Bad-faith claims have several different factors and uncommon consequences that insurance companies do not regularly encounter. These cases commonly arise in the contexts of uninsured (“UM”) and underinsured (“UIM”) motorist claims. In litigating a bad faith claim, the plaintiff is entitled to discovery of the insurer’s work product and attorney/ client material containing information as to how the underlying UM or UIM claim was handled. Dahmen v. American Family Mut. Ins. Co., 2001 WI App 198. This information includes the insurer’s internal determination to deny benefits, its evaluation as to how a jury may value the claim, and its settlement strategy. This information is not regularly available to the plaintiff in discovery based on the underlying claim alone. Therefore, it is imperative to bifurcate and stay the underlying claim of the case from the bad faith claim in order to protect information that is normally unavailable to plaintiffs.
The authority to bifurcate claims is found in Wisconsin Statute Section 805.05(2) which provides that a trial court may order a separate trial, “always preserving inviolate the right of trial in the mode to which the parties are entitled.” The Dahmen court recognized that in the first-party claim and bad faith context, bifurcation of the claims accomplishes this objective. The court made several conclusions: 1) failure to bifurcate a claim of bad faith from an underlying claim for UIM benefits would significantly prejudice the insurer; 2) the two distinct claims present differing evidentiary requirements that increase the complexity of the issues and the potential for jury confusion; and 3) a separate trial on the underlying benefits claim increases the prospect of settlement and promotes economy by narrowing the issues for the jury and potentially limits the need for a later trial on the bad faith claim. Because the plaintiff gains significant discovery rights when making a bad faith claim, the right to bifurcate and stay that claim until the resolution of the underlying benefits claim is an important tool for an insurer faced with bad faith litigation.
In Anderson v. Continental Insurance Co., 85 Wis. 2d 675 (1978), the Wisconsin Supreme Court allowed first-party bad faith claims that afforded damages. The main form of damages would be the alleged damages the plaintiff claims within the policy coverage. The claimant could seek coverage under a disability policy, UM or UIM coverage. Separate from the damages covered under the respective policy of insurance, one important form of damages that has been expressly approved for first-party claims is attorney fees. DeChant v. Monarch Life Ins. Co., 200 Wis. 2d 559 (1996). The ability to obtain attorney fees for prosecuting the underlying action and any appeal provides significant leverage for the claimants as attorney fees may result in an exposure well beyond the value of the underlying claim.
Although Anderson allowed damages in first-party claims, the Court did not conclude that a bad faith cause of action necessarily made punitive damages appropriate. For punitive damages to be awarded, a defendant must not only have intentionally breached the duty of good faith and fair dealing, but in addition, the defendant must have been guilty of oppression, fraud, or malice. Wisconsin courts have not provided a bright-line rule for what type of conduct would be severe enough to warrant punitive damages. However, in Danner v. Auto-Owners Ins., 2001 WI 90, the Wisconsin Supreme Court noted that it reviews jury decisions with a narrow standard of review and thus will not overturn a jury decision if there is credible evidence to support the jury decision.
The potential exposure on first party-party bad faith claims may be significant. There are different risks that need to be considered and the legal landscape is always shifting. Therefore, it is critical that insurance companies seek representation by knowledgeable attorneys who have experience with the intricacies associated with this area of litigation.