A [Drunk] Wolfe at the Door (handling covered combined with uncovered claims) Thomas, Thomas & Hafer, LLP Peter J. Speaker, Esquire Joshua J. Bovender, Esquire

Overview Wolfe v. Allstate (Pa. 2014) Allstate’s “Argument” Holding and Other Authority How to Avoid Bad Faith Hypothetical

Lessons on Drunk Driving

Wolfe v. Allstate (Pa. 2014) Facts of Underlying Action: MVA IV was drunk Punitive Damages $50,000 limits $25,000 Demand $1,200 Offer

Allstate v. Wolfe (Continued) Verdict: $15,000 Compensatory Damages $50,000 Punitive Damages Bad faith case assigned Assignment of bad faith claim upheld

Allstate v. Wolfe (Continued) More Important Issue: are the punitive damages in the underlying case recoverable as consequential damages in the bad faith case? Most Important Issue: is it bad faith to refuse to pay extra in order to protect insured from an uncovered (punitive damages) claim? I.e., should evidence of an uncovered claim/award be admissible in a bad faith failure-to-settle case?

Allstate v. Wolfe (Continued) No express Supreme Court holding on bad faith issues other than assignment But Trial Court Motion in Limine: Evidence of punitive damages award found admissible to prove damages on bad faith claim “The damages sought to be reimbursed here represent damages suffered as a result of Allstate’s pre-trial failure to evaluate the compensatory claim and make reasonable attempts to negotiate a settlement of the same. Plaintiff is not seeking the recovery of punitive damages per se, but instead the damages stemming from Allstate’s alleged breach of contract and bad faith conduct prior to the trial in the Underlying Action.”

Allstate v. Wolfe (Continued) Judge Jones’ Approach: If an insurer acts in bad faith, and the bad faith exposes the insured, or heightens the insured’s exposure to personal liability, then courts should not limit the insured’s ability to recover for consequences resulting from the bad faith

Allstate’s “Argument” “The punitive award is completely separate from the compensatory award and the existence of the punitive award has no bearing on the handling of the compensatory claim.” Allstate’s Brief in Support of Motion in Limine to Exclude Evidence of Punitive Damages Award [Doc. 64, p.4].

Judge Jones’ Ruling “Because we have found that the $50,000 award against Zierle in the Underlying Action is a compensable item of damages in the case sub judice, we cannot agree with Allstate’s contention that evidence related to the same is irrelevant and inadmissible as such. The Plaintiff will be permitted to present evidence of the manner in which Zierle was harmed by Allstate’s failure to negotiate a settlement of the compensatory portion of the litigation in good faith, and the damages that he suffered as a result thereof.” Jones Opinion [Doc. 93, p.8].

No Pennsylvania Law Directly on Point, But See… When an insurer owes or undertakes the duty to defend its insured in a suit seeking both insured and uninsurable damages, it has the duty to conduct settlement negotiations in good faith as part of that defense. For one thing, this includes warning the insured of any potential exposure to him and apprising him of settlement opportunities within a reasonable time after they are presented. Magnum Foods, Inc. v. Cont'l Cas. Co., 36 F.3d 1491, 1506 (10th Cir. 1994).

Magnum Foods (Continued) We hold that here, where both compensatory and uninsurable punitive damages are sought, and CNA assumed the defense of the entire suit under the obligations of the policies, the presence of the punitive claim did not absolve CNA from its obligation of good faith in handling the entire case. That duty of good faith does not include settlement or a contribution to settlement by CNA of the uninsurable punitive claim. Magnum, 36 F.3d at 1506.

Magnum Foods (Continued) [However,] the jury should be instructed... that the jury should not consider Magnum's payment of $600,000 to settle the... punitive damage judgment in determining any compensatory award on the bad faith claim, and the jury should be told that Oklahoma law prohibits shifting such a punitive liability to an insurance company. The jury should also be told that CNA's duty of good faith and cooperation with Magnum did not obligate CNA to make more than a reasonable payment to settle the covered compensatory damages liability to avoid the uninsurable punitive exposure of Magnum. Magnum, 36 F.3d at 1506.

Johnson v. Allstate Ins. Co., 262 S.W.3d 655 (Mo. Ct. App.2008). DUI Johnson had $50K liability limit, which Allstate failed to offer before demand expired. “Consent” judgment for $5M + $1.5M punitive. Johnson assigned 90% of bad faith claim in exchange for protection from judgment. Bad Faith judgment: $1.63M. = DUI Driver himself receives $1.63M!

Allstate's failure to... advise Davis of the demand, his likely exposure for an excess judgment, and his right to retain counsel, are all circumstances supporting a reasonable inference that Allstate's refusal to settle was in bad faith. This evidence was sufficient to support the submitting of the... bad faith refusal to settle claim to the jury. Johnson, 262 S.W.3d at 665. Paid to DUI (Johnson)

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Avoiding Bad Faith – Covered & Uncovered Claims Best defense is Good Faith ROR & recommend retention of private counsel Reasonable, thorough evaluation of covered and uncovered claims by defense counsel communicated to insured and insurer

Avoiding Bad Faith (Continued) Provide insured with opportunity to participate in settlement

Hypothetical $50,000 Policy Limits DC evaluation of $30-40,000 in compensatory damages DC evaluation of $50-100,000 in punitive damages $50,000 Demand How do you handle?

The End Questions Thank you