Opinion ID: 2156602
Heading Depth: 1
Heading Rank: 6

Heading: nebraska recognizes the tort of first-party bad faith in connection with policies of insurance

Text: In Braesch v. Union Ins. Co., 237 Neb. 44, 464 N.W.2d 769 (1991), disapproved on other grounds, Wortman v. Unger, 254 Neb. 544, 578 N.W.2d 413 (1998), we recognized a tort of bad faith refusal to settle a claim with an insured policyholder. In connection with the tort of bad faith, we stated that a first-party bad faith cause of action is based upon allegations that the insurer, in bad faith, refuses to settle with its own policyholder insured, who thereby suffers some type of direct loss. Id. at 54, 464 N.W.2d at 776. In Ruwe v. Farmers Mut. United Ins. Co., 238 Neb. 67, 469 N.W.2d 129 (1991), we noted that it is the breach of the covenant of good faith and fair dealing from which liability in the tort of bad faith springs. We have stated that in order to establish a claim for bad faith, a plaintiff must show an absence of a reasonable basis for denying the benefits of the insurance policy and the insurer's knowledge or reckless disregard of the lack of a reasonable basis for denying the claim. Williams v. Allstate Indemnity Co., 266 Neb. 794, 669 N.W.2d 455 (2003); Radecki v. Mutual of Omaha Ins. Co., 255 Neb. 224, 583 N.W.2d 320 (1998). (a) Breach of the Insurance Contract in Connection With Untimely Paid and Unpaid Medical Bills Was Not a Prerequisite to Prevailing on the Bad Faith Claim in Connection With Initial Denials for Mary's Hysterectomy As an initial matter, United Wisconsin argues that because the jury found in United Wisconsin's favor on the LeRettes' breach of contract cause of action, its verdict in favor of Mary on the bad faith claim cannot stand. Given the facts of this case, we reject United Wisconsin's argument. The court has examined the cases, not repeated here, which the parties have cited on this issue. United Wisconsin asserts that other courts have held that a breach of contract is a prerequisite to bringing a bad faith claim. United Wisconsin refers us to State Farm Fire & Casualty Co. v. Slade, 747 So.2d 293 (Ala. 1999) (in order to recover on claim of bad faith failure to investigate, insured must show that insurer breached contract), and Liberty Nat. Fire Ins. Co. v. Akin, 927 S.W.2d 627 (Tex.1996) (in most circumstances, insured may not prevail on bad faith claim without first showing that insurer breached contract). However, other courts have held that an insured does not need to prevail on the breach of contract claim to prevail on the claim for bad faith. E.g., State Farm Mut. Auto. Ins. Co. v. Shrader, 882 P.2d 813 (Wyo.1994). In cases such as each of the foregoing, the insured generally alleged that the same conduct by the insurer amounted to both a breach of contract and bad faith. Given the record in the instant case in which the core set of facts on the breach of contract cause of action and the core set of facts on the bad faith cause of action differ, the authorities on which the parties rely are inapposite. In the case at hand, as submitted to the jury, the breach of contract claim was a cause of action separate and distinct from the bad faith cause of action. Although both causes of action unavoidably shared facts in common, the cause of action for the breach of contract was directed at United Wisconsin's alleged failure under the contract of insurance to pay or timely pay $940.13 in outstanding medical bills, several of which were incurred after Mary's hysterectomy, whereas the cause of action for bad faith was grounded in the fact that Mary had initially been denied precertification in connection with the hysterectomy. The causes of action in this case were separate and not dependent on each other. Therefore, contrary to United Wisconsin's assertion, the LeRettes were not required to prevail on their breach of contract cause of action relating to untimely paid and unpaid bills as a prerequisite to prevailing on the bad faith cause of action relating to initial denials in connection with Mary's hysterectomy.