Court Opinion

ID: 9667493
Source: CourtListenerOpinion
Date Created: 2023-08-24 01:47:19.77047+00
Date Added: 2024-06-11T18:15:38.524598
License: Public Domain

SHIRLEY S. ABRAHAMSON, J.
(concurring). I concur in the result because, even if the court decided to recognize a third-party victim’s cause of action against the insurer for bad faith, the complaint in the case at bar does not state a claim of bad faith as set forth in Anderson v. Continental, 85 Wis.2d 675, 691-693, 271 N.W.2d 368 (1978), upon which relief can be granted. Cf. Drake v. Milwaukee Mut. Ins. Co., 70 Wis.2d 977, 984, 236 N.W.2d 204 (1975).
I am not, however, persuaded by the majority’s effort to distinguish the third-party victim’s bad-faith claim from the first-party insured’s bad-faith claim. The majority reasons that the insurer and the insured are contracting parties, that the law imposes a duty of good faith and fair dealing on contracting parties, and that the first-party insured may recover for the insurer’s tortious breach of that duty.1 The majority further reasons that *88the insurer and victim are not contracting parties and that the insurer has no contractual duty of good faith and fair dealing to the third-party victim, a stranger to the contract. The majority then concludes that the insurer cannot be held liable under common law to the third-party victim for an alleged tortious breach of a non-existent duty. I find an important step missing in this reasoning, namely the majority’s failure to discuss or decide whether the law should impose on the insurer a duty of good faith to the third-party victim in the absence of a contractual relation between the insurer and the victim. For the majority to assert that the duty does not exist because there is no privity of contract is simply to restate the question presented to the court as a conclusion.
Accepting the majority’s assertion that privity of contract is required for the maintenance of a bad faith claim, I would conclude that privity of contract exists on the facts of the instant case. The third-party victim in this case is the spouse of the insured and is closely related in interest to the insured. The spouse is, by statute, protected by the policy. The legislature has provided that no motor vehicle accident policy may exclude a spouse of the insured from the coverage afforded or benefits provided by the policy. Sec. 632.32(6), Stats. 1979-80; Haines v. Mid-Century Ins. Co., 47 Wis.2d 442, 177 N.W.2d 328 (1970). Thus the third-party victim in this case is not a “stranger to the contract and to the fiduciary relationship it signifies” (majority opinion, *89supra p. 73). The spouse can be said to be an insured or a third-party beneficiary of the policy. The majority’s conclusion that the insurer owes a duty of good faith in settling claims of the first-party insured husband but owes no duty of good faith in settling the claims of the third-party victim wife is not persuasive.
Even if the third-party victim were not the spouse of the first-party insured, in my view the insurance contract places the insurer in such a relationship with the victim that the victim is a third-party beneficiary of the insurance contract.2 As the majority recognizes, the insurance contract imposes an obligation on the insurer to deal fairly and in good faith on behalf of and in the interest of the insured. The contract creates a similar duty to any third-party beneficiary. Restatement (Second) of Contracts sec. 135 (Tent. Draft No. 3,1967).
*90Our society regards the victim as a beneficiary of the insurance contract. Insurance is considered by both the insured and society as a means of compensating the injured person. As Professor Robert E. Keeton wrote, “liability insurance has come to be used openly and extensively as a device for insuring compensation to victims.” R. Keeton, Insurance Law, Basic Text 233 (1971). It is well recognized that liability insurance is purchased by the first-party insured not only to protect the insured’s assets but also to provide financial protection to anyone injured by the insured. 4A Corbin, Contracts sec. 807, pp. 213-216 (1951).
Legislative endorsement of this societal construction of insurance is shown by the enactment of direct action statutes, compulsory automobile liability insurance laws, and financial responsibility laws. These laws are predicated on the theory that the third-party victim is a third-party beneficiary of the insurance contract. The Wisconsin direct action statute, sec. 803.04(2), Stats. 1979-80, financial responsibility laws, ch. 344, Stats. 1979-80, workers compensation laws, Ch. 102, Stats. 1979-80, and various insurance laws, see, e.g., secs. 601.01 (2), 632.34(2), (3), (6), 632.35, Stats. 1979-80, can be read, as the majority concedes, as legislative recognition of the victim as an intended beneficiary of the insurance policy.
These statutory indicators support treating the third-party victim as a third-party beneficiary of the insurance contract for purposes of a bad-faith claim. Support for this position was expressed by a law review commentator who concluded that “[t]here seems to be no cogent theoretical objection to treating injured people as intended beneficiaries of the policy covenant to pay liability incurred by the insured within policy limits.” Note, Liability Insurers and Third-Party Claimants: The Limits of Duty, 48 U. Chi. L. Rev. 125, 144 (1981).
*91My view that the insurer has a duty of good faith to the victim arising from the insurance contract, if rejected, does not necessarily lead to acceptance of the majority’s conclusion. The majority does not explain why the insurer’s common law duty of good faith may arise only from the insurance contract or why the insurer’s common law liability to the victim for its bad-faith settlement practices should be dependent solely on concepts of privity of contract. Non-contractual relationships can give rise to a common law duty of good faith.
The majority reasons that the bad-faith tort claim of the insured against the insurer rests on breach of a contractual duty, that if there is no contract there is no duty, and if there is no duty there is no tort. The commentators, however, have pointed out that the duty of good faith and liability for the breach thereof originate not from the words of the contract but in principles of justice. While the duty of good faith arose in our prior cáses (see cases in note 1) from the contractual relation, in essence it is a duty imposed upon parties by the court to do justice between the parties. The duty of good faith is ope imposed not by the express words of the bargain of the parties but by the courts on public policy grounds. Professor Holmes described the origin of the extra-contract claims in equitable principles as follows:
“. . . The theory underlying extra-contract claims originates in equity. The sources of this theory are the great principles of equity — conscience and good faith— which have made a two pronged attack upon contractual abuses permitted by the classical contracting theory. Both are policing devices. . . . Thus the equitable good-faith principle authorizes courts to impose terms and duties in accord with the parties’ expectations and to grant equitable damages for nonperformance.” Holmes, Is There Life After Gilmore’s Death of Contract?— Indications From a Study of Commercial Good Faith in First-Party Insurance Contracts, 65 Cornell L. Rev. 330, 371,372 (1980).
*92The equitable principles of conscience and good faith are not by their nature limited to contractual relationships ; these principles govern other relationships as well. Thus the question presented in this case is whether these concepts of fair dealing and public policy dictate that the court impose a duty of good faith on the insurer while negotiating with the third-party victim and liability for the tortious breach of the duty. This statement of the issue comports with precedent of this court.
This court has frequently acknowledged that when the court decides whether a defendant has a legal duty so that there is liability for the tortious breach of that duty, the court is making a policy determination. Fisher v. Simon, 15 Wis.2d 207, 211-212, 112 N.W.2d 705 (1961). The most recent discussion of the elusive concept of duty by this court appears in Walker v. Bignell, 100 Wis.2d 256, 301 N.W.2d 447 (1981), an opinion authored by the author of the majority opinion. The Walker court quoted with approval Dean Prosser’s analysis of the concept of duty as follows:
“ ‘ “. . . There is a duty if the court says there is a duty; the law, like the constitution, is what we make it. Duty is only a word with which we state our conclusion that there is or is not to be liability; it necessarily begs the essential question. When we find a duty, breach, and damage, everything has been said. The word serves a useful purpose in directing attention to the obligation to be imposed upon the defendant, rather than the causal sequence of events; beyond that it serves none. In the decision whether or not there is a duty, many factors interplay: The hand of history, our ideas of morals and justice, the convenience of administration of the rule, and our social ideas as to where the loss should fall. In the end the court will decide whether there is a duty on the basis of the mores of the community, ‘always keeping in mind the fact that we endeavor to make a rule in each case that will be practical and in keeping with the *93general understanding of mankind.’ ” ’ (Emphasis supplied.)”3
In Walker v. Bignell, supra 100 Wis.2d at 266, and in Ollerman v. O’Rourke Co., Inc., 94 Wis.2d 17, 27-43, 288 N.W.2d 95 (1980), the court analyzed the question of imposing a duty and common-law tort liability on a party “as a matter of public policy.” In this case the majority does what the court said in Walker v. Bignell it would not do. The majority grounds its holding that the insurer is not liable “upon the somewhat nebulous concept of duty,” rather than by “declaring] [nonliability] directly . . . as a matter of public policy,” Walker v. Bignell, supra 100 Wis.2d at 265, 266, and thus the majority, without explanation, deviates from the path marked by our past decisions. I believe an analysis of public policy considerations is necessary to decide the question presented in this case.
There are public policy reasons justifying the recognition of the insurer’s duty of good faith to the third-party victim. Society has an interest in the just settlement of insurance claims, and this societal interest is substantially the same whether the injured party is the insured or a third-party.
A third-party victim seeking recovery from the insurer is, as I see it, in substantially the same position as the first-party insured seeking benefits under a casualty policy. Both parties have been injured and both parties look to the insurance company for payment. When seeking payment under the policy both parties are in an adversarial relation with the insurance company. Both parties are generally in a relatively weaker bargaining position than the insurance company. Both parties can *94suffer as a result of the insurer’s bad faith in settlement practices, and both parties may incur additional damage if payment of the claim is delayed. I recognize that the ’insured does buy the policy and pay the premiums and that the insurer and insured have obligations to each other under the contract which they do not have to the victim and which the victim does not have to them. Although the majority apparently takes the opposite view, I do not believe that the mutual obligations of the insurer and the insured are inconsistent with imposing on the insurer a duty to negotiate with the third-party victim in good faith.
I conclude that the interests of the insured and the third-party victim as to the settlement practices of the insurer are largely the samé and that the public has an interest in the settlement practices of the insurer whether the insurer is dealing with the insured or with a third-party victim. Insurance holds an important place in our industrial society. Insurance is recognized by the insured, the victim, the legislature and the public as a system for compensating the third-party victim for injuries caused by another. Imposing a duty on the insurer to negotiate in good faith with the third-party vidtim is consistent with the intent of the first-party insured and of the legislature and with the popular concept of insurance which views the third-party victim as an intended third-party beneficiary of the insurance contract.
Although there is a significant public interest in protecting claimants (first-party insureds and third-party victims) from unfair and oppressive tactics of insurers, I recognize that there are significant countervailing public policy considerations supporting the non-recognition of a third-party victim’s cause of action in tort against the insurer for bad faith. Commentators point out that, except where injury is measurable by the excess judgment, damages are difficult to calculate in bad-faith suits: that allowing the third-party victim to prove a *95cause of action for bad faith may have a prejudicial impact on the jury if the case goes to trial; that recognizing a third-party victim’s bad-faith cause of action might increase the number of lawsuits and might increase the number of and amount of settlement offers because of the possibility of punitive damages; that increased costs to the insurer resulting from recognizing this cause of action might be passed on to the insureds making insurance protection more costly and less available; and that the insurance industry is subject to complex and extensive regulation and that this court should not on the basis of common law principles recognize a bad-faith cause of action to third-party victims.4
As one commentator wisely noted, these same arguments against third-party victims’ bad-faith claims are applicable to the court-recognized first-party insured’s bad faith suit,5 and to the court-recognized employee workers compensation bad faith claim, Coleman v. American Universal Ins. Co., 86 Wis.2d 615, 273 N.W.2d 220 (1979). Apparently the court made the basic policy decision in our prior cases that the value of recognizing the claims of bad faith in the circumstances of those cases outweighed the disadvantages. The majority, without explanation, apparently leaves unanswered the question whether as a matter of public policy it will recognize the claims of bad faith by third-party victims against insurers. Until this court takes a position on the question, the problem of defining the existence, scope and enforceability of the insurer’s obligation of good faith in dealing with third-party victims is for the Commissioner of Insurance and the legislature.

 The majority’s “contract” cases are Hilker v. Western Automobile Ins. Co., 204 Wis. 1, 231 N.W. 257, 235 N.W. 413 (1931); Alt v. American Family Mut. Ins. Co., 71 Wis.2d 340, 237 N.W.2d 706 (1976); Anderson v. Continental Ins. Co., 85 Wis.2d 675, 271 N.W.2d 368 (1978); and Coleman v. American Universal Ins. Co., 86 Wis.2d 615, 273 N.W.2d 220 (1979). See also Davis v. Allstate Ins. Co., 101 Wis.2d 1, 303 N.W.2d 596 (1981).
*88I agree with the majority that it would be a strained interpretation of the insurance statutes and regulations cited by the majority to conclude that the legislature intended these provisions to provide a private remedy. The legislature has neither provided for nor prohibited a private cause of action. See Walker v. Bignell, 100 Wis. 2d 256, 269-273, 301 N.W.2d 447 (1981); Wells v. Chicago & North Western Transportation Co., 98 Wis.2d 328, 331-40, 296 N.W.2d 559 (1980); Cort v. Ash, 422 U.S. 66 (1975); Note, Implied Causes of Action in the State Courts, 30 Stan. L. Rev. 1243 (1978).

 “The responsibility of a contracting party to a third person with whom he has made no contract has a long history, and has presented problems of greater difficulty than those surrounding the relations of the immediate parties to the contract. The first obstacle which arises is the fact that there has been no direct transaction between the plaintiff and the defendant, which usually is expressed by saying that they are not in ‘privity’ of contract. There is thus no logical basis upon which the one may be required to perform the contract for the other, unless the contract has been made expressly for the benefit of the plaintiff, or it has been assigned to him.
“In other words, the absence of ‘privity’ between the parties makes it difficult to found any duty to the plaintiff upon the contract itself. But by entering into a contract with A, the defendant may place himself in such a relation toward B that the law will impose upon him an obligation, sounding in tort and not in contract, to act in such a way that B will not be injured. The incidental fact of the existence of the contract with A does not negative the responsibility of the actor when he enters upon a course of affirmative conduct which may be expected to affect the interests of another person.” Prosser, Torts 622 (4th ed. 1971) (notes omitted).
See also 4 Corbin, Contracts ch. 41 (1961); Restatement (Second) of Contracts secs. 133, 136 (Tent. Draft No. 3, 1967).

 Klassa v. Milwaukee Gas Light Co., 273 Wis. 176, 183-184, 77 N.W.2d 397 (1956) quoting Prosser, Palsgraf Revisited, 52 Mich. L. Rev. 1, 14-15 (1953). This passage is also quoted in Ollerman v. O’Rourke Co., Inc., 94 Wis.2d 17, 28, 288 N.W.2d 95 (1980).

 Comment, Extending the Insurer’s Duty of Good Faith and Fair Dealing to Third Parties Under Liability Insurance Policies, 25 UCLA Law Rev. 1413, 1437-1441 (1978); Comment, Liability Insurers and Third-Party Claimants: The Limits of Duty, 48 U. Chi. L. Rev. 125, 151-152 (1981).

 Comment, Liability Insurers and Third-Party Claimants: The Limits of Duty, 48 U. Chi. L. Rev. 125, 151 (1981).