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Victims in Pennsylvania who have been awarded punitive damages cannot collect damages against their tortfeasor's insurer, the Third Circuit ruled last Friday. Their ruling stems from the Keystone State's public policy against allowing individuals to insure against punitive damages.
Allowing the victims to collect punitive damages from the insurers (through an assigned breach of contract and bad faith claim) would circumvent the punitive purpose of the damages, the circuit found.
The Injury That Led to $50,000 in Punitive Damages
After 15 or 16 beers -- things get foggy after your 12th -- Karl Zierle decided to take a four A.M. drive. The drive ended as one would expect: Zierle crashed into another driver, Jared Wolfe.
Despite his three previous DUI's, Zierle was insured, and Wolfe sued for both compensatory and punitive damages. Allstate, Zierle's insurer, covered the $15,000 compensatory damages Wolfe was awarded, but refused to pay the $50,000 punitive damages award. In exchange for not enforcing the damages judgment against him, Zierle assigned his rights against Allstate to Wolfe, who sued the insurer for breach of contract and bad faith.
Wolfe argued that Allstate's failure to negotiate a settlement -- it proposed settling the claim for $1,200 and never budged -- was reckless and unreasonable, violating its duty to Zierle. Allstate argued, however, that Wolfe could introduce no evidence regarding the punitive damage award, since Pennsylvania's public policy bars insuring against punitive damages.
Pennslyvania Public Policy
Pennsylvania law controls the court's ruling on state public policy. Since there was no controlling state Supreme Court decision on the issue, the Third Circuit to peered into its crystal ball and to predict how the state's high court might decide the issue. Examining state public policy, the Third Circuit determined that Pennsylvania would bar the collection of punitive damages from the insurer.
This ruling stems directly from the state's public policy forbidding insurance against punitive damages, the Third explained. Allowing a tortfeasor to "shift the burden of punitive damages to his insurer" would allow the wrong doer to escape the very punishment that such damages seek to effect. Similarly, public policy shouldn't allow the insured to collect punitive damages as compensatory damages stemming from their acting in bad faith.
Even if Allstate acted in bad faith, Wolfe-as-Zierle could not collect the punitive damages that resulted. That does not mean that Wolfe can't still pursue his claims of bad faith; he simply cannot get compensation for their main result: his punitive damages award. Even if Wolfe can't get the cash he seeks, he could still get a judgment in his favor, which could bring its own punitive damages -- against the insurer, instead of the insured.