Title: Thomas Jones v. Secura Insurance Company
Citation: 2002 WI 11
Docket Number: 2000AP003037
State: Wisconsin
Issuer: Wisconsin Supreme Court
Date: February 1, 2002

2002 WI 11 
 
 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
00-3037 
 
 
COMPLETE TITLE: 
 
 
Thomas Jones and Joan Jones,  
 
Plaintiffs-Appellants, 
 
v. 
Secura Insurance Company,  
 
Defendant-Respondent. 
 
 
 
 
ON CERTIFICATION FROM THE COURT OF APPEALS 
 
 
OPINION FILED: 
February 1, 2002   
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
December 4, 2001   
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit   
 
COUNTY: 
Vilas   
 
JUDGE: 
James B. Mohr   
 
 
 
JUSTICES: 
 
 
CONCURRED: 
        
 
DISSENTED: 
        
 
NOT PARTICIPATING:         
 
 
 
ATTORNEYS: 
 
For the plaintiffs-appellants there were briefs by Shane W. 
Falk and Seidl & Stingl, S.C., Wausau, and oral argument by 
Shane W. Falk. 
 
For the defendant-respondent there was a brief by Todd 
Joseph Koback and Terwilliger, Wakeen, Piehler & Conway, S.C., 
Wausau, and oral argument by Todd Joseph Koback. 
 
 
2002 WI 11 
NOTICE 
This opinion is subject to further 
editing and modification.  The 
final version will appear in the 
bound 
volume 
of 
the 
official 
reports.   
No.  00-3037  
(L.C. No. 
99CV000046) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
Thomas Jones and Joan Jones,  
 
          Plaintiffs-Appellants, 
 
     v. 
 
Secura Insurance Company,  
 
          Defendant-Respondent. 
 
FILED 
 
FEB 1, 2002 
 
Cornelia G. Clark 
Clerk of Supreme Court 
 
 
 
 
 
APPEAL from an order of the Circuit Court for Vilas County, 
Honorable James B. Mohr, Circuit Court Judge.  Reversed and 
cause remanded.   
 
¶1 
N. PATRICK CROOKS, J.   This case is before the court 
on certification from the Court of Appeals, District III, 
pursuant to Wis. Stat. § 809.61 (1999-2000).1  The parties 
dispute what damages an insured can pursue in a bad faith action 
against an insurer.  Specifically, we address whether bad faith 
tort damages include those damages that could also be pursued in 
                                                 
1 All references to the Wisconsin Statutes are to the 1999-
2000 version unless otherwise noted. 
No. 
00-3037   
 
2 
 
a breach of a fire insurance contract cause of action, such as 
the policy proceeds.  We further address whether an insured is 
barred from pursuing those damages in a bad faith claim when the 
insured's breach of a fire insurance contract claim is barred by 
the statute of limitations. 
¶2 
After reviewing the development of the tort of bad 
faith in Wisconsin, we conclude that the circuit court's order 
prohibiting the plaintiffs from attempting to collect any 
damages otherwise recoverable under a breach of contract claim 
was an erroneous exercise of discretion.  Although we agree with 
the circuit court's conclusion that the tort of bad faith is a 
separate cause of action from a breach of an insurance contract 
claim, the absence of a valid breach of contract claim does not 
prohibit the plaintiffs from pursuing certain damages in a bad 
faith claim.  We specifically rely on language from DeChant v. 
Monarch Life Insurance Company, 200 Wis. 2d 559, 571, 547 
N.W.2d 592 (1996), stating, "when an insurer acts in bad faith 
by denying benefits, it is liable to the insured in tort for any 
damages which are the proximate result of that conduct."  
Accordingly, we conclude that the plaintiffs are entitled to 
pursue any damages which are the proximate result of the 
defendant's alleged bad faith, including damages that were 
otherwise recoverable in a breach of an insurance contract 
claim. 
¶3 
We further conclude that the circuit court's dismissal 
of the plaintiffs' breach of a fire insurance contract claim due 
to the failure to comply with the statute of limitations, does 
No. 
00-3037   
 
3 
 
not alter our holding in this case.  A bad faith claim is 
governed by a two-year statute of limitations, rather than the 
one-year statute of limitations governing a breach of a fire 
insurance contract claim.  While plaintiffs should not be able 
to recover duplicative damages under both a bad faith tort claim 
and a breach of contract claim, we do not face that potential 
here because their breach of an insurance contract claim has 
been dismissed.  Consequently, we conclude that the circuit 
court erred by concluding that the plaintiffs' ability to pursue 
damages under their bad faith claim is controlled by the absence 
of a valid breach of a fire insurance contract claim.  They were 
thus prohibited from attempting to collect damages otherwise 
recoverable under such a breach of contract claim.  Under 
DeChant, we conclude that the plaintiffs are able to pursue "any 
damages which are the proximate result" of the defendant's 
alleged bad faith, if bad faith is established at trial. 
I 
¶4 
The relevant facts are not in dispute.2  Since 
approximately 1985, Thomas and Joan Jones (hereinafter the 
Joneses) owned a residence and motel located near a lake in 
Woodruff, Wisconsin.  In 1993, the Joneses insured the property 
                                                 
2 In their brief, Thomas and Joan Jones allege several facts 
relating to the merits of their bad faith claim.  The merits of 
their bad faith claim, however, are not before this court, which 
makes it unnecessary to discuss those facts alleged in their 
brief. 
No. 
00-3037   
 
4 
 
with Secura Insurance Company (hereinafter Secura).3  In the 
process of approving the insurance coverage, a representative 
from Secura did an inspection of the Joneses' property and 
graded the risk as "good."4 
¶5 
In approximately May 1997, the Joneses presented a 
notice of loss to Secura for damages to their residence and 
motel.  The Joneses reported that their home appears to be 
leaning toward the lake, the chimney is separating from the 
house, and the deck is slanting.  On May 21, 1997, Wayne Bognar, 
a Secura Claims Adjuster, inspected the Joneses' property and 
denied coverage for their claim.  Bognar concluded that the 
damage was the result of an on-going situation, rather than a 
collapse, and was not covered by the Joneses' policy. 
¶6 
On March 18, 1999, the Joneses filed this lawsuit 
against Secura in Vilas County Circuit Court.  The Joneses 
claimed, among other things, breach of the insurance contract 
and bad faith.  On May 17, 2000, the circuit court, the 
Honorable James B. Mohr, presiding, granted summary judgment in 
favor of Secura on the breach of contract claim.  The circuit 
court concluded that the breach of contract claim was barred by 
                                                 
3 We find it unnecessary to lay out the specific language of 
the insurance policy because the circuit court's grant of 
summary judgment on the breach of contract claim is not before 
this court.  Furthermore, we do not rely on the policy language 
in determining what damages the Joneses can pursue under their 
bad faith claim. 
4 The grading of risk appears on the Secura Dwelling Survey 
Report.  The grading of risk for the Joneses' property was 
"Good" out of a scale of Excellent, Good, Fair, and Poor. 
No. 
00-3037   
 
5 
 
the 
one-year 
statute 
of 
limitations 
pursuant 
to 
Wis. Stat. § 631.83(1)(a).5  At the same time, the circuit court 
denied Secura's motion for summary judgment on the bad faith 
claim. 
¶7 
In response to the circuit court's grant of summary 
judgment on the breach of contract claim, Secura filed a motion 
for declaratory judgment.  Secura requested that the circuit 
court declare that the Joneses' claims for damages, as a result 
of the lost use of their property, lost property, and lost 
business, were not recoverable under their bad faith tort claim.  
Secura argued that the alleged damages are not recoverable under 
the bad faith tort claim, because they are contract damages 
                                                 
5 Wisconsin Stat. § 631.83(1)(a) provides in part: 
An action on a fire insurance policy must be commenced 
within 12 months after the inception of the loss.  
This rule also applies to riders or endorsements 
attached to a fire insurance policy covering loss or 
damage to property or to the use of or income from 
property from any cause, and to separate windstorm or 
hail insurance policies. 
The Joneses' insurance policy is a fire insurance policy 
governed by the statute of limitations in § 631.83.  The phrase 
"fire insurance" includes all types of property indemnity 
insurance. 
 
Borgen 
v. 
Economy 
Preferred 
Ins. 
Co., 
176 
Wis. 2d 498, 502-503, 500 N.W.2d 419 (Ct. App. 1993) (citing 
Villa Clement, Inc. v. National Union Fire Ins. Co., 120 
Wis. 2d 140, 147, 353 N.W.2d 369 (Ct. App. 1984).  The Joneses' 
policy is a fire insurance policy and therefore, any cause of 
action based on the policy must be commenced within the one-year 
statute of limitations.  Accordingly, all subsequent references 
to "breach of insurance contract claim" or "breach of insurance 
contract cause of action" refer to a cause of action on a fire 
insurance policy governed by the statute of limitations in 
§ 631.83. 
No. 
00-3037   
 
6 
 
properly dismissed with the Joneses' breach of contract claim.  
The Joneses responded by claiming that Secura is liable for any 
damages which are the proximate result of Secura's bad faith.   
¶8 
On October 5, 2000, the circuit court held a hearing 
on Secura's declaratory judgment motion.  At the end of the 
hearing, the circuit court judge granted Secura's motion.  The 
court recognized that this was an issue of first impression in 
Wisconsin and acknowledged difficulty in making its decision. 
 
I must admit after having read the briefs and several 
of the cases that the parties cited, the DeChant case, 
Anderson, Poling, I think Heyden was cited, I was 
somewhat 
surprised 
that 
this 
issue 
specifically 
apparently has never been addressed. . . . And I had 
some difficulty in making my way through the earlier 
court decisions dealing with the facts of this 
particular case.  However, since I must make a ruling 
one way or another here, I am satisfied, after reading 
those cases and, obviously, your brief[s], that the 
courts in the past have essentially noted a basic 
difference between a breach of contract and a bad 
faith claim, and they have indicated that the tort of 
bad faith is a separate, intentional wrong and creates 
damages, from what I can glean, that are unrelated to 
contract damages. 
 
 . . . I guess my holding is going to be that in a bad 
faith action, what is recoverable are damages that 
would not have been incurred but for the insurer's 
tortious conduct.  And, I am just holding that I 
accept the argument of defendants in this action.  I'm 
troubled with [the] situation, and it seems to go both 
ways, the plaintiff talks about the policy concerning 
insurer, insurance liability, and insurance company 
talks 
about, 
well, 
we 
have 
these 
statutes 
of 
limitations that apply as well.  But, it would seem to 
me, if the court were to now allow plaintiff to 
recover the same damages the court previously held are 
not 
recoverable after 
having then 
dismissed the 
contract action, would really be unpalatable to the 
court. 
No. 
00-3037   
 
7 
 
On October 19, 2000, the circuit court issued a written order 
prohibiting the Joneses from attempting to collect any damages 
which would have been recoverable under their previously 
dismissed contract claim.   
¶9 
The Joneses appealed the circuit court's nonfinal 
order to the Wisconsin Court of Appeals, District III.  The 
court 
of 
appeals 
granted 
the 
interlocutory 
appeal, 
and 
subsequently certified the appeal to this court.  We granted 
review of all issues raised on appeal. 
II 
¶10 Since both parties rely largely on a handful of cases, 
we first use those cases to provide an overview of the 
development of the bad faith tort claim in Wisconsin.  We 
specifically focus on what damages are recoverable in a bad 
faith action. 
¶11 This court first recognized a bad faith claim in 
Anderson v. Continental Insurance Co., 85 Wis. 2d 675, 686, 271 
N.W.2d 368 (1978).  We explicitly recognized a bad faith claim 
sounding in tort, although arising out of a contractual 
relationship.  Id.  "By virtue of the relationship between the 
parties created by the contract, a special duty arises, the 
breach of which duty is a tort and is unrelated to contract 
damages."  Id.  The duty referred to is the special duty of good 
faith 
and 
fair 
dealing 
arising 
out 
of 
the 
contractual 
relationship.  Id. at 686, 689 (citing Restatement (Second) of 
Contracts § 231 (Tentative Drafts Nos. 1-7, Rev. and Edited, 
1973)).  This court also made clear that "the tort of bad faith 
No. 
00-3037   
 
8 
 
is not for the breach of a contract.  It is a separate tort."  
Id. at 696. 
¶12 In adopting the tort of bad faith, we relied on the 
rationale of Gruenberg v. Aetna Insurance Co., 510 P.2d 1032 
(Cal. 1973), and this court's decision in Hilker v. Western 
Automobile Insurance Co., 204 Wis. 1, 231 N.W. 257 (1930), on 
reargument, 204 Wis. 12, 235 N.W. 413 (1931).  Anderson, 85 
Wis. 2d at 687.  In Hilker, the court found that the insurance 
company acted in bad faith in settling a claim of a third party 
against an insured.  204 Wis. at 10.  In recognizing that the 
insurance 
company's 
conduct 
was 
bad 
faith, 
the 
court 
acknowledged that an insurer owes a duty to the insured, 
analogous to that of a fiduciary.  Id. at 13.  The Hilker court 
also emphasized that an insurance company's decision on a claim 
is in good faith, if it is based upon a knowledge of the facts 
and circumstances upon which liability is predicated.  Id. at 
15.  "The lack of reasonable diligence and the insurer's refusal 
to determine the nature and extent of the liability evidenced 
bad faith."  Anderson, 85 Wis. 2d at 688 (discussing Hilker). 
¶13 In Gruenberg, the California Supreme Court concluded 
that an insurance company has a duty to deal fairly and in good 
faith with its insured.  510 P.2d at 1037.  In Anderson, we 
expressly adopted the following statement from Gruenberg as the 
law in Wisconsin: 
 
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 
No. 
00-3037   
 
9 
 
imminent 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, 510 P.2d at 1038).  In 
Anderson we also went on to establish what a plaintiff must show 
in order to prove bad faith.  "To show a claim for bad faith, 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."  Id. at 691. 
¶14 In addition to recognizing the tort of bad faith in 
Anderson, this court addressed what damages are available in a 
bad faith action.  We emphasized that bad faith is an 
intentional tort and that a bad faith action may "result in not 
only compensatory damages, but also punitive damages and damages 
for emotional injury."  Id. at 694.  Recovery for emotional 
distress caused by an insurer's bad faith should be only allowed 
for severe distress, and when substantial other damage is 
suffered apart from the loss of contract benefits.  Id. at 696.  
Furthermore, for punitive damages to be awarded, there must be a 
No. 
00-3037   
 
10 
 
showing of "evil intent" or of a "special ill-will or wanton 
disregard of duty."  Id. at 697.6 
¶15 After Anderson, the court of appeals addressed damages 
available in a bad faith tort action in Poling v. Wisconsin 
Physicians Service, 120 Wis. 2d 603, 357 N.W.2d 293 (Ct. App. 
1984), 
and 
Heyden 
v. 
Safeco 
Title 
Insurance 
Co., 
175 
Wis. 2d 508, 498 N.W.2d 905 (Ct. App. 1993).  In Poling, the 
court of appeals affirmed the jury's finding of bad faith and 
the jury's award of damages for emotional distress, substantial 
other damages, and punitive damages.  120 Wis. 2d at 609-611.   
Similarly, in Heyden, the court of appeals addressed damages 
available under the tort of bad faith.7  "[A]n insured may 
                                                 
6 The standard for punitive damages is currently codified in 
Wis. Stat. § 895.85.  Section 895.85(3) states:  "The plaintiff 
may receive punitive damages if evidence is submitted showing 
that the defendant acted maliciously toward the plaintiff or in 
an intentional disregard of the rights of the plaintiff."  See  
also Unified Catholic Sch. of Beaver Dam Educ. Ass'n v. 
Universal Card Services Corp., 34 F. Supp. 2d 714, 718 (E.D. 
Wis. 1999).  Section 895.85 changed the previous standard which 
allowed 
punitive 
damages 
if 
the 
defendant's 
conduct 
was 
"outrageous."  Wis. JI-Civil 1707.1 n.1 (citing Brown v. Maxey, 
124 Wis. 2d 426, 369 N.W.2d 677 (1985)). 
7 The court of appeals also addressed whether expert 
testimony is required in order to establish a claim of bad 
faith.  Heyden v. Safeco Title Ins. Co., 175 Wis. 2d 508, 522, 
498 N.W.2d 905 (Ct. App. 1993).  In Weiss v. United Fire & 
Casualty Co., 197 Wis. 2d 365, 382, 541 N.W.2d 753 (1995), this 
court overruled Heyden to the extent it was contrary to our 
decision that "when an insurer's alleged breach of its duty of 
good faith and fair dealing toward its insured involves facts 
and circumstances within the common knowledge or ordinary 
experience of an average juror, an insured need not introduce 
expert testimony to establish a bad faith claim."   
No. 
00-3037   
 
11 
 
recover compensatory damages sustained as a consequence of the 
insurance company's tort of 'bad faith' and these damages are of 
a different species than those that may be recovered for breach 
of the insurance contract."  Heyden, 175 Wis. 2d at 520.   
¶16 In 1987, this court discussed the claim of bad faith 
in Warmka v. Hartland Cicero Mutual Insurance, 136 Wis. 2d 31, 
400 N.W.2d 923 (1987).  Although damages were not at issue, 
Warmka is significant because it clearly established that the 
tort of bad faith is governed by the two-year statute of 
limitations in Wis. Stat. § 893.57.8  Id. at 35.  We explicitly 
rejected the argument that a bad faith claim is governed by the 
one-year statute of limitations in § 631.83(1)(a), because the 
one-year statute of limitations applies only to actions "on the 
policy."  Id. 
¶17 After Warmka, this court again addressed what damages 
are available in a bad faith tort action in DeChant v. Monarch 
Life Insurance Co., 200 Wis. 2d 559, 547 N.W.2d 592 (1996).  
Specifically, we reviewed the jury's award of damages, including 
attorneys' fees, bond premiums, and "all other" bad faith 
damages.  200 Wis. 2d at 566.  Relying on Anderson, we first 
reviewed the nature of the tort of first-party bad faith and the 
damages generally available. 
 
                                                 
8 Wisconsin Stat. § 893.57 provides:  "An action to recover 
damages for libel, slander, assault, battery, invasion of 
privacy, false imprisonment or other intentional tort to the 
person shall be commenced within 2 years after the cause of 
action accrues or be barred." 
No. 
00-3037   
 
12 
 
By virtue of the relationship between the parties 
created by an insurance contract, a special duty 
arises, the breach of which duty is a tort and is 
unrelated to contract damages. . . . The tort of bad 
faith "is a separate intentional wrong, which results 
from a breach of duty imposed as a consequence of the 
relationship established by contract." . . . When such 
a breach occurs, the insurer is liable for any damages 
which are the proximate result of that breach. 
Id. at 569-570 (quoting Anderson, 85 Wis. 2d at 687) (emphasis 
added).  We subsequently reiterated the purpose and standard for 
bad faith damages several times throughout the opinion:  "Its 
primary purpose is to redress all economic harm proximately 
caused by an insurer's bad faith."  Id. at 570 (emphasis added).  
"We conclude that when an insurer acts in bad faith by denying 
benefits, it is liable to the insured in tort for any damages 
which are the proximate result of that conduct."  Id. at 571 
(emphasis added).  "When an insurer acts in bad faith, a 
plaintiff is allowed to recover for all detriment proximately 
resulting from the insurer's bad faith."  Id. at 572-573 
(emphasis added).  Applying this "proximately caused" standard, 
we concluded "that attorney's fees and bond premiums are 
recoverable by a prevailing party in a first-party bad faith 
action as part of those compensatory damages resulting from the 
insurer's bad faith."  Id. at 577. 
¶18 Several 
subsequent 
cases 
have 
applied 
DeChant, 
especially regarding the validity of awarding attorneys' fees as 
damages in a bad faith action.  See Danner v. Auto-Owners Ins., 
2001 WI 90, ¶79, 245 Wis. 2d 49, 629 N.W.2d 159; Allied 
Processors, Inc. v. W. Nat'l Mut. Ins. Co., 2001 WI App 129, 
No. 
00-3037   
 
13 
 
¶43, 246 Wis. 2d 579, 629 N.W.2d 329 (relying on DeChant to 
affirm 
the 
trial 
court's 
ruling 
that 
attorney 
fees 
are 
recoverable, and further awarding expert witness fees and 
attorneys' travel expenses as compensatory damages for bad faith 
claim); Majorowicz v. Allied Mut. Ins. Co., 212 Wis. 2d 513, 
536, 569 N.W.2d 472 (Ct. App. 1997) (applying "proximate result" 
standard for bad faith damages, including attorneys' fees); see 
also McEvoy v. Group Health Coop., 213 Wis. 2d 507, 570 
N.W.2d 397 (1997) (applying bad faith tort to HMOs and relying 
on "proximate result" standard for damages). 
III 
¶19 We now turn directly to the issue in this case, 
whether 
contract 
damages, 
such 
as 
policy 
proceeds, 
are 
recoverable in a bad faith tort action, even when the insured's 
breach of a fire insurance contract claim is barred by the 
statute of limitations.  "In a declaratory judgment action, the 
granting or denying of relief is a matter within the discretion 
of the circuit court."  See Hull v. State Farm Mut. Auto. Ins. 
Co., 222 Wis. 2d 627, 635, 586 N.W.2d 863 (1998).  We will 
uphold the circuit court's decision as long as the circuit 
court's exercise of discretion was not "based on an error of 
law."  Id. at 636 (citation omitted).  What damages an insured 
can recover in a bad faith action is a question of law, which we 
review independently, benefiting from 
the 
circuit court's 
analysis.  See DeChant, 200 Wis. 2d at 568 (whether an insured 
can recover attorney's fees as damages in a bad faith action is 
a question of law) (citing Newhouse v. Citizens Security Mut. 
No. 
00-3037   
 
14 
 
Ins., 176 Wis. 2d 824, 837, 501 N.W.2d 1 (1993)); Allied 
Processors, 2001 WI App 129, ¶50 ("[W]hat damages a prevailing 
plaintiff in a bad faith claim may recover presents a legal 
issue."). 
¶20 The Joneses argue that the circuit court erroneously 
exercised its discretion in granting Secura's motion for a 
declaratory judgment.  In support of their position, the Joneses 
argue: (1) the circuit court failed to apply the unambiguous 
holding in DeChant and subsequent cases holding the insurer 
liable for all damages proximately caused by the insurer's bad 
faith; (2) the circuit court confused "claim" with "recovery," 
because the statute of limitations applies only to claims and 
does not preclude recovery of damages pursuant to a separate 
claim; and (3) the circuit court's decision eviscerates the 
public policy behind the allowance of bad faith claims. 
¶21 First, according to the Joneses, the circuit court 
failed to apply the unambiguous holding of DeChant, which holds 
the insurer liable for "any damages which are the proximate 
result" of the insurer's bad faith.  200 Wis. 2d at 570.  The 
Joneses contend that their contract damages fall within the 
holding in DeChant, because those damages are the proximate 
result of Secura's bad faith.  In arguing that the circuit court 
failed to apply DeChant, the Joneses also contend that the 
unambiguous language in DeChant overruled any contrary language 
in Poling and Heyden.  Specifically, the Joneses argue that 
DeChant's holding that "the insurer is liable for any damages 
which are the proximate result" of bad faith, overrules language 
No. 
00-3037   
 
15 
 
indicating that an insured can recover only damages "other than 
those attributable to the breach of contract," Poling, 120 
Wis. 2d at 609, and damages that are "a different species than 
those that may be recovered for breach of the insurance 
contract."  Heyden, 175 Wis. 2d at 520.  Furthermore, according 
to the Joneses, subsequent cases, including Danner and Allied 
Processors, rely on the proximate result rationale.  See also 
Crookston v. Fire Ins. Exch., 817 P.2d 789 (Utah 1991) (holding 
that a bad faith tort claim is not an action on the contract, 
therefore, since tort of bad faith is not barred by statute of 
limitations, 
insureds 
allowed 
to 
recover 
all 
damages 
attributable to the tort).  In Danner, this court affirmed an 
award of actual attorneys' fees for the underlying contract 
action, and attorneys' fees in the bad faith action, as 
compensatory damages.  2001 WI 90, ¶¶77, 79.  Moreover, in 
Allied Processors, the court of appeals affirmed an award of 
attorneys' fees and concluded that the trial court erred in not 
allowing expert witness expenses and attorneys' travel expenses 
as compensatory damages in the bad faith action.  2001 WI App 
129.  The Joneses argue that the circuit court erred by not 
applying the "proximate cause" rationale, and therefore, they 
should be allowed to pursue all damages in their bad faith 
claim, including those otherwise recoverable in a breach of an 
insurance contract action. 
¶22 The Joneses further argue that allowing an insured to 
recover contract damages fulfills the purpose of a bad faith 
claim.  In DeChant, this court stated that the "primary purpose 
No. 
00-3037   
 
16 
 
[of the tort of bad faith] is to redress all economic harm 
proximately caused by an insurer's bad faith."  200 Wis. 2d at 
570.  According to the Joneses, the circuit court's order is an 
erroneous 
exercise 
of 
discretion, 
because 
the 
court 
is 
prohibiting their ability to pursue recovery of all economic 
harm proximately caused by Secura's bad faith. 
¶23 Second, the Joneses argue that the circuit court's 
decision confuses "claim" with "recovery."  The Joneses contend 
that 
the 
one-year 
statute 
of 
limitations 
in 
Wis. Stat. § 631.83(1)(a) applies only to their breach of an 
insurance contract claim, and not all damages that would have 
been recoverable under that claim.  Because their bad faith tort 
claim is governed by the two-year statute of limitations in 
§ 893.57, and their bad faith action was timely commenced, their 
inability to bring the breach of contract claim does not 
preclude the "recovery" of damages pursuant to their separate 
and distinct bad faith tort claim.9  The Joneses urge us to 
follow the reasoning in Taylor v. State Farm Fire and Casualty 
Co., 981 P.2d 1253 (Okla. 1999), where the Supreme Court of 
Oklahoma directly addressed this issue.  In Taylor, the 
plaintiff's breach of contract claim was barred by the statute 
                                                 
9 The Joneses make clear that they are not seeking a double 
recovery.  A plaintiff should not be allowed to recover damages 
under a breach of contract theory and then recover the same 
damages again under a bad faith tort theory.  As noted 
previously, the Joneses' breach of contract claim was dismissed 
on summary judgment, therefore, there is no potential for a 
double recovery in this case.  
No. 
00-3037   
 
17 
 
of limitations, but the trial court allowed the jury to award 
the plaintiff bad faith damages for the loss payable under the 
policy and for damages "consistent with [the] harm flowing from 
[the] insurer's bad-faith breach."  Id. at 1258.  In addition to 
relying on Taylor, the Joneses analogize to products liability 
cases where a court's dismissal of a warranty claim based in 
contract does not limit the injured plaintiff's recovery for 
property damages and personal injuries in its strict products 
liability claim.  See Austin v. Ford Motor Co., 86 Wis. 2d 628, 
644, 273 N.W.2d 233 (1979) (holding that in light of the court's 
development of products liability, "it is inappropriate to bring 
an action for breach of warranty where a tort remedy is 
sought").  Under both Taylor and the products liability analogy, 
the Joneses argue that the circuit court's order was an 
erroneous exercise of discretion, because the court confused the 
idea of "claim" with that of "recovery."  
¶24 The Joneses' final argument is that upholding the 
circuit court's order would "eviscerate" the public policy 
behind allowance of bad faith claims.  In their brief, the 
Joneses contend that upholding the circuit court's decision 
would effectively create a bifurcated statute of limitations for 
bad faith claims where homeowner's and property insurance policy 
damages are governed by a one-year statute of limitations, but 
all other damages are governed by a two-year statute of 
limitations.  According to the Joneses, this eviscerates the 
public 
policy 
behind 
bad 
faith 
claims——holding 
insurers 
accountable for breaching their fiduciary duty to their own 
No. 
00-3037   
 
18 
 
insured.  Anderson, 85 Wis. 2d at 689.  Furthermore, the Joneses 
argue 
that 
this 
bifurcated 
statute 
of 
limitations 
is 
inconsistent with the notion that the tort of bad faith is a 
separate intentional tort, apart from the breach of contract.  
See DeChant, 200 Wis. 2d at 569; Anderson, 85 Wis. 2d at 696.  
Using the one-year statute of limitations for some damages in a 
bad faith action, fails to acknowledge that the tort of bad 
faith is an independent claim governed by a two-year statute of 
limitations.  Accordingly, the Joneses contend that the circuit 
court's decision was an erroneous exercise of discretion, 
because it fails to follow DeChant and hold Secura liable for 
"any damages which are the proximate result" of Secura's bad 
faith.  200 Wis. 2d at 570. 
¶25 In response to the Joneses' arguments, Secura contends 
that the circuit court's grant of its declaratory judgment 
motion is within the circuit court's discretion and should be 
upheld.  Specifically, Secura argues (1) under Anderson and 
DeChant, 
damages 
recoverable 
in 
a 
bad 
faith 
claim 
are 
"unrelated" and "separate" from damages recoverable in a breach 
of contract claim; (2) this court should not rely on Taylor or 
the Joneses' analogy to products liability cases; and (3) 
Wisconsin's public policy regarding bad faith claims is narrow 
and restrictive. 
¶26 Secura first argues that the Joneses' interpretation 
of DeChant is incorrect and that DeChant actually supports the 
circuit court's order.  According to Secura, DeChant holds that 
the tort of bad faith is a separate intentional wrong, which 
No. 
00-3037   
 
19 
 
creates damages "unrelated to contract damages."  200 Wis. 2d at 
569.  Secura argues that DeChant, relying on Anderson, clarifies 
the court of appeals decisions in Poling and Heyden by 
distinguishing between damages arising from the breach of the 
special duty created by contract and the breach of contract.  
Id.  According to Secura, the circuit court's decision was 
correct because the Joneses' contract damages were extinguished 
when the circuit court granted summary judgment on that claim in 
favor of Secura.  Consequently, the Joneses' were appropriately 
prohibited from attempting to collect any damages recoverable 
under the contract claim, because the Joneses' bad faith claim 
is a separate action with "unrelated" damages. 
¶27 Second, Secura argues that this court should not find 
guidance in Taylor or the Joneses' analogy to products liability 
cases.  Secura contends that Taylor is not controlling because 
it is an Oklahoma case, and furthermore, Taylor is not 
persuasive, because Oklahoma's bad faith public policies are 
different than those of Wisconsin.  Specifically, Secura argues 
that 
Oklahoma 
is 
significantly 
different 
because, 
unlike 
Wisconsin's intentional requirement to prove bad faith, Oklahoma 
adopted the expansive definition of bad faith, requiring an 
insured to prove only that the insurer unreasonably interpreted 
the contract.  See Christian v. Am. Home Assurance Co., 577 P.2d 
899, 905 (Okla. 1977).  Based on this difference, Secura argues 
that Wisconsin should not look to Oklahoma for guidance 
regarding the tort of bad faith. 
No. 
00-3037   
 
20 
 
¶28 Secura further contends that the Joneses' analogy to 
products liability cases is misleading.  According to Secura, 
the Joneses' analogy breaks down because courts have not 
restricted causes of action arising from a breach of contract (a 
breach of an insurance contract may give rise to both a breach 
of contract action and a bad faith tort action), but have 
restricted claims based on allegations concerning a defective 
product.10  Secura further argues that the products liability 
analogy is unpersuasive, because in order to prevail on the bad 
faith action, an insured usually must prove that he or she is 
entitled to a directed verdict on the breach of contract claim.  
See Universe Life Ins. Co. v. Giles, 950 S.W.2d 48, 68 (Tex. 
1997).  Accordingly, defendant argues that the circuit court's 
decision was correct, because it followed DeChant, concluding 
that breach of contract and bad faith actions are separate and 
the damages for each are "unrelated." 
¶29 Finally, Secura argues that the Joneses' public policy 
argument 
is 
misplaced, 
because 
Wisconsin's 
public 
policy 
regarding bad faith is narrow and restrictive.  In adopting the 
tort of bad faith, Wisconsin adopted a narrow version of the 
claim by making bad faith an intentional tort.  See Anderson, 85 
Wis. 2d at 
693-694. 
 
In 
Anderson, 
this 
court 
explicitly 
recognized that an insurance company will be found liable only 
                                                 
10 Specifically, Secura relies on Austin v. Ford Motor Co., 
86 Wis. 2d 628, 645-646, 273 N.W.2d 233 (1979), and at pages 26 
and 27 in its brief, Secura argues it is "clear that no contract 
action exists in the product liability setting; rather, only a 
tort action for strict liability exists." 
No. 
00-3037   
 
21 
 
where it has "intentionally denied (or failed to process or pay) 
a claim without a reasonable basis."  Id. at 693.  Compared to 
California's bad faith action in Gruenberg, which requires an 
insured 
only 
to 
establish 
that 
the 
insurer 
unreasonably 
interpreted 
the 
insurance 
contract, 
510 
P.2d 
at 
1038, 
Wisconsin's bad faith claim is considerably more narrow.  
According to Secura, the damages available under the tort of bad 
faith should be similarly restricted, as contract damages cannot 
be re-characterized and recovered as tort damages to avoid the 
effect of the statute of limitations.11  Secura's final public 
policy argument is that the circuit court's order is correct in 
light of a growing nationwide concern that bad faith has been 
                                                 
11 Secura also notes that even California, with a broad bad 
faith policy, prohibits recovery of contract damages in a bad 
faith action by holding that the tort of bad faith is an action 
"on the policy" and is governed by the same one-year statute of 
limitations as a breach of a fire insurance contract claim.  See 
Prieto v. State Farm Fire & Cas. Co., 225 Cal. App. 3d 1188, 
1193 (Cal. Ct. App. 1990) (citing Abari v. State Farm Fire & 
Cas. Co., 205 Cal. App. 3d 530, 536 (Cal. Ct. App. 1988).  We 
decline to address this reasoning any further in light of clear 
Wisconsin precedent that a bad faith tort action is not an 
action "on the policy" and is governed by the two-year statute 
of limitations in Wis. Stat. § 893.57, rather than the one-year 
statute of limitations in § 631.83(1)(a).  Warmka v. Hartland 
Cicero Mut. Ins. Co., 136 Wis. 2d 31, 35, 400 N.W.2d 923 (1987). 
No. 
00-3037   
 
22 
 
expanded too far.12  Secura urges this court not to expand bad 
faith in Wisconsin by allowing insureds to attempt to collect 
damages otherwise recoverable under a dismissed contract claim.  
According to Secura, by enacting Wis. Stat. § 631.83(1), the 
legislature made a policy decision that claims seeking policy 
benefits for the breach of an insurance contract must be brought 
within one year of the inception of the loss.  The circuit 
court's order, therefore, was not an erroneous exercise of 
discretion, because it appropriately distinguished bad faith 
tort damages as unrelated to contract damages, and prohibited 
the Joneses from pursuing contract damages in their bad faith 
tort claim. 
¶30 We conclude that the circuit court's order was an 
erroneous exercise of discretion, because it was based on an 
error of law.  See Hull, 222 Wis. 2d at 636.  We recognize, 
however, that the circuit court faced a difficult decision, 
because this case presents the issue directly for the first time 
in Wisconsin. 
¶31 Under Anderson and Warmka, it is clear that breach of 
contract and the tort of bad faith are two separate claims or 
                                                 
12 Secura cites a Texas case and several law review articles 
to support its position regarding the growing national concern 
over the expansion of bad faith.  See Universe Life Ins. Co. v. 
Giles, 950 S.W.2d 48, 63 (Tex. 1997) (J. Hecht, concurring); 
Douglas R. Richmond, An Overview of Insurance Bad Faith Law and 
Litigation, 25 Seton Hall L. Rev. 74, 76 (1994); Alan O. Sykes, 
"Bad Faith" Breach of Contract by First-Party Insurers, 25 J. 
Legal Stud. 405, 443 (1996); Robert H. Jerry, II, The Wrong Side 
of the Mountain:  A Comment on Bad Faith's Unnatural History, 72 
Tex. L. Rev. 1317, 1343 (1994). 
No. 
00-3037   
 
23 
 
causes of action.  In Anderson, we recognized the tort of bad 
faith as a separate and distinct claim, 85 Wis. 2d at 686, and 
in Warmka we further distinguished the claims by holding that 
the tort of bad faith is governed by the two-year statute of 
limitations, rather than the one-year statute of limitations 
governing breach of fire insurance contract claims.  136 
Wis. 2d at 36.  However, in Anderson and Warmka it remains 
unclear, whether damages for the tort of bad faith and breach of 
an insurance contract must be similarly separate and distinct, 
or whether damages in a bad faith claim may include damages 
otherwise available in a breach of insurance contract claim. 
¶32 The Joneses and Secura both rely heavily on language 
from DeChant in support of their respective arguments.  Secura 
focuses on language citing Anderson, concluding that the tort of 
bad faith is "unrelated to contract damages."  DeChant, 200 
Wis. 2d at 569.  In contrast, the Joneses focus on the court's 
conclusion that "when an insurer acts in bad faith by denying 
benefits, it is liable to the insured for any damages which are 
the proximate result of that conduct."  Id. at 571.  While the 
language in DeChant seems to support both positions, we conclude 
that the language Secura relies on is simply a reiteration of 
this court's holding in Anderson.  The DeChant case centered on 
damages for the tort of bad faith, specifically attorneys' fees 
and bond premiums.  Therefore, in deciding what damages the 
Joneses are able to pursue in this bad faith case, we rely on 
the court's conclusion in DeChant that an insurer is "liable to 
No. 
00-3037   
 
24 
 
the insured . . . for any damages which are the proximate 
result" of the insurer's bad faith.13  Id. 
¶33 While we find the language in DeChant controlling, we 
find it unnecessary to conclude that Poling and Heyden were  
overruled by DeChant.  The language in Poling and Heyden, 
referring to bad faith damages as not attributable to breach of 
contract and a different species than contract damages, is 
similar to language in DeChant that a bad faith claim gives rise 
to damages "unrelated" to contract damages.  200 Wis. 2d at 569.  
Because this is the first time we directly address this issue, 
we now clarify any discrepancy among the cases by holding that 
an insurer is liable for any damages which are the proximate 
result of the insurer's bad faith.  In order to prevent further 
confusion or potential misapplication of language in DeChant, 
                                                 
13 We base our decision on controlling Wisconsin case law, 
but 
we 
find 
several 
cases 
from 
foreign 
jurisdictions 
instructive, including Taylor v. State Farm Fire and Casualty 
Co., 981 P.2d 1253 (Okla. 1999), Crookston v. Fire Insurance 
Exchange, 817 P.2d 789 (Utah 1991) and Universe Life at 68.  
Also, we find it unnecessary to ground our holding on an analogy 
to products liability case law.  We, therefore, do not address 
the parties' arguments comparing bad faith claims to products 
liability case law. 
No. 
00-3037   
 
25 
 
Poling, or Heyden, we now withdraw any language from those cases 
to the contrary.14 
¶34 This court's "proximate result" language from DeChant 
controls our conclusion in this case.  We interpret the language 
in DeChant, "liable for any damages which are the proximate 
result" of bad faith, as inclusive of any and all damages caused 
by the insurer's tort of bad faith.  Consequently, "any damages" 
may include damages that could also be recoverable independently 
in a breach of insurance contract action.  As recognized above, 
the tort of bad faith and breach of an insurance contract are 
two separate claims or causes of action, governed by two 
separate statutes of limitations.  As two separate claims, they 
appropriately lead to recovery of separate, but not necessarily 
exclusive, damages.  It would be inconsistent, therefore, to 
prohibit 
pursuit 
of 
some 
bad 
faith 
damages 
because 
of 
application of the statute of limitations for a breach of an 
insurance contract claim. 
¶35 Furthermore, we recognize that the tort of bad faith 
can lead to recovery of the same damages as the breach of 
                                                 
14 For example, we withdraw language from DeChant v. Monarch 
Life Insurance Co., 200 Wis. 2d 559, 569, 547 N.W.2d 592 (1996), 
indicating that bad faith damages are "unrelated to contract 
damages" and language from Heyden v. Safeco Title Insurance Co., 
175 Wis. 2d 508, 520, 498 N.W.2d 905 (Ct. App. 1993), discussing 
bad faith damages as "of a different species than those that may 
be recovered for breach of the insurance contract."  We also 
withdraw similar language from Poling v. Wisconsin Physicians 
Service, 120 Wis. 2d 603, 609, 357 N.W.2d 293 (Ct. App. 1984), 
stating, "Anderson requires a plaintiff seeking bad faith 
damages to prove emotional distress and substantial damages 
other than those attributable to the breach of contract."   
No. 
00-3037   
 
26 
 
contract action, if and only if, those damages are the 
"proximate result" of the insurer's tortious conduct.  The 
"proximate result" standard from DeChant controls the scope of 
damages available in a bad faith action, regardless of whether 
damages falling within that scope would be otherwise recoverable 
in a breach of an insurance contract claim. 
¶36 The policy behind the tort of bad faith supports this 
conclusion.  In DeChant we recognized that the "primary purpose 
[of the tort of bad faith] is to redress all economic harm 
proximately caused by an insurer's bad faith."  200 Wis. 2d at 
570.  "The underlying rationale of the tort [of bad faith] is 
that an insurance company should have something more to lose 
than the contract payment if it intentionally denies a claim it 
knows it should pay.  The contract amount due plus interest is 
not enough."  Arnold P. Anderson, Wisconsin Insurance Law § 9.1 
(4th ed. 1998).  We therefore have not limited the scope of a 
bad faith claim to recovery of only those damages not otherwise 
recoverable 
in 
a 
breach 
of 
insurance 
contract 
action.  
Accordingly, the "proximate result" standard controls what 
damages are available, and does not exclude from recovery those 
damages otherwise available in a breach of an insurance contract 
claim. 
¶37 We 
disagree 
with 
Secura's 
contention 
that 
our 
conclusion expands the doctrine of bad faith in Wisconsin and is 
inconsistent with Wisconsin's narrow and restrictive version of 
the tort of bad faith.  While we acknowledge that the tort of 
bad faith in Wisconsin is an intentional tort, we find it 
No. 
00-3037   
 
27 
 
unpersuasive that we should therefore restrict what damages a 
plaintiff can recover in a bad faith action.  The fact that the 
tort of bad faith is an intentional tort means that plaintiffs 
alleging bad faith are subject to the burden of proving intent.  
See Anderson, 85 Wis. 2d at 693 (Insurance company "liable only 
where it has intentionally denied (or failed to process or pay) 
a claim without a reasonable basis.")  Because of this burden of 
proving intent, we recognize that often times a bad faith claim 
may be more difficult to establish than a breach of contract 
claim.  We conclude, therefore, that the intentional nature of 
the tort of bad faith is not a valid reason to limit damages.  
If an insured successfully proves that the insurer intentionally 
denied a claim without a reasonable basis, the insured is 
entitled to recover all damages which are the proximate result 
of the insurer's bad faith.15 
¶38 Finally, we turn to the practical impact of the 
statute of limitations and Secura's argument that allowing the 
Joneses to pursue contract damages in their bad faith action 
effectively extends the one-year statute of limitations for 
breach of a fire insurance contract to two years.  The Joneses 
have filed their bad faith action in a timely fashion, and are 
entitled to pursue any damages that are the proximate result of 
Secura's bad faith.  If the Joneses' prove their allegations——
                                                 
15 We note, however, that our decision in this case does not 
rely on, or interpret, the language of the insurance policy.  
Our holding, therefore, does not contemplate or address the 
impact of the insurance policy limits. 
No. 
00-3037   
 
28 
 
that but for Secura's bad faith they would not have suffered 
their claimed damages, and that those damages are the proximate 
result of Secura's bad faith, the Joneses may recover any such 
damages.  The fact that some of those damages would have 
otherwise been recoverable in a timely filed breach of insurance 
contract action makes no difference in this case. 
IV 
¶39 In sum, we have concluded that the circuit court's 
order limiting damages was an erroneous exercise of discretion 
because it was based on an error of law.  We have examined the 
case law, starting with Anderson and continuing through DeChant, 
and have clarified what damages an insured can pursue in a bad 
faith action.  Based on DeChant and the public policy behind the 
tort of bad faith, we have concluded that in a first-party bad 
faith action, an insurer is liable to the insured for any 
damages which are the proximate result of the insurer's bad 
faith, including damages otherwise recoverable in a breach of an 
insurance contract action.  We have concluded that even though 
the one-year statute of limitations on the Joneses' contract 
claim passed before this action was commenced, the Joneses are 
not barred from pursuing and recovering damages on their bad 
faith claim, including damages otherwise recoverable in a breach 
of an insurance contract action.  The Joneses are allowed to 
recover any damages that are the proximate result of Secura's 
alleged bad faith, if bad faith is established at trial. 
By the Court.— The order of the circuit court is reversed 
and the cause is remanded. 
No. 
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No. 
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1