Bad faith claim can stand alone

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An insured may sue for bad faith without also filing a breach of contract claim.

Instead, breach of contract is an element of bad faith by an insurer.

Justice David Prosser wrote for the Wisconsin Supreme Court, “The fact that a first-party bad faith claim is a separate tort and may be brought without also bringing a breach of contract claim, does not change the fact that first-party bad faith cannot exist without some wrongful denial of benefit under the insurance contract.”

Wanda Brethorst was injured in an automobile accident with an uninsured driver in 2006, in which she was not at fault. Brethorst was insured by Allstate Property and Casualty Ins. Co., and had uninsured motorist coverage, as well as $5,000 coverage for medical expenses.

Brethorst incurred $9,789 in medical expenses, but Allstate offered to pay only a total of $6,800. Brethorst sued for bad faith, without also alleging breach of contract.

Allstate moved for bifurcation, arguing that the bad faith proceedings should be stayed until it could be resolved that there had been a breach of contract.

The circuit court denied the motion. The Court of Appeals accepted an interlocutory appeal by Allstate and certified the case to the Supreme Court.

On June 14, the Supreme Court affirmed.

The court held that breach of contract was an implicit element of a bad faith claim against an insurer, citing Anderson, Wisconsin Insurance Law, sec. 9.4 (6th ed. 2010), and Couch on Insurance 3d, sec. 198.28.

The court acknowledged that there is an alternative view — an insurer can fail to investigate a claim, and thus be guilty of bad faith, even though a thorough investigation would have revealed there was in fact no coverage, and thus, no breach of contract.

But the court concluded that permitting such a claim would impose damages despite the lack of proximate cause.

The court then turned to what threshold a plaintiff must meet in order to obtain discovery on the bad faith claim, when breach of contract is not claimed separately.

The court held, “the insured may not proceed with discovery on a first-party bad faith claim until it has pleaded a breach of contract by the insurer as part of a separate bad faith claim and satisfied the court that the insured has established such a breach or will be able to prove such a breach in the future (emphasis added by court).”

Applying that standard, the court held that Brethorst was entitled to discovery.

The complaint alleged as follows: She was injured due to the negligence of an uninsured motorist; she suffered injury; Allstate was liable for all of her medical expenses; and Allstate refused to pay them.

In addition, an attachment to the complaint contained a medical opinion that the expenses were incurred to treat injuries from the motor vehicle accident.

The court held this sufficient to proceed with discovery.

Justice Ann Walsh Bradley wrote a concurring opinion, joined by Chief Justice Shirley Abrahamson, taking issue with the majority’s inclusion of breach of contract as an element of bad faith.

Arguing that this creates uncertainty, the concurrence opined, “It is unclear whether the majority is really adding an additional element to the tort of bad faith, or whether it instead concludes that breach of contract is merely a shadow element of the tort.”

The concurrence concluded, “If an insurance company denies payment without an objectively reasonable basis for doing so, then the insurance company has breached its duty of good faith and fair dealing.”

What the Court Held

Case: Brethorst v. Allstate Property and Casualty Ins. Co., No. 2008AP2595

Issue: Can an insured file a bad faith claim against its insurer without also filing a breach of contract claim?

Holding: Yes. But breach of contract is an element of bad faith.

Attorneys: For Plaintiff: Timothy Knurr, Racine; For Defendant: James Ryan, Jason Gehring, Milwaukee.

David Ziemer can be reached at [email protected].