carrier moved to dismiss the suit.

Turning to the plaintiff’s claims, the court partially granted the carrier’s motion to dismiss, ruling that the assignee had no standing to assert claims against the carrier. The court reasoned that “[a]n insured’s disbarred former attorney surely does not fall within the narrow class of individuals who may pursue a statutory bad faith claim.” The court also ruled that the former counsel’s claim that he was a “beneficiary” of the insured’s contract did not meet the standards for establishing third party beneficiary status.

Next, the court ruled, following an earlier decision against the same plaintiff, that statutory bad faith claims are in the nature of unliquidated tort claims which are un-assignable under Pennsylvania law. While breach of contract claims may be assignable, the court ruled that the assignment in this case, which permitted the disbarred assignee to function as the insured’s attorney, is contrary to public policy. As such, the court ruled that the assignee had no standing to bring these claims.

With respect to the insured’s claims, the court first ruled that the parties’ forum selection clause is ineffective, preventing the carrier’s claim of improper venue. The court also held that the pendency of arbitration in Delaware is not the proper ground for dismissal. Lastly, the court reasoned that the carrier was incorrect that the case should be dismissed because Delaware law, not Pennsylvania law, should apply.

Date of Decision: April 3, 2012

Feingold v. State Farm Mut. Auto. Ins. Co., NO. 11-6309, 2012 U.S. Dist. LEXIS 46696, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. Apr. 3, 2012) (O’Neill, J.)

This case was affirmed in a short non-precedential opinion, wherein the court stated: “The District Court concluded that, as a threshold jurisdictional matter, Feingold had not alleged an Article III injury, and, therefore, lacked standing to pursue his claims against State Farm. We agree, and after review of the briefs and appendices submitted by the parties, we find no basis for disturbing the exceedingly thorough and well-reasoned April 3, 2012 opinion of the District Court. We thus affirm the order of the District Court substantially for the reasons set forth in its opinion.”

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