The opinion of the court was delivered by: BECHTLE
This case involves claims by plaintiff, an excess liability insurance carrier, against defendant, a primary liability insurance carrier. Presently before the court is the defendant's motion for summary judgment on Count I of the complaint and dismissal of Counts II and III of the complaint. For the reasons stated herein the motion will be denied.
In December 1979, a product liability suit was filed against the insured by Ricky Donahue (hereinafter referred to as the "injured party"). In his complaint the injured party claimed he had suffered severe injuries as a result of having been struck by the boom of a crane manufactured by the insured. The trial judge had suggested that a settlement for Six Hundred Thousand Dollars ($600,000.00) would be appropriate but this was not agreed to and the case was tried before a jury which found in favor of the injured party and awarded damages in the amount of One Million Four Hundred Thirteen Thousand One Hundred Fifty-Two Dollars and Thirty-Five Cents ($1,413,152.35). After defendant tendered its primary policy limit of Five Hundred Thousand Dollars ($500,000.00), plaintiff effected a settlement from its excess coverage for One Million Three Hundred Seventy-Five Thousand Dollars ($1,375,000.00) and paid to the injured party the remaining Eight Hundred Seventy-Five Thousand Dollars ($875,000.00).
Plaintiff then filed the instant lawsuit against defendant seeking to recover its Eight Hundred Seventy-Five Thousand Dollars ($875,000.00) contribution. Plaintiff has set forth two theories of recovery.
The first theory (Count I) is that of equitable subrogation. Plaintiff claims that, upon payment of its excess liability, protection due its insured, it became equitably subrogated to any rights which the insured has against the primary insurer, including a cause of action for wrongful failure to settle. Defendant does not dispute this theory but rather, insists that plaintiff, as the insured's equitable subrogee, is barred from recovering under this theory because: 1) the injured party never made a settlement demand; and 2) the insured insisted that there was no liability and that the case be tried.
As its second theory of recovery (Count II) plaintiff asserts that defendant, through its negligence and bad faith with regard to settlement possibilities, caused plaintiff to suffer injury in the form of payment of the excess liability. Defendant moves to dismiss this claim arguing that the claim fails to state a claim upon which relief can be granted since it, as a primary insurer, does not owe a direct duty to plaintiff which is an excess insurer.
Defendant also seeks to dismiss a claim by plaintiff for punitive damages (Count III) arguing that: 1) the allegations of the complaint are insufficient to support such a claim; and 2) punitive damages are not available because the complaint fails to allege any cognizable cause of action in tort.
A. Summary Judgment on Count I
Defendant's initial argument in support of its motion for summary judgment on Count I is that there can be no wrongful failure to settle because the injured party never made a settlement demand. Since research by the parties and the court has failed to reveal any Pennsylvania court decision on point, this court must determine how the Pennsylvania courts would resolve the question of whether a settlement demand by an injured party is a prerequisite to a cause of action for wrongful failure to settle brought by an excess insurer, as an insured's equitable subrogee, against a primary insurer.
In the context of an insured suing an insurer for wrongful failure to settle, some courts have stated that an insurer has no duty to solicit or make an offer of settlement and thus cannot be sued for wrongful failure to settle absent a demand for settlement by the injured party. See Cheek v. Agricultural Insurance Company of Watertown, New York, 432 F.2d 1267 (5th Cir. 1970) (applying Florida law); Cotton States Mutual Insurance Company v. Fields, 106 Ga.App. 740, 128 S.E.2d 358 (1963). The better view, however, is that the insurer has an affirmative duty to explore settlement possibilities. See Moutsopoulos v. American Mutual Insurance Company of Boston, 607 F.2d 1185, 1188 (7th Cir. 1979) (under Wisconsin law insurer must actively pursue a settlement within the policy limits); Coleman v. Holecek, 542 F.2d 532, 537 (10th Cir. 1976) (duty of insurer to settle under law of Kansas does not hinge on existence of offer from injured party); Rova Farms Resort, Inc. v. Investors Insurance Company of America, 65 N.J. 474, 493, 323 A.2d 495, 505 (1974) (under New Jersey law an insurer must take initiative and attempt to negotiate a settlement within policy's limits); 7C J. Appleman, Insurance Law and ...