A first-party bad faith claim is somewhat unique compared to other litigation. In Anderson v. Continental Insurance Co., 85 Wis. 2d 675 (1978), the Wisconsin Supreme Court set forth the general duty for insurers to adhere to the implied covenant of good faith and fair dealing within every insurance contract. In the case of Danner v. Auto-Owners Ins., 2001 WI 90, the Wisconsin Supreme Court clarified this responsibility and held that every insurance contract from its inception has an implied covenant of good faith and fair dealing between the insured and the insurer. When this duty of good faith and fair dealing is breached, and the insured incurs damages as a result of that breach, a claim for bad faith will lie. This duty of good faith and fair dealing exists at all times including during the investigation, evaluation, and processing of an underinsured motorist claim. Although this obligation exists, the Court noted that an insurance company may still challenge claims which are fairly debatable and will be found liable only where it has intentionally denied, or failed to process or pay, a claim without a reasonable basis.
In order to bring a bad faith claim, a plaintiff must show the absence of a reasonable basis for denying benefits of the policy and the defendant’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim. In Anderson, the plaintiff brought the bad faith claim in conjunction with a breach of contract claim. However, in Brethorst v. Allstate Property and Cas. Ins. Co., 2011 WI 41, the Wisconsin Supreme Court held that some breach of contract is a fundamental prerequisite for a first-party bad faith claim against an insurer, but an insured may file a bad faith claim without also filing a breach of contract claim. The Brethorst decision essentially concluded that a breach of contract claim is not necessary in addition to a bad faith claim because it is inherent within the bad faith claim.
When a bad faith claim is brought, the court will apply the test set forth in the Anderson case. The test is whether a reasonable insurer would have denied or delayed payment of the claim under the facts and circumstances. Later courts have examined this test and deciphered that it has both objective and subjective components. The objective portion of the test is whether the insurer acted as a reasonable insurer would have acted under the particular facts and circumstances to conduct a fair and neutral evaluation of the claim. The subjective component is whether intent can be inferred from a reckless disregard or a lack of a reasonable basis for denial or a reckless indifference to facts or proofs submitted to the insured. The articulation of the bad faith test shows that even though it is listed as an intentional tort, the insured does not necessarily have to show actual intent because it may be inferred.
Since a bad faith claim has a special test and requires knowledge of what a reasonable insurance company would do, the defendant in DeChant v. Monarch Life Ins. Co., 200 Wis. 2d 559 (1996), attempted to argue that expert testimony is required as to whether the insurer’s conduct was reasonable. This argument was addressing the objective element of the bad faith test from Anderson. In 1995, the Wisconsin Supreme Court had already rejected a categorical rule that would have required expert testimony in all bad faith tort claims. Weiss v. United Fire & Casualty Co., 197 Wis. 2d 365 (1995). The Court in DeChant did not buy the necessity of expert testimony argument and ruled that the case also did not fall outside the purview of the average juror in order to necessitate expert testimony.
Overall, a first-party bad faith claim has unique elements. It arises out of a specific obligation. The claim itself requires particular pleading. Wisconsin has its own test of what constitutes a valid claim and the courts believe that juries are capable of interpreting the particularities of such a claim without the assistance of expert testimony. Although juries may be able to comprehend such first-party bad faith claims, it takes capable and experienced attorneys to defend what are often complicated and highly contentious lawsuits.