Thursday, June 23, 2011
In an issue of first impression for the Wisconsin Supreme Court, Wanda Brethorst sued Allstate Insurance for first party bad faith without a breach of contract claim reports the State Bar of Wisconsin.
In December 2006 Brethorst was injured in a collision caused by an uninsured motorist driving under the influence. Brethorst's Allstate policy covered injury by an uninsured motorist as well as $5,000 in medical expenses. However, when the claim was submitted for the nearly $10,000 in medical bills Brethorst had incurred due to the uninsured motorist, Allstate offered a settlement well below $10,000. Brethorst filed a suit against Allstate for first party bad faith. Allstate asserted that the bad faith claim should be stayed until all other claims are resolved and filed a motion to bifurcate the breach of contract claim from the bad faith claim. In response to this, Brethorst alleged that there was nothing to bifurcate because she had only asserted one claim, bad faith. The circuit court denied the motion, stating that bifurcation is not necessary when the parties elect to bring only bad faith claims.
The Supreme Court of Wisconsin was charged with deciding whether a party must prove breach of contract prior to moving forward with a bad faith claim in a suit against an insurer even if that party is not claiming breach of contract. The opinion can be found here. The issue is important because a plaintiff can get extensive discovery on a bad faith claim that might not be available on a straight breach of contract claim.
The Court set forth its conclusions as follows:
(A) Some breach of contract is a fundamental prerequisite for a first-party bad faith claim against an insurer.
(B) Breach of contract and first-party bad faith are separate claims.
(C) An insured may file a bad faith claim without also filing a breach of contract claim. The policies articulated in Dahmen v. American Family Mutual Insurance Co., 2001 WI App 198, 247 Wis. 2d 541, 635 N.W.2d 1, which require bifurcation when both bad faith and breach of contract claims are brought together, are only partially applicable when a party has chosen to plead only a bad faith claim.
(D) The insured may not proceed with discovery on a first party bad faith claim until she has:
(1) pleaded a breach of contract by the insurer as part of a separate bad faith claim, and
(2) satisfied the court that she has established such a breach or will be able to prove such a breach in the future.
(E) In this case, Brethorst has supplied the insurer and the court with sufficient evidence of a breach of contract by the insurer that she may proceed with discovery on her bad faith claim. On the facts before us, Brethorst has shown uncontradicted evidence that she incurred $9,789 in medical expense for treatment from injuries she suffered in an automobile accident caused by an uninsured motorist. The insurer's failure to pay all these expenses without submitting any reasonable basis in law or fact (as opposed to theory) for its failure to do so justifies Brethorst going forward with discovery on her bad faith claim.
In reaching this conclusion the Court began by looking to the history of bad faith claims in Wisconsin which have long recognized that bad faith is a tort theory separate and distinct from breach of contract. In analyzing this issue of first impression, the Court looked to the question of whether a court can allow discovery under a bad faith claim without any showing by the plaintiff that the insurance company wrongfully denied benefits due under the contract.
The Court concluded that breach by an insurer is a fundamental prerequisite for first-party bad faith claims of this type. Therefore, an insured person must plead that she was entitled to payment under the contract and there was no reasonable basis for not honoring the contract to allege the separate claim of bad faith.
As applied to the facts of the case, the Court determined that Brethorst had pleaded breach of contract, and the Circuit Court had not abused its discretion in determining the claims did not need to be bifurcated.
Two Justices concurred, stating that they would simply have followed the reasoning of the Circuit Court. Allstate sought to bifurcate the case, but there is only one claim, so there is nothing to bifurcate. The concurring Justices criticized the majority for departing from established case law and for needlessly complicating the pleading standards for the tort of bad faith.
[JT & Katherine Freeman]