Case Name: E. D. Kranzush, special administrator of the Estate of Dorothy Gerlikovski, Deceased, Plaintiff-Appellant-Petitioner, v. Badger State Mutual Casualty Company, a Wisconsin insurance corporation, Defendant-Respondent
Court: Wisconsin Supreme Court
Jurisdiction: Wisconsin
Decision Date: 1981-06-30
Citations: 103 Wis. 2d 56
Docket Number: No. 80-504
Parties: E. D. Kranzush, special administrator of the Estate of Dorothy Gerlikovski, Deceased, Plaintiff-Appellant-Petitioner, v. Badger State Mutual Casualty Company, a Wisconsin insurance corporation, Defendant-Respondent.
Judges: 
Reporter: Wisconsin Reports Second
Volume: 103
Pages: 56–95

Head Matter:
E. D. Kranzush, special administrator of the Estate of Dorothy Gerlikovski, Deceased, Plaintiff-Appellant-Petitioner, v. Badger State Mutual Casualty Company, a Wisconsin insurance corporation, Defendant-Respondent.
Supreme Court
No. 80-504.
Argued March 30, 1981. —
Decided June 30, 1981.
(Also reported in 307 N.W.2d 256.)
For the petitioner there were briefs by J. Robert Kaftan and Kaftan, Kaftan, Kaftan, Van Egeren, Ostrow & Gilson, S.C., of Green Bay, and oral argument by J. Robert Kaftan.
For the respondent there was a brief by Kurt H. Frauen, W. Ted Tornehl and Borgelt, Powell, Peterson & Frauen, S.C., of Milwaukee, and oral argument by Kmt H. Frauen.

Opinion:
WILLIAM G. CALLOW, J.
The sole issue presented on this review is whether a tort victim can bring an action against the tortfeasor's insurer for bad faith in failing to settle the victim's claim. Both the trial court, in granting the defendant-insurer's motion to dismiss, and the court of appeals, in affirming the dismissal, concluded that no 3uch cause of action exists in this state. We affirm.
Because this matter is before us on a motion to dismiss for failure to state a claim upon which relief can be granted, the only facts are those stated in the complaint, which for purposes of this review must be taken as admitted. Scarpaci v. Milwaukee County, 96 Wis.2d 663, 669, 292 N.W.2d 816 (1980); Ollerman v. O'Rourke Co., Inc., 94 Wis.2d 17, 24, 288 N.W.2d 95 (1980); General Split Corp. v. P & V Atlas Corp., 91 Wis.2d 119, 122-23, 280 N.W.2d 765 (1979); Morgan v. Pennsylvania General Ins. Co., 87 Wis.2d 723, 731, 275 N.W.2d 660 (1979); Anderson v. Continental Ins. Co., 85 Wis.2d 675, 683, 271 N.W.2d 368 (1978). As pleaded, the facts indicate that on November 10, 1974, Dorothy Gerlikovski was injured when the automobile in which she was a passenger struck a utility pole in a motel parking lot. The car was being driven by Dorothy's husband. Dorothy commenced an action in the circuit court for Brown county against her husband and his liability insurer, Badger State Mutual Casualty Company (Badger), the respondent herein, alleging negligence and seeking damages for her injuries. This action is still pending in the circuit court and is not involved in this review.
Following Dorothy's death the administrator of her estate commenced the instant action against Badger. The material allegations of the complaint are as follows:
"8. That the injuries which she sustained resulting from the accident consisted of injuries to her left shoulder, elbow, knee, right leg, forehead and neck, and that at the time of the injury the plaintiff's decedent had recently had a radical mastectomy, which was performed on August 14, 1974, and that she was in a weakened condition as a result of such mastectomy; and that at the time of the accident the area of the breast upon which the mastectomy was performed was further injured and damaged.
"9. That after the commencement of the action, the defendants, by their attorneys, through repeated requests for medical reports and hospital reports and through the filing of interrogatories, which were answered, were fully aware of the circumstances relating to the plaintiff's decedent's injuries and of the progress of the cancer which gave rise to the mastectomy and were fully apprised of the fact that the mortality of the plaintiff's decedent as a result of the aggravation of the cancer area in the left breast was very limited.
"10. That the defendants at all times had available to them all medical information needed to supply them with information relating to the plaintiff's decedent's injuries, and the defendants knew that the plaintiff's decedent was going to die within a short period of time from the cancer; and that the defendants used every means available to them to prolong the litigation so that the plaintiff's decedent either would be unable to assert herself while in good health or that she would die before the matter came to trial.
"11. That the action of the defendant herein was intentional and taken with the knowledge of the plaintiff's decedent's physical and emotional condition and the protraction of the litigation was adversely affected by the bad faith conduct of the defendant.
"12. That the defendant herein acted arbitrarily, wil-fully and in bad faith and with malice and outrageously and for the purpose of saving the company money.
"13. That these acts of constant delay, and even an attempt to delay twelve days before the death of the plaintiff's decedent, were intentional, malicious and outrageous and were meant to take advantage of Dorothy Gerlikovski's physical and mental condition. That these tactics of harrassment [sic] and delay were meant to cause the plaintiff's decedent to give up her claim and to minimize the amount of the defendant's liability. That such acts were in bad faith and with intent and effect of causing emotional distress.
"14. That during the protraction of the litigation, the defendant had numerous opportunities to settle the litigation on a fair and reasonable basis but that at all times while the plaintiff's decedent was capable of making decisions it arbitrarily, intentionally and in bad faith refused to consider the settlement of an obvious claim for damages made by the plaintiff's decedent, which failure to settle caused her grief and emotional distress."
On July 2, 1979, Badger moved to dismiss the complaint for failure to state a claim upon which relief can be granted. In a memorandum decision dated February 7, 1980, the circuit court for Brown county, the Hon. William J. Duffy presiding, granted Badger's motion, concluding that an insurer owes no duty to third-party claimants relative to the settlement of claims. On appeal the court of appeals, in an unpublished opinion, concluded likewise and affirmed. Kranzush v. Badger Casualty Co., 98 Wis.2d 748, 297 N.W.2d 515 (Ct. App. 1980).
I.
Under our case law the notion that an insurance company may be required to respond in extracontractual damages as a result of certain tortious conduct in the settlement of claims or the payment of benefits has evolved into three separate theories of bad-faith recovery. In this case the petitioner urges us to recognize a fourth. Before addressing the particulars of this new theory of bad-faith recovery, we will briefly review the development of the first three.
Where an injured party makes a claim against the tortfeasor's insurer, we have held that the insurer has an obligation to the insured to exercise good faith in the settlement of the claim. This obligation, which arises by virtue of the contractual relationship of the insurer and the insured, reflects the fact that in the standard liability insurance contract the insured surrenders completely the right to control the settlement or litigation of the victim's claim within the limits of the insurer's exposure. The threat to the insured is obvious: If the insurer fails to settle a third-party claim within the limits of the policy and chooses instead to litigate the matter, the insured will be exposed to that portion of any judgment which exceeds the policy limits. Thus in Hilker v. Western Automobile Ins. Co., 204 Wis. 1, 231 N.W. 257, 235 N.W. 413 (1931), we affirmed a plaintiff-insured's recovery of an excess judgment against his insurer and held that in the processing of claims against an insured an insurer has a duty to make a diligent investigation of the facts and a duty to inform the insured of the possibility of a recovery in excess of the policy limits. A third duty, a duty to keep the insured timely and adequately informed of all settlement offers received from the claimant, was added by the court in Baker v. Northwestern National Casualty Co., 22 Wis.2d 77, 125 N.W.2d 370 (1963). The essence of this aspect of bad faith is explicated in Alt v. American Family Mutual Ins. Co., 71 Wis.2d 340, 348, 237 N.W.2d 706 (1976), where we stated:
"It is obvious, then, that what we speak of when referring to bad faith is the breach of a known fiduciary-duty. This carries with it the duty to act on behalf of the insured and to exercise the same standard of care that the insurance company would exercise were it exercising ordinary diligence in respect to its own business. Since that is the accepted standard, an insurance company, in which is vested the exclusive control of the management of a case, breaches its duty when it has the opportunity to settle an excess liability case within policy limits and it fails to do so."
See also: Johnson v. American Family Mutual Ins. Co., 93 Wis.2d 633, 287 N.W.2d 729 (1980); Howard v. State Farm Mutual Auto. L. Ins. Co., 70 Wis.2d 985, 236 N.W. 2d 643 (1975); Howard v. State Farm Mutual Automobile Ins. Co., 60 Wis.2d 224, 208 N.W.2d 442 (1973); Nichols v. United States Fidelity & Guaranty Co., 37 Wis.2d 238, 155 N.W.2d 104 (1967); Baker v. Northwestern National Casualty Co., 26 Wis.2d 306, 132 N.W. 2d 493 (1965); Maroney v. Allstate Ins. Co., 12 Wis.2d 197, 107 N.W.2d 261 (1961); Berk v. Milwaukee Automobile Ins. Co., 245 Wis. 597, 15 N.W.2d 834 (1944); Lanferman v. Maryland Casualty Co., 222 Wis. 406, 267 N.W. 300 (1936).
A second basis for a bad-faith claim may arise from an insurer's handling of an insured's claim under a casualty, life, health, or accident policy. This type of claim is exemplified by Anderson v. Continental Ins. Co., supra, in which we held that an insurer's unreasonable failure to pay its insured's smoke damage claim was an actionable tort. Reiterating the fiduciary relationship between the insurer and the insured first articulated in Hilker, we adopted the following statement as the law of this state:
" 'It is manifest that a common legal principle underlies all of the foregoing decisions; namely, that in every insurance contract there is an implied covenant of good faith and fair dealing. The duty to so act is immanent in the contract whether the company is attending to the claims of third persons against the insured or the claims of the insured itself. Accordingly, when the insurer unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability in tort/ " 85 Wis. 2d at 689, quoting Gruenberg v. Aetna Insurance Co., 9 Cal. 3d 566, 575, 108 Cal. Rptr. 480, 510 P.2d 1032 (1973).
We also declared that "the tort of bad faith is not a tortious breach of contract. It is a separate intentional wrong, which results from a breach of duty imposed as a consequence of the relationship established by contract." 85 Wis.2d at 687. Most recently, in Davis v. Allstate Ins. Co., 101 Wis.2d 1, 303 N.W.2d 596 (1981), we applied the Anderson holding to affirm a jury's award of compensatory and punitive damages to an insured whose insurer exercised bad faith in its handling of the insured's fire loss claim.
The third situation in which we have recognized a claim against an insurer for bad faith is in the handling of a worker's claim for benefits under a worker's compensation policy. In Coleman v. American Universal Ins. Co., 86 Wis.2d 615, 273 N.W.2d 220 (1979), the plaintiff, an injured worker who received compensation benefits under the policy, sued the insurer arid its adjusters for bad faith in three times stopping the compensation payments in spite of their knowledge of the validity of his claim. Beginning with the observation that the Anderson rationale was applicable to third-party claims, we held that the plaintiff's bad-faith suit was not barred by the exclusivity provision of the Worker's Compensation Act.
To these instances where we have recognized an insurer's potential tort liability for bad faith in the handling of claims the petitioner seeks to add a fourth: Liability of the insurer to a third-party claimant for the insurer's failure to settle the claim where the liability of the insured is reasonably clear. Not surprisingly, the petitioner relies heavily upon Coleman and Anderson for the rationale upon which this liability should be premised. It is our task first to determine whether any of the three kinds of bad-faith cases heretofore discussed would support the kind of claim being suggested.
The first inquiry, and perhaps the one most easily answered, is whether such a claim could be viewed as an extension of the excess liability cases typified by Alt. We think not. In the first place, the instant case does not involve an excess judgment since the principal negligence suit has yet to reach judgment. But more important, it is clear that this excess liability bad-faith tort is a vehicle to enforce the insurer's duty to be mindful of the insured's interests when settling third-party claims. A settlement within policy limits is, as a practical matter, of no interest to the insured, since the insured has paid his premium and is shielded to the extent of the policy limits. But as the insurer weighs the merits of settlement within policy limits against the risks of litigation (a decision which the insured has relinquished to the insurer), the insured's potential excess liability hangs in the outcome. In Alt we concluded: "All prior Wisconsin cases indicate that an insurance company has more than a passive role — that, in some circumstances at least, it has an affirmative duty to seize whatever reasonable opportunity may present itself to protect its insured from excess liability." 71 Wis.2d at 350. Just as clearly, our cases indicate that the insurer's duties of diligent investigation, notice of excess liability potential, and communication of settlement offers run to the insured, and the cause of action upon their breach belongs to the insured. In every one of our excess liability bad-faith cases the plaintiff is either the insured or the assignee of the insured's claim.
The inappropriateness of the excess judgment cases as a basis for the petitioner's cause of action stems from a fundamental mismatch of the interests sought to be served by the respective rights of action. The excess judgment cases balance the insurer's right to control the settlement process (and protect its own interests) against the insured's right to be protected from liability for which he is not covered. These are concerns to which the third-party claimant is a stranger. In fact, whereas the relationship of the insurer and the insured which gives rise to the excess judgment type lawsuit is one of trust and cooperation, the relationship of the third-party claimant is adversarial.
The second inquiry deals with whether the petitioner's claim can be based upon the "first-party" type of bad-faith suit recognized in Anderson. Again, we think not. The heart of the tort recognized in Anderson is the fiduciary relationship between the insurer and the insured and the insurer's breach of the duty of good faith and fair dealing implicit in every contract. Where a person contracts with an insurance company for coverage in case of particular losses, the insured has a right to expect to be treated fairly and to have legitimate claims paid promptly. Where these expectations are not met because of the insurer's tortious conduct, the insured can recover damages. As before, there is a basic difference between the rights sought to be protected in an Anderson suit and those in the petitioner's claim. The insured's right to be treated fairly (and his recourse to the courts if he is not) is rooted in the contract of insurance to which he and the insurer are parties. The third-party claimant has not contracted for insurance benefits and is not in a contractual relationship, much less a relationship of trust, with the insurer. Absent this relationship, any right of a third-party claimant to be treated fairly in the settlement of a claim is clearly not actionable under Anderson.
The third inquiry is whether Coleman offers a basis for the petitioner's claim. While on the surface this would appear to be a much closer question, once again we conclude it does not. Coleman recognized as "boilerplate law in Wisconsin that the rationale underlying statutory worker's compensation is that workers accept smaller recoveries than those potentially available at common law in return for coverage of all work-related injuries regardless of fault." 86 Wis.2d at 621. A recalcitrant insurer subverts this goal by depriving the injured worker of the certain and swift recovery to which he is entitled and for which he has given up his right to pursue a larger recovery in a civil action. In contrast, a third-party claimant tort victim, such as the petitioner's decedent in this case, is not the object of a sweeping statutory scheme designed to promote the compensation of injuries in a routine, largely nonad versar ial manner. It is still the obligation of the tort victim to establish the fault of the tortfeasor, and it is still the prerogative of the alleged tortfeasor to defend himself in court.
Even this cursory overview suggests the significantly greater impact of an insurer's bad faith in a worker's compensation case than in a tort case. For the tort victim, the failure to settle with the tortfeasor is but the first skirmish; the principal battle is yet to come. But where an injured worker cannot obtain compensation benefits, his alternatives are far more limited. His ability to bring an action against the insurer for bad faith under the principles set forth in Anderson is some assurance that his exclusive remedy will not be denied through the intentional wrongdoings of the insurer.
Furthermore, owing to the design of the worker's compensation laws, the injured employee and the insurance carrier occupy relative positions which are analogous to the insurer-insured relationship at the heart of the Anderson tort. Where a work-related injury occurs, liability is imposed upon the employer (sec. 102.03(1), Stats.), the statutory recovery is the employee's sole remedy (sec. 102.03(2)), and the employer or the insurer must pay (secs. 102.22 and 102.31). Under these legislatively imposed conditions, it is reasonable for the employee to expect fair dealing from the insurer, and it is not unreasonable to impose upon the insurer that duty. See: Hayes v. Aetna Fire Underwriters, 609 P.2d 257 (Mont. 1980); and Gibson v. National Ben Franklin Insurance Co., 387 A.2d 220 (Me 1978).
The petitioner argues that the third-party claimant in an ordinary tort case does enjoy a special relationship with respect to a tortfeasor's insurer. Citing legislative prohibitions against certain policy exclusions, sec. 632.34 (2) and (3), Stats. 1977, certain kinds of mandated coverages, sec. 632.34(6), 1977, prohibitions on cancellation, sec. 632.35, and the availability of direct action, secs. 632.24 and 632.22, the petitioner asserts that these provisions were intended to broaden coverage and facilitate recovery for injured claimants. Even assuming that in enacting these provisions the legislature had the interests of third-party claimants in mind, it is obvious that these statutes fall far short of creating the no-fault compensatory scheme embodied in the worker's compensation statutes. There is no statutory exclusive remedy with its attendant immunity; both the tortfeasor and the insurer are susceptible to civil, suit. There is no general requirement that a person carry liability insurance in the first instance. The obligation of a tortfeasor to pay damages for his torts is of common law, not statutory origin. The claimant is not locked into a legislatively driven bargain whereby his recovery, though smaller, is not contingent upon his success in a lawsuit.
Because we conclude that the special conditions which attend the relationship of an injured employee and the worker's compensation carrier are not present where the tort victim asserts a claim against a tortfeasor's insurer under ordinary tort principles, we do not view Coleman as requiring the same result. We are mindful of our language in that case, however, where we said: "It is apparent that the rationale of Anderson is applicable not only to the claim of a first-party insured against its insurance company, but is also applicable when the case involves a third-party claim against an insurer." 86 Wis.2d at 620. While we now construe that language to be a recognition of the foregoing considerations unique to the worker's compensation situation, the words themselves are unnecessarily broad. To erase any doubt, we declare that this language is not to be taken to confer a general right of action upon third-party claimant tort victims against the tortfeasor's insurer under the rule in Anderson.
Having concluded that there is nothing in our previous bad-faith cases which requires the recognition of the claim the petitioner seeks to assert, we now consider whether we should recognize this new right of action nevertheless.
The plight of the third-party claimant in a bad-faith situation has been given far less attention by courts and commentators than has that of the wronged insured. In cases where an insurer's failure to settle within policy limits has resulted in an excess judgment, the claimant is a judgment creditor for the full amount. One commentator explains that in this situation, while an assignment of the insured's bad-faith claim to the claimant-creditor is a common occurrence, there have been some efforts to create in the claimant a means to recover the excess judgment directly from the insurer where for some reason an assignment is not made. Comment, Liability Insurers and Third-Party Claimants: The Limits of Duty, 48 U. Chi. L. Rev. 125, 140 (1981).
Accordingly, rather than seeing the claimant languish as the judgment creditor of an uncollectible debt, or perhaps drive the insured into bankruptcy, courts have permitted the third-party claimant to recover directly against the insured upon a third-party beneficiary theory, Thompson v. Commercial Union Ins. Co. of New York, 250 So.2d 259 (Fla. 1971), or by garnishment of the insurer's debt to the insured, Rutter v. King, 57 Mich. App. 152, 226 N.W.2d 79 (1974), Gilley v. Farmer, 207 Kan. 536, 485 P.2d 1284 (1971), Shaw v. Botens, 403 F.2d 150 (3d Cir. 1968). But the overwhelming weight of authority holds that the excess judgment creditor has no action against the insurer. See, generally, Annot., 63 A. L. R.3d 677 (1975 and Supp 1980), Right of Injured Person Recovering Excess Judgment Against Insured to Maintain Action Against Liability Insurer for Wrongful Failure to Settle Claim. The reasons most often advanced for denying this right of action are that the duty to settle runs to the insured, not the claimant; that the excess judgment does not in fact injure the claimant; and that the claimant is a stranger to the contractual relationship between the insurer and the insured. Bean v. Allstate Ins. Co., 285 Md. 572, 403 A.2d 793, 794-95 (1979). See also: Page v. Allstate Ins. Co., 126 Ariz. 258, 614 P.2d 339 (1980); Winchell v. Aetna Life & Casualty Ins. Co., 394 N.E.2d 1114 (Ind. App. 1979).
Considerably less attention has been given the problem with which we deal today — whether the insurer may be liable to the injured claimant for a wrongful failure to settle or negotiate irrespective of the existence of an excess judgment. Such a right of recovery is urged by some, see, e.g., Comment, Extending the Insurer's Duty of Good Faith and Fair Dealing to Third Parties Under Liability Insurance Policies, 25 U.C.L.A. L. Rev. 1413 (1978); and rejected by others, see, e.g., Comment, Liability Insurers and Third-Party Claimants: The Limits of Duty, 48 U. Chi. L. Rev. 125, 140 et seq. (1981); Comment, Royal Globe Insurance Co. v. Superior Court: Right to Direct Suit Against an Insurer by a Third Party Claimant, 31 Hastings L. Rev. 1161 (1980). The treatment of this issue by other courts is instructive.
In Linscott v. State Farm Mutual Auto. Ins. Co., 368 A.2d 1161 (Me. 1977), the plaintiff entered into negotiations with the insurer of the alleged tortfeasor. After making a settlement offer within policy limits which the insurer rejected, the plaintiff placed the matter in the hands of an out-of-state attorney for further action. Shortly thereafter a settlement was reached, within policy limits and only one thousand dollars less than the plaintiff's original offer. The plaintiff then commenced an action against the insurer, alleging a breach of the insurer's duty "to make whole the person whom [the tort-feasor] has injured." Id. at 1163. Treating this as stating a claim for breach of the insurer's duty to negotiate in good faith with the injured party, the court upheld the trial court's dismissal for failure to state a claim upon which relief can be granted. In reaching that conclusion, the court stated:
"The pre-trial negotiations which may be conducted between a tort claimant and a defending insurance company are adversary in nature and, hence, will not give rise to a duty to bargain in good faith, as claimed by plaintiff. A 'duty of good faith and fair dealing' in the handling of claims runs only to an insurance company's insured, Bennett v. Slater, 154 Ind. App. 67, 289 N.E.2d 144 (1972); Seguros Tepeyac, S.A., Compania Mexicana v. Bostrom, 347 F.2d 168 (5th Cir. 1965); it derives from a covenant implicit in the provisions of the insurance contract establishing the insurer as the authorized representative of the insured and is, therefore, without appli cation for the benefit of the adversary third party tort claimant. Murray v. Mossman, 56 Wash.2d 909, 355 P.2d 985 (1960); Duncan v. Lumbermen's Mutual Casualty Company, 91 N.H. 349, 23 A.2d 325 (1941). Indeed, that the insurer is the representative of the insured logically imports that the third party tort claimant's status as the adversary of the insured renders him, ipso facto, the adversary of the insured's agent. Thus, prior to the establishment of legal liability, as the tort claimant has no legal right to require the tortfeasor to negotiate or settle, it likewise lacks right to require such action by his representative. Zahn v. Canadian Indemnity Company, 57 Cal. App.3d 509, 129 Cal. Rptr. 286 (1976). This is true even if it is the insurer which voluntarily initiates the pre-litigation negotiations with the injured tort claimant. Francis v. Newton, 75 Ga. App. 341, 43 S.E.2d 282 (1947)." 368 A.2d at 1163-64.
In Bowe v. Eaton, 17 Wash. App. 840, 565 P.2d 826 (1977), the plaintiff was injured such that she was unable to work. The tortfeasor's insurer made an advance offer of 6014 hours of lost wages, and the plaintiff's attorney responded by asking for an additional $4.70. Several weeks later the insurer replied that the original advance for lost wages would no longer be available but that it would entertain final settlement negotiations. The plaintiff then brought an action against the insurer for mental suffering and emotional distress because of the insurer's wrongful failure to advance payment in settlement of her claim. In rejecting this claim, the court stated:
"Its contract [the insurance company's] runs to its insured, Mr. Eaton. That contract imposed an obligation to deal fairly and in good faith on his behalf and in his interest. Regardless of the choice of language, the insurance company must have breached a duty owed to the appellant before it was liable for damages under a tort theory. . . ." (Citations omitted.)
"The respondent insurance company had no contractual obligation to the appellant; it was under no obligation to accept appellant's counteroffer." Id. at 829.
In Scroggins v. Allstate Ins. Co., 74 Ill. App.3d 1027, 393 N.E.2d 718 (1979), injured pedestrians brought an action against the driver of the vehicle which struck them and against the driver's insurer, Allstate. The fourth count of the complaint alleged that Allstate breached its duty to negotiate in good faith by failing to accept the plaintiffs' offers to settle at or within the policy limits. The court's discussion of this claim reveals one of the fundamental problems with this type of tort — characterizing the nature of the claimant's injury. In concluding that the plaintiffs had no standing to bring the action, the court relied exclusively on cases dealing with excess judgments where a third party sought to collect the excess directly from the insurer, distilling from them the basic principle that there is no duty owed by the insurer to the claimant to settle the claim. The court continued:
"If these principles apply to bar direct actions against insurers by third parties who have already obtained a judgment in excess of policy limits against the insured, they clearly apply to bar plaintiffs, who are at best potential judgment creditors, from bringing the instant action against Allstate. Indeed, since no excess judgment has yet been rendered against the insured, it remains speculative whether the alleged breach of duty will ever result in the injury that normally gives rise to an action for breach of the duty. (See generally Wolfberg v. Prudence Mut. Cas. Co. (1968), 98 Ill. App.2d 190, 240 N.E.2d 176.) Plaintiffs have cited, and we have found, no case in the country permitting a direct action against an insurer by a third party claimant at this stage of litigation, in the absence of statutory or contractual sanction of such an action. Neither have plaintiffs shown that the necessity for such an action outweighs the potential difficulties Allstate has argued are likely to ensue, such as the possibility that insurers will effectively be coerced into settling where their liability has not and may never be established. If plaintiffs do recover an excess judgment against Allstate's insureds, and if they obtain by assignment any claim the insureds might have against Allstate, perhaps then they may have an action against Allstate. But under the case law discussed above, they clearly have no standing to bring such an action now." 393 N.E.2d at 721.
Clearly the court viewed the injury for which the plaintiffs sought damages as related to the existence of a judgment in excess of policy limits. Yet it is clear that the plaintiffs were seeking damages for their alleged distress and embarrassment caused by the failure of the insurer to settle their claims.
Recently, this issue was presented to the federal district court in Wisconsin. In Uebelacker v. Horace Mann Ins. Co,, 500 F. Supp. 180 (E.D. Wis. 1980), the plaintiff-claimant, suing an insurer and its insured in a diversity action, for personal injuries arising from an automobile accident, alleged a cause of action against the insurer for bad faith in failing to negotiate for the settlement of the plaintiff's claim. Granting the insurer's motion to dismiss the claim, Chief Judge Reynolds stated:
"The right of a third party claimant to maintain an action for bad faith against the insurer has, however, been recognized only where the claimant has a vested claim, whether as a result of statutory entitlement, for example under the worker's compensation statutes, or as a result of an unsatisfied judgment against the insured. [Citations omitted.]
"Plaintiffs in this case have neither a fiduciary relationship with H[orace] M[ann] Insurance] C[ompany], nor a judgment against it, nor a statutory claim to recovery from it. Therefore they have no claim against it for bad faith in negotiating or settling the plaintiff's claim." Id. at 183-84.
These cases stress a constant theme: an insurer owes no duty to the third-party claimant to settle or to negotiate in good faith. It is clear in the instant case that the injury for which the petitioner seeks compensation is not related to the existence or even the potential for an excess judgment. Rather, it is for whatever injuries result from an insurer's refusal to settle when the claimant thinks it should, for the distress caused by what the claimant thinks are unfair tactics, and for the deprivation of the funds to which the claimant thinks he is entitled. To declare the existence of a cause of action in favor of the claimant against the insurer for these injuries would be to expose an insurer to liability for failing to satisfy a claim before the fundamental predicate to its duty to do so has been established — the determination of the insured's legal liability. We reiterate the words of the supreme court of Maine, for we believe they well express the extent to which this cause of action would constitute a serious and unprecedented departure from established tort principles:
"Indeed, that the insurer is the representative of the insured logically imports that the third party tort claimant's status as the adversary of the insured renders him, ipso facto, the adversary of the insured's agent. Thus, prior to the establishment of legal liability, as the tort claimant has no legal right to require the tortfeasor to negotiate or settle, it likewise lacks right to require such action by his representative." Linscott v. State Farm Mutual Auto. Ins. Co., 368 A.2d at 1163-64.
We come to the conclusion that the same principles which underlay our recognition of an insured's right to recover from his insurer in both the first party and the excess judgment situations dictate that the claim sought to be asserted here must fail. The insurer's duty of good faith and fair dealing arises from the insurance contract and runs to the. insured. No such duty can be implied in favor of the claimant from the contract since the claimant is a stranger to the contract and to the fiduciary relationship it signifies. Nor can a claimant reasonably expect there to be such a duty, inasmuch as the insurer and the insured are aligned in interest against the claimant. In the absence of any such duty, the third-party claimant cannot assert a claim for failing to settle his claim, and we therefore decline to recognize such a claim for relief under common law tort principles.
II.
Notwithstanding our conclusion that a third-party claimant cannot state a claim for relief against an insurer for a bad faith refusal to settle under common law principles, we must consider whether such a right of action exists by virtue of statutory or administrative regulatory provisions. Such a private right of action, if it is found in the statutes or the insurance provisions of the Administrative Code, would be in clear derogation of the common law.
"It is an accepted axiom of law in Wisconsin that:
" 'Statutes are not to be construed as changing the common law unless the purpose to effect such change is clearly expressed therein. To have such effect "the language [of the statute] must be clear, unambiguous and peremptory." ' Wisconsin Bridge & Iron Co. v. Industrial Comm., 233 Wis. 467, 474, 290 N.W. 199 (1940)."
Maxey v. Redevelopment Authority of Racine, 94 Wis.2d 375, 399, 288 N.W.2d 794 (1980). The legislative intent to change the common law must be expressed "beyond any reasonable doubt." Grube v. Moths, 56 Wis.2d 424, 437, 202 N.W.2d 261 (1972); Burke v. Milwaukee & Suburban Transport Corp., 39 Wis.2d 682, 690, 159 N.W.2d 700 (1968). And where the question is whether a right of action is to be inferred from a statute, we have observed:
" 'The legislative intent to grant or withhold a private right of action for the violation of a statute, or the failure to perform a statutory duty, is determined primarily from the form or language of the statute. The nature of the evil sought to be remedied, and the purpose it was intended to accomplish, may also be taken into consideration. In this respect, the general rule is that a statute which does not purport to establish a civil liability, but merely makes provision to secure the safety or welfare of the public as an entity, is not subject to a construction establishing a civil liability.' "
McNeill v. Jacobson, 55 Wis.2d 254, 258-59, 198 N.W.2d 611 (1972). See also: Candee v. Egan, 84 Wis.2d 348, 357, 267 N.W.2d 890 (1978). With these precepts in mind, we turn to the statutes upon which the petitioner relies.
(1) Sec. 632.24, Stats., the direct action statute. This section makes an insurer liable up to policy limits to "the persons entitled to recover against the insured for the death of any person or for injury to persons or property." While it is no doubt true, as the petitioner suggests, that this section is intended to facilitate recovery by injured parties, it is clear from the language of the statute that the liability to which the insurer is exposed is predicated upon the liability of the insured. See: Ritterbusch v. Sexmith, 256 Wis. 507, 41 N.W.2d 611 (1950). Under this section the claimant has a right of action against the insurer only to the extent that he has thé same right of action against the insured for his negligence. Clearly, it does not provide a right of action against the insurer for a separate, intentional tort committed by the insurer. For these same reasons we do not find an implied right of action in sec. 632.34, defense of noncooperation, or sec. 632.22, providing that insolvency or bankruptcy of the insured will not defeat the right of the claimant to recover against the insurer.
(2) See. 601.01 (2), Stats. This is one of eleven enumerated purposes of Chapters 600-646 set forth in sec. 601.01. Subsection (2) provides that one purpose of the regulatory statutes is "[t]o ensure that policyholders, claimants and insurers are treated fairly and equitably." It is readily apparent that this subsection does not by express language confer upon any group a right of action. Indeed, it does not by its terms impose a duty, the breach of which could be actionable. No one would argue that fair and equitable treatment of insurers, insureds, and claimants is a desirable goal and one which is worthy of expression in this type of legislation. However, when this stated purpose is viewed with the others in the section, it is clear that the overriding goal of these statutes is to provide the benefits to the general public welfare which flow from a well-regulated insurance industry. In addition, enforcement provisions for specific statutory and rule violations have been provided in sec. 601.64, and the duty of enforcement has been placed with the Commissioner of Insurance. Sec. 601.41(1). Recalling the admonition in McNeill v. Jacobson, supra, that a private cause of action will not be inferred from a statute which generally provides for the public welfare, we are of the opinion that sec. 601.01 is just such a statute, and therefore we do not find it to imply a right of action in favor of the claimant against the insurer.
(3) Wis. Admin. Code Sec. INS 6.11. In this state administrative rules enacted pursuant to statutory rule- making authority have the force and effect of law. Law Enforcement Standards Board v. Village of Lyndon Station, 101 Wis.2d 472, 488, 305 N.W.2d 89 (1981); Josam Mfg. Co. v. State Board of Health, 26 Wis.2d 587, 596, 133 N.W.2d 301 (1965). Accordingly, the above-men tioned precepts governing the presence of implied rights of action in statutes apply to such rules.
Of the various provisions of INS 6.11, the ones most appropriate to this inquiry are 6.11(3) (a) 2, 4, 5, and 10. Under 6.11 (3) (a) 2, it is an unfair practice for an insurer to fail "to initiate and conclude a claims investigation with all reasonable dispatch." Subsection (3) (a) 4 makes it an unfair practice for an insurer to fail "to attempt in good faith to effectuate fair and equitable settlement of claims submitted in which liability has become reasonably clear." Under subsection (3) (a) 5 it is an unfair practice for an insurer to fail "upon request of a claimant, to promptly provide a reasonable explanation of the basis in the policy contract or applicable law for denial of a claim or for the offer of a compromise settlement." Subsection (3) (a) 10 proscribes the practice of " [c] ompelling insureds and claimants to institute suits to recover amounts due under its policies by offering substantially less than the amounts ultimately recovered in suits brought by them." Subsection (5) provides that violations of subsection (3) (a) subject the insurer to possible license revocation as well as the enforcement procedures under sec. 601.64, Stats.
Unlike the general expression of legislative purpose contained in sec. 601.01(2), Stats., which we characterized as intended to benefit the general public welfare more than any particular group of persons, these provisions of the administrative code do reflect a more immediate concern for the treatment of insureds and claimants, so much so that we concede their enactment was for the benefit of those groups. But that a rule is enacted for the benefit of a particular class of persons is not to say it creates a private right of action to assure that those benefits are realized. As we have already stated, the touchstone in the determination of this question is the presence of an expression of legislative intent specifically to create such a right, and the form and language of the rule are the primary indicators of such an expression. McNeill v. Jacobson, supra.
The form of INS sec. 6.11 is significant in that, while it sets forth in one subsection a number of examples of proscribed conduct, it provides in a separate subsection the penalties attending their violation. Inasmuch as secs. 601.64(3) (c) and (4),.Stats., already set forth the penalty for the violation of any "insurance statute or rule," the inclusion of INS 6.11(5) is not necessary to the substance of the rule. Because it is substantively redundant, we are inclined to treat its presence in the rule as indicative of the rule-maker's intent that the statutory enforcement provisions are to be exclusive.
Regarding the language of the rule itself, we are drawn to the terms of INS 6.11 (1), which express the purpose of the rule as "promot [ing] the fair and equitable treatment of policyholders, claimants and insurers by defining certain claim adjustment practices which are considered to be unfair methods and practices in the business of insurance." (Emphasis added.) If this rule is treated as defining what the commissioner has determined to be unfair practices, it then becomes the logical complement of secs. 601.01(3) and 601.64, Stats., by reducing the general concept of unfair conduct to specific examples of business practice which will contravene the purpose of the insurance laws and invoke the enforcement provisions available to the commissioner. Consistent with this reading, we note that the introductory language of INS 6.11(3) (a) states that the enumerated practices will be considered unfair practices "if committed by any person without just cause and performed with such frequency as to indicate a general business practice." In order for an insurer's conduct to be classified as an unfair method or practice within the meaning of this rule, the conduct must have two characteristics: it must be done without just cause, and it must be done with such frequency as to be a general business practice. We do not foreclose the possibility that an insurer's treatment of one claimant during the course of the handling of one claim could be considered a business practice, but we have some doubt that it could be considered "general." In any event, we believe this prefatory language, rather than suggesting an intention to create a civil right of action on behalf of individual claimants, underscores the purpose of rule INS 6.11 as an interpretive aid to the application of the commissioner's enforcement powers.
Bearing in mind our initial observations concerning the need for a clear expression of intent to create a private right of action, especially where that right would be in clear derogation of the common law, we conclude that rule INS 6.11 does not contain such an expression. To find in rule INS 6.11 an implied private right of action in favor of a claimant would, we think, be inconsistent with its function as an aid to the interpretation and implementation of the insurance statutes.
Nor are we persuaded to find the existence of a private right of action by the rule in Royal Globe Ins. Co. v. Superior Court, Etc., 153 Cal. Rptr. 842, 592 P.2d 329 (1979). In that case the supreme court of California ruled that a violation of that state's insurance unfair practices laws confers a right of action upon third-party claimants against the violating insurers. Although the particular examples of unfair practices enumerated in the California law are substantially similar to those found in INS 6.11(3) (a), the court's decision was grounded upon the language of a different section of the insurance code which provided: "a cease and desist order issued by the commissioner under the provisions of the act shall not absolve an insurer from 'civil liability or criminal penalty under the laws of this State arising out of the methods, acts or practices found unfair or deceptive,' " (Emphasis in original.) Id. at 882. We can find no analogous provision in our insurance laws to suggest that, in addition to the commissioner's arsenal of enforcement tools, the commission of an unfair practice renders an insurer subject to civil suit by the claimant. Other jurisdictions have reached the same result. See: Scroggins v. Allstate Ins. Co., supra; Bowe v. Eaton, supra.
There is but one more step in the completion of our analysis in this case. A complaint should not be dismissed for failure to state a claim upon which relief can be granted "unless it appears to a certainty that no relief can be granted under any set of facts that plaintiff can prove in support of his allegations." Morgan v. Pennsylvania General Ins. Co., 87 Wis.2d 723, 732, 275 N.W.2d 660 (1979). We have reviewed our previous cases and found in them no recognition of a legal basis upon which a third-party claimant may recover from the tortfeasor's insurer for failure to settle a claim. After careful consideration, we also declined to recognize the existence of such a right of action. Finally, we have searched the insurance laws and related administrative rules and concluded there is no such right of action by implication in those provisions. Because we conclude a third-party claimant cannot assert a bad-faith claim against an insurer, it follows that there is no set of facts the petitioner herein could prove in support of his claim. The test of dismissal is met.
As a final observation, we note that some of the petitioner's allegations in this case deal with the insurer's alleged tactics in protracting the litigation and preventing the matter from coming to trial. Our decision in this case does not mean that a plaintiff is without remedy when an opposing party éxhibits such behavior. Sec. 802.10(2), Stats.,- states that "all actions and special proceedings are deemed ready for trial one year after the summons and complaint are filed." Subsection (3) provides that a party may at any time after ninety days from the filing of the summons and complaint move for a scheduling conference; at which the procedural future of the case, including the establishing of discovery completion dates, motion dates, pretrial and trial dates, can be set. As provided in subsection (3) (d), violation of a scheduling order is subject to the provisions of sec. 805.-03, which give the trial judge great latitude in bringing the recalcitrant party into line, including, if necessary, rendering a judgment by default or treating failure to obey the court's order as contempt. We also point out that Supreme Court Rule 20.36(1) (a) states that a lawyer must not:
"File a suit, assert a position, conduct a defense, delay a trial or take other action on behalf of the client when the lawyer knows -or when it is obvious that such action would serve merely to harass or maliciously injure another."
Under Supreme Court Rule 21.05(4), the violation of the. attorney's Code of Professional Responsibility is a ground for discipline. We express no opinion whether any of these remedies would have been warranted in this case but merely observe that apparently no such remedy was sought by the aggrieved party.
By the Court. — The decision of the court of appeals is affirmed,
Before granting the defendant's motion to dismiss, Judge Duffy analyzed the complaint to see whether it stated a claim for relief for intentional infliction of emotional distress and concluded that it did not. His decision allowed the plaintiff ten days in which to plead again, but the plaintiff did not do so. We assume for purposes of this review that the plaintiff has abandoned this theory of recovery.
Sec. 60-1.01, Stats., provides:
"601.01 Purposes. The purposes of chs. 600 to 646 are:
"(1) To ensure the solidity of all insurers doing business in this state;
"(2) To ensure that policyholders, claimants and insurers are treated fairly and equitably;
"(3) To ensure that the state has an adequate and healthy insurance market, characterized by competitive conditions and the exercise of initiative;
"(4) To provide for an office that' is expert in the field of insurance, and able to enforce chs. 600 to 646;
" (5) To encourage full cooperation of the office with other regulatory bodies, both of this and other states and of the federal government;
"(6) To improve and thereby preserve state regulation of insurance;
"(7) To maintain freedom of contract and freedom of enterprise so far as consistent with the other purposes of the law;
"(8) To encourage self-regulation of the insurance enterprise;
"(9) To encourage loss prevention as an aspect of the operation of the insurance enterprise;
"(10) To keep the public informed on insurance matters; and
"(11) To achieve the other purposes stated in chs. 600 to 646."
Sec. INS 6.11 of the Wis. Admin. Code provides:
"Ins. 6.11 Insurance claim settlement practices. (1) PURPOSE. This rule is to promote the fair and equitable treatment of policyholders, claimants and insurers by defining certain claim adjustment practices which are considered to be unfair methods and practices in the business of insurance. The rule implements and interprets applicable statutes including but not limited to ss. 601.04, 601.01(3) (b), and 645.41(3), Stats.
"(2) Scope. This rule applies to the kinds of insurance identified in Ins 6.75, transacted by insurers as defined in s. 600.03(27), Stats., and nonprofit service plans subject to ch. 613, Stats.
"(3) Unfair claim settlement practices, (a) Any of the following acts, if committed by any person without just cause and performed with such frequency as to indicate general business practice, shall constitute unfair methods and practices in the business of insurance:
"1. Failure to promptly acknowledge pertinent communications with respect to claims arising under insurance policies.
"2. Failure to initiate and conclude a claims investigation with all reasonable dispatch.
"3. Failure to promptly provide necessary claims forms, instructions and reasonable assistance to insureds and claimants under its insurance policies.
"4. Failure to attempt in good faith to effectuate fair and equitable settlement of claims submitted in which liability has become reasonably clear.
"5. Failure upon request of a claimant, to promptly provide a reasonable explanation of the basis in the policy contract or applicable law for denial of a claim or for the offer of a compromise settlement.
"6. Knowingly misrepresenting to claimants pertinent facts or policy provisions relating to coverages involved.
"7. Failure to affirm or deny coverage of claims within a reasonable time after proof of loss has been completed.
"8. Failure to settle a claim under one portion of the policy coverage in order to influence a settlement under another portion of the policy coverage.
"9. Except as may be otherwise provided in the policy contract, the failure to offer settlement under applicable first party coverage on the basis that responsibility for payment, should he assumed by other persons or insurers.
"10. Compelling insureds and claimants to institute suits to recover amounts due under its policies by offering substantially less than the amounts ultimately recovered in suits brought by them.
"11. Refusing payment of claims solely on the basis of the insured's request to do so without making an independent evaluation of the insured's liability based upon all available information.
"12. Failure, where appropriate, to make use of arbitration procedures authorized or permitted under any insurance policy.
"13. Adopting or making known to insureds or claimants a policy of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration.
"(b) Any of the following acts committed by any person shall constitute unfair methods and practices in the business of insurance:
"1. Knowingly misrepresenting to claimants pertinent facts or policy provisions relating to coverages involved.
"2. Failure to make provision for adequate claims handling personnel, systems and procedures to effectively service claims in this state incurred under insurance coverage issued or delivered in this state.
"3. Failure to adopt reasonable standards for investigation of claims arising under its insurance policies.
"(4) Prompt defined. Except where a different period is specified by statute or rule and except for good cause shown, the terms 'prompt' and 'promptly' as used in this rule shall mean responsive action within 10 consecutive days from receipt of a communication concerning a claim.
"(5) Penalty. The commission of any of the acts listed in subsections (3) (a) or (3) (b)2, or 3 shall subject the person to revo cation of license to transact insurance in this state. Violations of this rule or any order issued thereunder shall subject the person violating the same to s. 601.64, Stats."