Pennsylvania’s Supreme Court has its work cut out for it in three cases important to Pennsylvania tort law practitioners, defense and plaintiff alike.
First up is Zauflik v. Pennsboro School District, in which the Court will consider a challenge to the caps on recoveries against municipalities unbder Pennsylvania’s Political Subdivision Tort Claims Act. The caps under the Act have been consistently upheld as constitutional, and were so upheld in this case by the lower Commonwealth Court. The plaintiff was seriously injured in a school bus accident, and under the Act her recovery is limited to $500,000. A finding by the Court that the Act’s caps are unconstitutional would throw municipal tort law into chaos. Municipalities would face serious economic peril if their liability is unlimited. And, if they sought to purchase insurance to protect themselves, how much would be enough? And how much would “enough” cost? If the plaintiff’s tort bar is unhappy with the liability limit provided in the Act, the proper resolution is to amend the Act.
Next is Babcock & Wilcox v. American Nuclear Insurance, et. al., a case in which the Court will consider if an insurer’s defense of its insured under a reservation of rights ia tantamount to a coverage denial, freeing the insured to settle claims against it without the insurer’s consent. The case involved claims against Babcock & Wilcox arising from exposure to radiation from a Babcock & Wilcox facility. When ANI advised Babcock & Wilcox that it would provide a defense for them to the claims under a reservation of rights, Babcock & Wilcox proceeded to settle the claims on its own, and then sought reimbursement from ANI under its insurance policy. ANI argued it had no duty to provide reimbursement as Babcock & Wilcox violated the “consent to settle” clause under the insurance policy requiring ANI’s consent to settle claims under the policy. Pennsylvania’s Superior Court held that when an insurer tenders defense to an insured under a reservation of rights, the insured may accept the defense and in doing so is bound by the consent to settle clause, or the insured may decline the insurer’s tender of a qualified defense and retain control of its own defense, including the option of settling the underlying clsims, and the insured may then recover from the insurer the costs of settlement and defense costs to the extent these costs are fair, reasonable, and non-collusive. This result is inconsistent with current Pennsylvania law and insurance practice. Currently, insurers are entitled to defend an insured under a reservation of rights and continue to control the defense of the claim, including settlement of the claim. A reservation of rights is not tantamount to a denial of coverage, allowing the insured control of the litigation. Rather, the insurer continues to control the litigation, including settlement. If the insurer improperly refuses to settle a claim defended under a reservatuion of rights, the insured may seek damages from the insurer in a bad faith action.
Finally, in Allstate Property & Casualty Insurance Company v. Wolfe, the United States Court of Appeals for the Third Circuit has requested the Pennsylvania Supreme Court to opine on whether a tortfeasor under Pennsylvania law may assign his or her bad faith claim against an insurer to an injured party. Although Pennsylvania’s courts have long held that tort claims are not assignable, such assignment in bad faith cases has become accepted practice based on piecemeal Pennsylvania state court decisions. Pennsylvania’s federal courts, however, have held that bad faith claims are not assignable, “to prevent speculation or profiteering in litigation by individuals who othee have no interest in the claim”. A decision by the Pennsylvania Supreme Court that bad faith claims are not assignable would be a welcome change in bad faith practice, would be consistent with Pennsylvania law that tort actions are generally not assignable, and would prevent double recoveries by injured parties who seek to recover for theior injuries but also profit from the insurer’s conduct toward the insured.