A claim of bad faith typically involves a dispute between an insurance policy holder and her own insurance company. The claim is made when the insured believes the insurer has wrongfully denied her money that she feels she is entitled to have as part of her insurance policy. Although the bad faith claim usually involves some sort of accident that may involve a third party, a bad faith claim is known as a first-party claim because the outside third-party actor would not be a party to the litigation between the insured and the insurer. The goals of a bad-faith claim by the insured include obtaining funds from the insurance company under her policy and possibly obtaining additional damages such as attorney fees and/or punitive damages. First-party bad faith claims have potentially serious consequences for insurance companies and need to be handled by capable counsel.
The Wisconsin Supreme Court first recognized the tort of bad faith in a first-party action in Anderson v. Continental Insurance Co., 85 Wis. 2d 675 (1978). The insureds in Anderson filed suit on claims for both breach of contract and bad faith refusal to negotiate after a furnace fire and explosion in the Anderson home. The Court in Anderson made clear that a bad faith claim is separate and distinct from a breach of contract claim and described it as a “separate intentional wrong which results from a breach of duty imposed as a consequence of the relationship established by contract.”
The Anderson Court found rationale for this conclusion in earlier Wisconsin precedent. In 1931, the Wisconsin Supreme Court recognized that it was the “duty of an insurer to assess claims as a result of an appropriate and careful investigation and that its conclusions should be the result of the weighing of probabilities in a fair and honest way.” See, Hilker v. Western Automobile Ins. Co., 204 Wis. 1 (1931). Another case from 1975 contemplated the possibility of bad faith claims, although it had not yet been explicitly recognized in Wisconsin. See, Drake v. Milwaukee Mutual Ins. Co., 70 Wis. 2d 977 (1975).
One illustrative source that provides an overview of Wisconsin law pertaining to bad faith claims is Civil Jury Instruction 2761, Bad Faith by Insurance Company: Assured’s Claim. The jury instruction states that in order to prove bad faith against an insurance company, the plaintiff must establish that there was no reasonable basis for the insurance company’s denial of the plaintiff’s claim for benefits under the policy, and that the insurance company, in denying the claim, either knew or recklessly failed to ascertain that the claim should have been paid.
The instruction describes bad faith on the part of an insurance company towards its insured as the absence of honest and intelligent action and consideration of its insured’s claim. Bad faith would exist if, upon the jury’s examination of the facts, the insurance company had no reasonable basis in denying the plaintiff’s claim. In considering what constitutes a rational basis, the jury may consider whether the plaintiff’s claim was properly investigated and whether the results of the investigation were given a reasonable evaluation and review. The jury is permitted to infer a reckless disregard on the insurance company’s part to learn that there was no reasonable basis for it to deny the plaintiff’s claim. Although a bad faith claim is an intentional claim, the plaintiff does not need to prove actual manifested intent by the insurance company because of this inference.
The jury instruction provides a summary of the pleading requirements and test for bad faith claims. Although it does not discuss the possibilities and consequences of a bad faith claim, it is useful for a quick reference. Jury instructions are meant to provide direction to the jury, but they do not necessarily consider all precedent and arguments. Therefore, although the jury instruction is valuable as an overview, it cannot be solely relied upon to cover all aspects of a bad faith claim.