Assignment of Claims and… Broken Toes?

People often ask:  “What kind of law do you practice?”

When I say, “breach of contract litigation,” the response is often a deflated, “Ohhhh,” followed by:  “Anything else?  Like injury law, or civil rights?”

In reality, contract law incorporates virtually every other area of law, because nearly every right can be waived or abandoned by virtue of a contract.

Contract law also intersects most areas law by virtue of “assignment:” the right to sue (for pretty much anything) can be assigned — by way of a contract — from one party to another.  This incorporates many kinds of disputes:  corporate law, construction law disputes, injuries, the right to sue an insurance company for bad faith.

Here’s an example.

Let’s say you are in a car accident which causes you to slide forward and break your toe, which painful.  And let’s say you sue the other driver who caused the accident, Speedy Joe, for him running a red light and striking your car. Let’s also assume  Speedy Joe has insurance to pay for his negligence. His insurance company – We Hate Feet, Inc. – truly hates feet, and refuses to pay any amount of damages for a foot — much less a toe — related issue. The president of We Hate Feet, Inc., issues a statement: “We hate feet, because feet are gross. Toes are especially gross. Our insurance company will not pay any claim involving anything so gross as a foot, much a less a toe, even if it’s the big toe! To be clear. We. Hate. Feet.”

We can all agree that “We Hate Feet, Inc.” is being ridiculous and likely acting in “bad faith,” because it has a duty to act reasonably to settle claims.

But here’s the catch, Pennsylvania does not recognize a claim by you for “bad faith” against the other party’s insurance company, because it’s not your insurance company.  You have no contract for insurance coverage with that company.  Thus, in PA, you cannot sue the opposing party’s insurance company for “bad faith” (failure to reasonably and timely pay a claim).  This is considered third party bad faith, which, again, is not allowed in PA, in part because there’s no contract (an agreement for insurance coverage) or fiduciary relationship between you and the other party’s insurance company.

Rather, your claims for bad faith in PA are limited to those against your own insurance company if, for example, it were to decline paying for your medical bills in a no fault state like PA, where your own insurance company pays your medical bills ($5,000 or more depending on your policy) regardless of fault. This is “first party bad faith,” which is allowed, because you contracted with your auto policy insurer for coverage, which triggers its duties of “good faith” toward you.

Here, your have no issue concerning your medical bills, regarding the broken toe, as those were paid by your insurance company.

Rather, your claim is against We Hate Feet, Inc. for not paying for your pain and suffering.  And, We Hate Feet, Inc. is refusing to pay anything for your pain and suffering.

So does that mean “We Hate Feet, Inc.” can get away with this?

Not so fast.

You might not like We Hate Feet, Inc.’s  policy of “we don’t pay for foot or toe injuries — No way!” but think how Speedy Joe feels. He wants to settle with you.  He admits fault, and he was current on his policy to pay We Hate Feet, Inc. (so it would offer coverage for an accident to protect him from being sued), and yet he’s about to be sued because why?  — We Hate Feet, Inc., has some bizarre policy against settling claims involving feet.

Here’s the good news for Speedy Joe:  though you may not sue We Hate Feet, Inc., (for bad faith), Speed Joe can.  

In fact, according to the Supreme Court of Pennsylvania, in the holding of party covered by insurance has the right to expect his own insurer to act reasonably to: (1) protect the insured from being sued, (2) protect the insured’s reputation (because a lawsuit falsely implies that the defendant has refused to pay his debts), and (3) prevent its insured from suffering emotional distress from needless litigation on the public docket.

In Birth Center v. St. Paul, 787 A.2d 376 (Pa. 2001), a Birth Center was accused of malpractice for causing the death of a baby on delivery.  The Birth Center has liability coverage through St. Paul Insurance, but St. Paul had a policy of always taking “dead baby” cases to trial, according to its claims handler. St. Paul refused to tender policy limits. In fact, it failed to make any offer whatsoever.

The horrific “dead baby” claim went to jury against St. Paul (which knew it faced liability) and the verdict exceeded the available insurance coverage through St. Paul, which exposed the Birth Center to an excess verdict.  Although St. Paul paid the excess, the Birth Center brought suit against St. Paul for bad faith — for damage to its reputation and other claims for the needless trial necessitated by St. Paul Insurance failing to timely offer to settle. A jury agreed and hammered St. Paul for a significant verdict, for bad faith. St. Paul appealed all the way to the PA Supreme Court, which upheld the jury verdict against St. Paul for bad faith.

OK, you ask, how does this help me?  What about my broken toe?

Here’s where it gets interesting.

According to the PA Supreme Court, Speedy Joe may assign his bad faith claim to you (by virtue of a contract with you). See Allstate Prop. and Cas. Ins. Co. v. Wolfe, 105 A. 3d 1181 (Pa. 2014).

Why would Speedy Joe do that?

Because of your jacked up toe, Speedy Joe is facing liability — and protracted litigation. He wants you to drop your claims against him, because he knows that he is responsible for breaking your toe.  He will be eager to resolve your claim, and to that end, he may agree — as part of settlement — to assign to you his claim for bad faith against his own insurance carrier, which will have more value after you sue Speedy Joe, because at that point, he will have damages in form of his name appearing on the public docket.

Parties can also agree – via contract — to preclude assignment.  This came up recently in a dispute involving the NFL. Click here for more information.

Our Pittsburgh lawyers handle not only Breach of Contract, but also many kinds of claims in state and federal court in Pennsylvania.


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