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Supreme Court of Wisconsin Issues New Insurance Bad Faith Decision

On June 14, 2011, the Supreme Court of Wisconsin issued a decision on Brethorst v. Allstate Property & Casualty Insurance Company.  This case involved an allegation of bad faith on the part of the insurance company.  Bad faith is essentially the failure of the insurance company to treat its own insured fairly and to fulfill its fiduciary duty towards the insured.  The facts of the case involve the failure of Allstate to offer to pay the full amount of the medical expenses incurred by their insured as well as a failure to offer a reasonable amount to compensate their own insured for pain and suffering.  The victim's claim was against her own insurance company because the other driver was uninsured.  When that happens, the injured party is able to make a claim against his or her own insurance company for underinsured motorist coverage.

The decision from the Supreme Court in this case slightly changed bad faith law in Wisconsin.  Prior to this point, an insured could bring a claim for breach of contract simply for the insurance company's failure to pay policy proceeds that ought to be paid.  Completely separate from that breach of contract claim is the claim of bad faith.  For the first time, in Brethorst, the Supreme Court created the requirement that an insured must also allege that the insurer has breached the contract as part of the insured's bad faith claim.  In addition, the Supreme Court noted that the insured must "satisfy the court that she has established" a breach of contract "or will be able to prove such a breach in future."  This is a change from prior case law in Wisconsin because before now, there was no requirement that an insured make such a showing to the court in order to pursue a bad faith claim. 

What is left unclear from the decision is procedurally how the plaintiff will "satisfy the court" that he or she has proven a breach or will be able to prove such a breach in the future.  It is likely that attorneys and judges will struggle with how to satisfy this apparently new procedural requirement on bad faith cases in the future.

That language from the Supreme Court also begs the question, "isn't a breach of the duty of good faith which is implicit in every contract between insurer and insured enough to constitute a breach of the contract?"  Furthermore, the jury instruction in Wisconsin applicable to bad faith claims defines bad faith as "the absence of honest, intelligent action or consideration of its insured's claim."  Notably lacking from that definition is a new requirement that a contract has been breached.  Because the Supreme Court cited that jury instruction with approval, it is certainly possible, if not likely, that there are certain species of bad faith claims that would remain viable even in the absence of a specific breach of contract claim.  For example, as the Supreme Court noted, "an insurer in Wisconsin is required to conduct an appropriate and careful investigation before assessing a claim."  If the insured failed entirely to even consider or investigate a claim, on its face that would appear to be bad faith conduct in and of itself regardless of whether the contract is specifically later breached or not.  Similarly, if the insured delayed for six months on a claim that should have been paid in two weeks, but ultimately paid the claim, that would appear to be bad faith conduct under the jury instruction and under the Unfair Claims Practices Act in Wisconsin.  However, in that situation the insured might not be able to establish that policy benefits had not been paid.
In sum, the Brethorst decision is likely to create a period of confusion and adjustment in the area of bad faith law in Wisconsin and it is likely that additional bad faith cases will be seen in the Court of Appeals and perhaps the Supreme Court in the near future as these specific requirements are flushed out and explored.