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In Alfano v. State Farm Fire and Casualty Company, the insureds had a homeowner’s insurance policy through State Farm.  After their home was destroyed by an explosion, the insureds filed a claim with State Farm and the insurer paid the policy limits of $456,281.90.  The insureds claimed that this amount was insufficient to cover their entire loss, and filed a lawsuit against the utility company asserting it was liable for the destruction of their home.  State Farm had a subrogation claim for the $456,281.90 in the action for the benefits it had paid to the insureds.  State Farm settled the subrogation claim with the utility company for $250,000, or 50% of what it was worth, and assigned the subrogation claim to the utility company.

The insureds filed a lawsuit against State Farm asserting that the assignment of the subrogation claim was done in bad faith. The insureds averred that they had been damaged in the amount of $456,281.90, the amount of the subrogation claim.  The Court found that while it can be presumed that State Farm acted upon a motive of self interest when it assigned its subrogation rights, it did not appear that this assignment breached State Farm’s duty of good faith to the insureds. The Court found no case law that indicated that such an assignment could be interpreted as bad faith or that an insurer must wait until the insured has been made whole to assign subrogation rights to a third party.  Accordingly, the Court held that State Farm’s assignment of the subrogation rights did not amount to bad faith and dismissed the complaint.

Date of Decision: September 17, 2009

Alfano v. State Farm Fire and Casualty Company, U.S. District Court, Middle District of Pennsylvania, Civil Action No. 3:09cv77, 2009 U.S. Dist. LEXIS 57809 (M.D. Pa. September 17, 2009)(Munley, J.)