Opinion ID: 1866184
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Heading: Development of First Party Bad Faith Tort Liability.

Text: A growing number of states have recognized tort liability for an insurance company's unreasonable denial of an insurance claim. Although an insurer is normally liable only on its contract, a bad faith failure to pay the insured when the insured event occurs, especially on a fire or medical policy, may subject the insurer to tort liability. See P. Keeton, Prosser & Keeton on Torts § 92, at 91 of 1988 Supp. (5th ed.1984 and Supp.1988); see also Annotation, Insurer's Liability for Consequential or Punitive Damages for Wrongful Delay or Refusal to Make Payments Due Under Contracts, 47 A.L.R.3d 314 (1973). In 1978 the Wisconsin Supreme Court recognized a cause of action in tort against an insurer for bad faith refusal to honor an insured's claim. Anderson v. Continental Ins. Co., 85 Wis.2d 675, 271 N.W.2d 368 (1978). The court acknowledged the tort of bad faith is not the same as a tortious breach of contract. 85 Wis.2d at 685-87, 271 N.W.2d at 374. It is a separate intentional wrong which results from a breach of duty imposed as a consequence of the insurance contract. Id. The tort of bad faith only arises when the insurance company intentionally denies or fails to process a claim without a reasonable basis for such action. 85 Wis.2d at 692-94, 271 N.W.2d at 377. In Anderson, the court adopted a two-part test to establish a claim for bad faith. 85 Wis.2d at 690-92, 271 N.W.2d at 376. Under this test, the 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. There is both an objective and a subjective requirement. The absence of a reasonable basis is an objective element; the insurer's knowledge of the absence is a subjective element. As stated in Anderson, under these tests, an insurance company may challenge claims which are fairly debatable and will be found liable only where it has intentionally denied or failed to process or pay a claim without a reasonable basis. 85 Wis.2d at 692-94, 271 N.W.2d at 377. We adopted the Anderson test in Dolan v. Aid Insurance Co., 431 N.W.2d 790 (Iowa 1988). We have recently modified the second part of the test. Kiner v. Reliance Ins. Co., 463 N.W.2d 9, 13 (Iowa 1990). It is sufficient in Iowa to show that the insurer denies a claim knowing or having reason to know that its denial is without basis. Id.