Court Opinion

ID: 9753506
Source: CourtListenerOpinion
Date Created: 2023-08-28 19:16:31.556206+00
Date Added: 2024-06-11T07:27:37.204590
License: Public Domain

ZAPPALA, Justice,
(dissenting).
I must respectfully dissent on the grounds that a claim for bad faith refusal to settle sounds in tort, not in contract. Therefore, the only viable action available to Appellee regarding Appellants’ bad faith refusal to settle is an action in tort. The remedies available to Appellee consist of the recovery of: (1) the excess verdict pursuant to common law, see Cowden v. Aetna Casualty and Surety Co., 389 Pa. 459, 134 A.2d 223 (1957); and (2) interest, punitive damages, court costs and attorney fees pursuant to the bad faith statute, see 42 Pa.C.S. § 8371. Since consequential damages are not available under common law or the bad faith statute, they are barred. I would therefore reverse the order of the Superior Court.
In Gray v. Nationwide Mutual Insurance Co., 422 Pa. 500, 223 A.2d 8 (1966), this Court held that an insured’s right to recover an award in excess of his policy limits from his insurer, as a result of the insurer’s bad faith refusal to settle the underlying claim against the insured, was assignable. Although this general proposition of law, that a claim for bad faith refusal to settle seeking to recover an excess verdict is assignable, is sound and remains good law, I believe that in the course of reaching the result in Gray, this Court erroneously characterized an insured’s cause of action for bad faith *411refusal to settle as an action in assumpsit.1 Gray, 223 A.2d at 11.
Under a liability insurance contract, in addition to any specific obligations undertaken by the insurer in exchange for the policy premium, an insurer undertakes three obligations: (1) the insurer agrees to indemnify the insured against liability covered by the policy; (2) the insurer agrees to defend the insured against any suits arising under the policy; and (3) the insurer assumes a fiduciary responsibility to the insured and becomes obligated to act in good faith and with due care in representing the interests of the insured. See Gedeon v. State Farm Mutual Automobile Insurance Co., 410 Pa. 55, 188 A.2d 320 (1963).2 It is hornbook law that a breach of either the duty to indemnify or the duty to defend constitutes a breach of a promise set forth in the liability insurance contract and gives rise to a cause of action ex contractu; a breach of the duty to act in good faith arises from a breach of the fiduciary duty growing out of the liability insurance contract and gives rise to a cause of action ex delicto. See Gedeon (action sounding in assumpsit claiming breach of covenant to defend); Cowden (action sounding in trespass claiming bad faith refusal to settle). However, this Court’s characterization in Gray, of a claim for bad faith refusal to settle as an action in assumpsit, conflicts directly with the characterization of a claim for bad faith refusal to settle as a tort giving rise to an action ex delicto.
The Gray case originated in the Philadelphia County Common Pleas Court as a trespass action brought by Robert Gray against Robert MacLatchie for personal injuries and property loss resulting from an automobile accident. At the time of the *412accident, MacLatchie was insured by Nationwide Mutual Insurance Company under an automobile liability policy, the coverage of which was limited to $5,000. Nationwide defended MacLatchie in the action. Gray subsequently obtained a $15,000 jury-verdict against MacLatchie. After Nationwide tendered the policy limits to Gray, Gray demanded the balance of the judgment from MacLatchie, who then assigned all of his rights against Nationwide to Gray.
On the basis of the assignment by MacLatchie, Gray filed an assumpsit action in the common pleas court against Nationwide to recover the balance of the judgment, claiming that Nationwide had acted in bad faith by refusing to settle with Gray for an amount within MacLatchie’s policy limits. Nationwide’s preliminary objections in the nature of a demurrer were sustained and Gray’s complaint was dismissed. Gray appealed to the Superior Court en banc, which affirmed the trial court’s order by an equally divided court. Gray v. Nationwide Mutual Insurance Company, 207 Pa.Super. 1, 214 A.2d 634 (1965). Judge Wright concluded in his opinion supporting the affirmance of the order that MacLatchie’s claim against Nationwide was not assignable to Gray as a matter of law:
Breach of an insurer’s obligation to act in good faith and with due care in representing the interests of the insured creates a cause of action in tort, not in assumpsit. A claim of the instant nature is not assignable before verdict: Sensenig v. Pa. Railroad Co., 229 Pa. 168, 78 A. 91 [ (1910) ]; Seaboard Commercial Corp. v. Bardell, 49 Pa. D. & C. 300 . [ (1944) ].
214 A.2d at 635.3
On appeal, this Court stated:
*413Our task is to determine whether MaeLatchie, the insured, has a cause of action in assumpsit or in tort against the insurer for its wrongful refusal to settle. In Cowden v. Aetna Casualty and Surety Company, 389 Pa. at 468, 134 A.2d 223, the late Mr. Chief Justice Charles Alvin Jones stated: “It is established by the greatly preponderant weight of authority in this country, that an insurer against public liability for personal injury may be liable for the entire amount of a judgment secured by a. third party against the insured, regardless of any limitation in the policy, if the insurer’s handling of the claim, including a failure to accept a proffered settlement, was done in such a manner as to evidence bad faith on the part of the insurer in the discharge of its contractual duty.” (Emphasis added). Giving the reason for this rule, Mr. Chief Justice Jones continued: “And, in Weiner v. Targan, 100 Pa.Super. 278, 284, it was recognized that the contractual relationship under an indemnity policy was one requiring ‘a high degree of good faith in the conduct of the indemnity company’s counsel generally * * *.’ ” 389 Pa. at 469, 134 A.2d at 228. (Emphasis added). In Gedeon v. State Farm Mutual Insurance Company, 410 Pa. 55, 188 A.2d 320 (1963), Mr. Justice Cohen elaborated on the duties of the insurer to his insured: “Under a typical automobile liability insurance policy, such as the one before us, the insurer undertakes three distinct types of obligations, each of which involves different elements of proof to establish breach thereof, and from the breach of which different measures of recovery result.” 410 Pa. at 58, 188 A.2d 320. (Emphasis added). “Thirdly, by asserting in the policy the right to handle all claims against the insured, including the right to make a binding settlement, the insurer assumes a fiduciary position towards the insured and becomes obligated to act in good faith and with due care in representing the interests of the insured.” 410 Pa. at 59, 188 A.2d 320. (Emphasis added).
We believe that this recent case law, employing contrac*414tual terms for the obligation of the insurer to represent in good faith the rights of the insured, indicates a breach of such an obligation constitutes a breach of the insurance contract for which an action in assumpsit will lie.
Gray, 223 A.2d at 11 (emphasis added).
The glaring error in this reasoning is that the “recent case law, employing contractual terms for the obligation of the insurer to represent in good faith the rights of the insured” which the Gray court found dispositive regarding whether the action lay in assumpsit or tort, does not lead logically to the conclusion that the bad faith claim lies in assumpsit. Neither Coivden nor Gedeon indicate that an action claiming bad faith refusal to settle sounds in contract.4 In Cowden, this Court found that, in a trespass action claiming bad faith refusal to settle, the insurer could be liable for the entire amount of the excess verdict if the insurer’s handling of the claim evidenced bad faith. This Court’s decision in Gedeon concerned an assumpsit action claiming a breach of the covenant to defend. Neither case can be read as supplying any sound legal reasoning for construing a claim for bad faith refusal to settle as sounding in assumpsit.
Because a claim for bad faith refusal to settle sounds in tort, not in contract, the only remedies available to Appellee consist of the recovery of: (1) the excess verdict pursuant to common law; and (2) interest, punitive damages, court costs and attorney fees pursuant to the bad faith statute. Since consequential damages are not recoverable under common law or the bad faith statute, they are barred. See D’Ambrosio v. Pennsylvania National Mutual Insurance Co., 494 Pa. 501, 431 A.2d 966 (1981).
*415The order of the Superior Court should therefore be reversed.
CAST1LLE, Justice, joins this dissenting opinion.

. Assumpsit is defined as: "A common law form of action which lies for the recovery of damages for the non-performance of a parol or simple contract; or a contract that is neither of record nor under seal... . The action of assumpsit differs from trespass and trover, which are founded on a 1ort, not upon a contract....” Black's Law Dictionary 122 (6th ed. 1991) (emphasis in original).

. Although Gedeon concerned the insurer's duties in the context of an automobile liability policy, these duties are not altered where the subject policy is for professional liability protection.

. Although Judge Wright was correct in characterizing the action as sounding in tort, this Court's decision in Sensenig did not control the issue of assignability. In Sensenig, this Court held that an action in tort, to recover unliquidated damages, was not capable of assignment. See also Sniderman v. Nerone, 136 Pa.Super. 381, 7 A.2d 496 (1939) (holding that unliquidated claim for damages for personal injuries is not assignable nor subject to attachment), aff'd per curiam, 336 Pa. 305, 9 A.2d 335 (1939). Gray's claim against Nationwide, however, was not *413one for unliquidated damages. Gray sought a sum certain: the amount of the excess verdict.

. Weiner v. Targan, 100 Pa.Super. 278 (1930), concerned a petition to open a judgment, averring that the judgment was procured by fraud. The Superior Court reversed the trial court’s denial of the petition to open. The Superior Court observed that when a casualty company assumes the defense of an action pursuant to the terms of its policy, it is held to a strict rule of good faith in conducting the defense, and therefore, where a casualty company commits fraud in the course of conducting the defense, it should be held liable for the damages naturally resulting therefrom.