790 F.3d 487
3rd Cir.2015Background
- In a 2007 auto accident, Zierle (driver) with .25% BAC rear-ended Wolfe; Zierle had prior DUIs and was insured by Allstate with $50,000 liability coverage; policy excluded punitive damages.
- Wolfe sued Zierle, amended to seek punitive damages after discovery revealed intoxication; pretrial settlement discussions stalled (Wolfe initially demanded $25,000; Allstate offered $1,200–$1,400).
- Jury awarded Wolfe $15,000 compensatory and $50,000 punitive; Allstate paid the compensatory portion but declined to pay punitive damages; Zierle assigned his rights against Allstate to Wolfe in exchange for Wolfe not enforcing the punitive judgment against him.
- Wolfe (as assignee) sued Allstate for breach of contract and statutory bad faith (42 Pa. Cons. Stat. § 8371); Allstate removed to federal court and moved for summary judgment and to exclude evidence of the $50,000 punitive award.
- The District Court denied both motions; a jury found for Wolfe on breach and § 8371 and awarded $50,000 punitive damages against Allstate. On appeal, the Third Circuit certified assignability to the PA Supreme Court, which approved assignment; remaining issues on appeal were admissibility of the underlying punitive award and denial of summary judgment.
- The Third Circuit held Pennsylvania public policy bars insuring punitive damages, so the $50,000 punitive award was not compensable against the insurer; but denial of summary judgment was affirmed because nominal and statutory remedies could still be awarded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Admissibility of underlying punitive award as damages in the insurer suit | Wolfe: Allstate’s bad faith in refusing to settle made the punitive award a foreseeable consequential loss; it should be admissible as damages flowing from breach | Allstate: Public policy forbids insuring punitive damages; the punitive award is irrelevant and inadmissible | Held: Exclude punitive award — PA public policy prohibits shifting punitive damages to insurers; the award is not compensable or relevant |
| Duty to consider punitive exposure / summary judgment on breach and § 8371 claims | Wolfe: Allstate breached duty of good faith by refusing reasonable settlement, making insurer liable for consequential damages (including punitive) | Allstate: No duty to consider punitive exposure because punitive damages are uninsurable; having paid compensatory award within policy limits, no harm/no liability as a matter of law | Held: Denial of summary judgment affirmed — even without the $50,000 punitive item, plaintiff can recover nominal contract damages and pursue statutory § 8371 remedies (punitive, interest, fees); factual disputes on bad faith remain for trial |
Key Cases Cited
- Butterfield v. Giuntoli, 670 A.2d 646 (Pa. Super. Ct. 1995) (punitive damages are not intended to compensate and are excluded from insurance coverage)
- Esmond v. Liscio, 224 A.2d 793 (Pa. Super. Ct. 1966) (public policy does not permit shifting punitive damages to insurer)
- Cowden v. Aetna Cas. & Sur. Co., 134 A.2d 223 (Pa. 1957) (insurer must consider insured’s interests in settlement; bad faith requires clear-and-convincing proof)
- Terletsky v. Prudential Prop. & Cas. Ins. Co., 649 A.2d 680 (Pa. Super. Ct. 1994) (definition and test for insurer bad faith adopted in § 8371 analysis)
- Birth Ctr. v. St. Paul Cos., 787 A.2d 376 (Pa. 2001) (compensatory damages flow from insurer’s bad faith; § 8371 is separate and does not itself provide compensatory damages)
- PPG Indus., Inc. v. Transamerica Ins. Co., 975 P.2d 652 (Cal. 1999) (insurer not liable for punitive damages awarded for insured’s own intentional misconduct)
- Lira v. Shelter Ins. Co., 913 P.2d 514 (Colo. 1996) (insured may not recover punitive damages from insurer in bad-faith suit where punitive damages are uninsurable)
- Soto v. State Farm Ins. Co., 635 N.E.2d 1222 (N.Y. 1994) (punitive damages against insured are not compensatory damages recoverable in insurer bad-faith suit)
- Carpenter v. Automobile Club Interinsurance Exchange, 58 F.3d 1296 (8th Cir. 1995) (contrary Eighth Circuit view allowing recovery of punitive award as consequential damages under Arkansas law)
- Zieman Mfg. Co. v. St. Paul Fire & Marine Ins. Co., 724 F.2d 1343 (9th Cir. 1983) (insurer should not be required to pay punitive damages; settling to avoid punitive exposure would improperly shift penalty to insurer)