Bad Faith Decision Vacated as Insurer Not Responsible for Punitive Damages Where Insurance for Punitive Damages is Prohibited

Posted by

In Jared Wolfe v. Allstate Property & Casualty Insurance Company, the insurer brought an appeal to the Third Circuit seeking to vacate a jury award against it for bad faith and breach of contract asserted by a plaintiff who was injured in a motor vehicle accident caused by the policyholder of the insurer. The Third Circuit agreed with the insurer and vacated the award, finding that the lower court made a mistake in allowing the plaintiff to introduce evidence of a punitive damages award won against the policyholder in the underlying trial.

The plaintiff was injured in March 2007 in a car accident with the policyholder. The jury awarded the plaintiff $15,000 in compensatory damages and $50,000 in punitive damages as the policyholder had a blood alcohol level of 0.25 percent at the time of the accident. The insurer refused to provide coverage for the punitive damages award and the plaintiff brought the instant case.

The policyholder assigned his rights against the insurer to the plaintiff in return for the plaintiff’s agreement not to enforce the punitive damages penalty against the policyholder personally. The plaintiff then sued the insurer for breach of contract and bad faith.

The Third Circuit noted that punitive damage are not insurable in Pennsylvania. Accordingly, the insurer could not be responsible for the punitive damages award in the underlying case. The Third Circuit found that the lower court erred in allowing evidence of the punitive damages award to be presented to the jury. The Third Circuit remanded the case.