Court Opinion

ID: 8203533
Source: CourtListenerOpinion
Date Created: 2022-09-09 23:49:32.822604+00
Date Added: 2024-06-11T16:41:02.744250
License: Public Domain

ANN WALSH BRADLEY, J.
¶ 87. (concurring). Like the majority, I conclude that Brethorst's freestanding claim for bad faith can proceed. In my view, however, the majority obscures what should be a straightforward analysis. Because it needlessly alters the well-established law and creates out of whole cloth new pleading requirements and uncertain procedures that are unnecessary and confusing, I respectfully concur.
*59I
¶ 88. In this case, Brethorst's complaint alleged only one cause of action: a tort claim for bad faith. She did not file a breach of contract claim along with the tort claim. The court of appeals certified this appeal, asking whether a finding of wrongful denial of benefits is a condition precedent to proceeding with discovery in a first-party bad faith claim based on wrongful denial of benefits. See majority op., ¶ 4. The majority appears to conclude that it is. Id., ¶ 65.
¶ 89. Initially, the majority cites and seems to embrace well-established precedent providing that the tort of bad faith has two elements: "[A] plaintiff must show [1] the absence of a reasonable basis for denying benefits of the policy and [2] the defendant's knowledge or reckless disregard of the lack of a reasonable basis for denying the claim." Id., ¶ 26. Yet, rather than relying on Wisconsin case law, the majority cites instead two treatises which assert that there are three elements to a bad faith claim. Id., ¶¶ 54-55 (citing Arnold Anderson, Wisconsin Insurance Law (6th ed. 2010); Russ & Segalla, Couch on Insurance (3d ed. 2007)).
¶ 90. To be entitled to discovery on a freestanding bad faith claim, the majority concludes that an insured must make a "threshold showing." Id., ¶ 23. In explaining what is required, it says that the insured must "plead[] breach of contract by the insurer as part of a separate bad faith claim," "must plead . . . that she was entitled to payment under the insurance contract," must "allege facts to show that her claim under the contract was not fairly debatable," and "must plead facts which, if proven, would demonstrate . . . that the insurer beached its contract." Id., ¶¶ 76, 78. The insurer then has the opportunity to rebut those pleadings *60and allegations. Id., ¶ 76. Ultimately, the insured must "satisf[y] the court that the insured has established such a breach or will be able to prove such a breach in the future." Id., ¶ 76.
II
¶ 91. It is well established that in Wisconsin, there are two elements of a bad faith claim. A plaintiff must show (1) "the absence of a reasonable basis for denying benefits of the policy"; and (2) "the defendant's knowledge or reckless disregard of the lack of a reasonable basis for denying the claim." Anderson v. Cont'l Ins. Co., 85 Wis. 2d 675, 691, 271 N.W.2d 368 (1978); Trinity Evangelical Lutheran Church v. Tower Ins. Co., 2003 WT 46, 261 Wis. 2d 333, 661 N.W.2d 789; Weiss v. United Fire & Cas. Co., 197 Wis. 2d 365, 377, 541 N.W.2d 753 (1995); Warmka v. Hartland Cicero Mut. Ins. Co., 136 Wis. 2d 31, 34, 400 N.W.2d 923 (1987); Danner v. Auto-Owners Ins., 2001 WI 90, ¶ 61, 245 Wis. 2d 49, 629 N.W.2d 159; Mowry v. Badger State Mut. Cas. Co., 129 Wis. 2d 496, 516, 385 N.W.2d 171 (1986).
¶ 92. The jury instruction confirms that there are two elements of the tort:
To prove bad faith against (insurance company) the (plaintiff) must establish that there was no reasonable basis for the insurance company's denying (plaintiffs claim for benefits under (his) (her) policy and that (insurance company), in denying the claim, either knew or recklessly failed to ascertain that the claim should have been paid.
Bad faith on the part of an insurance company towards its insured is the absence of honest, intelligent action or consideration of the insured's claim.
*61Bad faith exists if, upon an examination of the facts found by you, you are able to conclude that (defendant) had no reasonable basis for denying (plaintiff's claim....
Wis. Jl-Civil 2761.
¶ 93. Rather than affirming this well-established standard, the majority relies on treatises for the proposition that the tort of bad faith has three elements.1 In so doing, it is clear that the majority is altering well-established law. But to what, exactly, is the majority altering the law? It is unclear whether the majority is really adding an additional element to the tort of bad faith, or whether it instead concludes that breach of contract is merely a shadow element of the tort.
¶ 94. The majority's apparent need to alter the well-settled law arises because it fails to fully grasp the relationship between an insurance contract and the tort of bad faith. An insurance contract and the relationship it creates contain more than the company's bare promise to cover and pay certain claims and amounts. Implicit in the contract and the relationship is the insurer's obligation to play fairly with its insured—the implied contract of good faith and fair dealing.
¶ 95. One court has explained that "[t]he [insurance] industry itself seems to recognize these principles" because its advertising portrays customers as being "in good hands." Such slogans "emphasize a special type of relationship between the insured and the insurer" in which trust and confidence have some part. Rawlings v. Apodaca, 726 P.2d 565, 571 n.3 (Ariz. 1986).
*62¶ 96. Accordingly, in every insurance contract, there is an implied contractual duty of good faith and fair dealing. Jones v. Secura Ins. Co., 2002 WI 11, ¶ 13, 249 Wis. 2d 623, 638 N.W.2d 575. When the existing elements of the tort of bad faith are examined, it becomes apparent that there is overlap between a breach of the implied contractual duty of good faith and fair dealing and the first element of the tort of bad faith.
¶ 97. The first element, the absence of a reasonable basis for denying benefits of the policy, is objective. Weiss, 197 Wis. 2d at 377-78. At trial, the plaintiff will be required to prove a negative—that there was no reasonable basis for denying benefits. The plaintiffs bad faith claim would be defeated by the existence of an objectively reasonable basis for denying the benefits.
¶ 98. If an insurance company denies payment without an objectively reasonable basis for doing so, then the insurance company has breached its duty of good faith and fair dealing. Contrary to the majority's conclusion, breach of contract is neither an element nor a condition precedent of a bad faith claim. Rather, a breach of the implied contractual duty of good faith and fair dealing is inherent in the first element of the tort.
¶ 99. Further, the majority's analysis fails to distinguish between the contractual duty of good faith and fair dealing and coverage. It contends that "it is difficult to conceive of a situation" where there could be bad faith in the absence of coverage. Yet, such a scenario is readily envisioned in a leading treatise about bad faith actions:
[SJuppose that an insured observes cracks in the foundation of his house. The insured cannot tell by looking at the cracks whether they were caused by subsidence (an excluded peril under the policy) or by contractor *63negligence (a covered peril). The insured submits a claim under his policy and requests that the insurer investigate the matter. Instead of hiring a soils engineer to investigate the cause of the cracks, the insurer embarks on a campaign to intimidate the insured into accepting a pittance in settlement of the claim. The insured incurs $5,000 in expenses to hire a soils engineer, who conducts a competent investigation and discovers that contractor negligence had nothing to do with the cracks. The thesis that no coverage means no bad faith would leave the insured without compensation in this example.
Stephen S. Ashley, Bad Faith Actions § 5A:02 (2d ed. 1997).
¶ 100. Because the majority fails to detangle the concepts of coverage and the contractual duty of good faith and fair dealing, it sets up a false choice. It contends that bad faith in the absence of a breach of contract is tantamount to "creating coverage." Majority op., ¶ 66. The above scenario illustrates that an insurer's breach of the implied duty of good faith and fair dealing may cause compensable harm to the insured—even if it were later determined that there was no coverage under the policy.
Ill
¶ 101. The majority creates out of whole cloth new pleading requirements and uncertain procedures that are unnecessary and confusing.
¶ 102. It is clear that the majority has created new pleading requirements for bringing a bad faith claim. What is unclear, however, is why the majority feels compelled to do so and what the new requirements mean. The majority even acknowledges that it has "misgivings" that its analysis may "countenance bad behavior by insurers against their insureds." Id.
*64¶ 103. Some of the new pleading requirements seem to be specific averments and others appear to require that facts be alleged. The majority requires as a specific averment that an insured must plead that the contract has been breached by the insurer "as part of a separate bad faith claim." Id., ¶ 76. Another specific averment appears to be that "an insured must plead, in part, that she was entitled to payment under the insurance contract[.]" Id. Additionally, certain facts must be alleged. The insured must "allege facts to show that her claim under the contract was not fairly debatable," id., and "must plead facts which, if proven, would demonstrate ... that the insurer breached its contract[.]" Id., ¶ 78.
¶ 104. So much for notice pleading. More importantly, however, why set such a trap? The majority elucidates the consequences for failing to abide by these new requirements: "A plaintiffs failure to make this preliminary showing would be grounds for the court to grant a motion for summary judgment [against the plaintiff]." Id., ¶ 79. There is something out of balance when the plaintiff suffers such a consequence for failing to thread the needle of specific averments or factual allegations while at the same time the insurer will escape responsibility for egregious conduct towards its insured. See id., ¶ 66.
¶ 105. The majority mandates that facts be alleged to establish the newly required legal conclusions. However, it provides little guidance on how courts should evaluate the sufficiency of the facts alleged. An examination of the majority's own application of its new requirements exacerbates the uncertainty. In determining that discovery on Brethorst's bad faith claim may proceed, the majority relies at times on Brethorst's *65assertion of legal conclusions rather than relying on any allegations of fact.2
¶ 106. It is also unclear what procedure should be undertaken by circuit courts to evaluate the "threshold showing" mandated by the majority. See id., ¶ 23. A court must be "satisfied" that the insured "has established [a breach of contract] or will be able to prove such a breach in the future." Id., ¶ 76. What does this mean?
¶ 107. Should a circuit court base its determination on a gut feeling about whether it looks like the insurance contract has been breached? Or is an evidentiary showing necessary? If so, what evidence is required to "satisfy the court" that the insured has established or will be able to prove breach of contract in the future? Must circuit courts guard against the possibility of turning the hearing into a trial on the threshold element or shadow element of breach of contract—the result the insured intended to avoid by bringing a freestanding claim for bad faith?
¶ 108. The majority's approach raises more questions than it answers. Its approach is also unnecessary because established procedures already exist to address the claim before us.
¶ 109. Wisconsin's summary judgment procedure is well established. Summary judgment is appropriate if there is no substantial issue to be tried. Jay E. Grenig, Wisconsin Practice Series: Civil Procedure § 208.3 (4th *66ed. 2010). In support of a motion for summary judgment, an insurer may submit affidavits to introduce any necessary facts.
¶ 110. If the insurer can show that an objectively reasonable basis for denying the insurance claim exists, no reasonable, properly instructed jury could find that the elements of bad faith are met.3 Under those circumstances, there is no substantial issue to be tried, and the insurer would be entitled to prevail as a matter of law.4
*67¶ 111. The majority's creativity appears to be motivated by concerns about public policy. It echoes Allstate's expressed public policy concern about allowing a freestanding claim of bad faith to proceed without a threshold finding of breach of contract. It cites Dahmen for the proposition that discovery of an insurer's work product would be unlimited:
[The Dahmens] will be entitled to discovery of the insurer's work product and attorney/client material containing information relevant as to how the claim was handled. This information would include the insurer's internal determination to deny benefits, its evaluation as to how a jury may value the Dahmens' claim and its approach to settlement.
Majority op., ¶ 39 (citing Dahmen v. American Family Mut. Ins. Co., 2001 WI App 198, 247 Wis. 2d 541, 635 N.W.2d 1); see also id., ¶¶ 75, 75 n.7.
¶ 112. The majority's concern is exaggerated for two reasons. First, Dahmen does not stand for the proposition that once a bad faith claim is made, an insurer must blindly turn over its entire file. There are well-established procedures for curbing discovery abuses. Wisconsin Stat. § 804.01(3) "confers broad powers on the courts to regulate or prevent discovery, even where the materials sought" may otherwise be discoverable. Grenig, supra § 401.3. The majority gives short shrift to the circuit court's broad discretion to issue protective orders on a case-by-case basis.
¶ 113. Second, under the established rules of civil procedure, the insurer's motion for summary judgment *68may be heard once the pleadings are complete. Wis. Stat. § 802.08(1). Accordingly, the insurer need not wait until discovery is finished—or even until after discovery has begun—to argue that it is entitled to summary judgment. "[A] court should not enforce a discovery request if the material sought is relevant to a claim upon which no relief can be granted." Grenig, supra § 401.3.
¶ 114. In sum, unlike the majority, I would rely upon established law and procedures to resolve these issues. I conclude that the legal questions raised by the court of appeals and the public policy issues raised by Allstate can be readily addressed through a straightforward application of the well-established summary judgment procedure to the longstanding elements of a bad faith claim.
¶ 115. Here, Allstate has not made a motion for summary judgment at this time, and it has advanced no argument that it had an objectively reasonable basis for denying the benefits. Rather, this is an appeal of an order denying Allstate's motion to bifurcate. Brethorst raised only one claim and there is no issue of insurance coverage, so there is nothing to bifurcate.5 I agree with *69the analysis of the learned circuit court. It properly denied Allstate's motion.
¶ 116. For the reasons stated above, I respectfully concur.
¶ 117. I am authorized to state that Chief Justice SHIRLEY S. ABRAHAMSON joins this concurrence.

 I have for years appreciated the work of Attorney Arnold Anderson and have consulted his treatise, Wisconsin Insurance Law. Here, however, I respectfully disagree with the proposition that the tort of bad faith has three elements.

 The majority notes that Brethorst "alleged" that the policy "covered [uninsured motorist] claims" and that Allstate "would be liable and obligated to pay to Brethorst 100 per cent of the damages sustained by Brethorst as a direct result of the uninsured motorist's negligence." Majority op., ¶ 83.

 The Anderson court recognized, that "put[ting] the test on an objective basis [] will minimize the fears expressed ... that to permit claims for bad faith will result in extortionate lawsuits. Such result cannot follow when an insurance company in the exercise of ordinary care makes an investigation of the facts and law and concludes on a reasonable basis that the claim is at least debatable." Majority op., ¶ 27 (quoting Anderson v. Cont'l Ins. Co., 85 Wis. 2d 675, 693, 271 N.W.2d 368 (1978).
Our cases give guidance on what constitutes an objectively reasonable basis for denying benefits. In Danner v. Auto-Owners Ins., 2001 WI 90, ¶ 58, 245 Wis. 2d 49, 629 N.W.2d 159, we explained that "[a]n insurance company may 'challenge claims which are fairly debatable and will be found liable [for bad faith] only where it has intentionally denied (or failed to process or pay) a claim without a reasonable basis.'"
If, for example, the insurer can demonstrate that there is no contract, see majority op., ¶ 52, then it would appear that there is a reasonably objective basis for denying benefits. Or it may be that there is a fairly debatable argument that there is no coverage under the policy. See id., ¶ 53. In that case, if there is no other reason to conclude that the insurer breached the duty of bad faith causing damages, then it would appear that the insurer had a reasonably objective basis for denying benefits and summary judgment should be granted.

 "The mere existence of an alleged factual dispute between parties will not defeat an otherwise properly supported motion for summary judgment. The requirement is that there be no genuine triable issue of material fact. A factual issue is a *67genuine issue of material fact if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Jay E. Grenig, Wisconsin Practice Series: Civil Procedure § 208.3 (4th ed. 2010).

 In addition to obfuscating the standard and procedure for a bad faith tort claim, the majority also confuses the law relating to bifurcation under Wis. Stat. § 805.05(2). See majority op., ¶ 20. We recently explained that the statute permits bifurcation of separate claims, but it does not authorize bifurcation of separate "issues" within a single claim. Waters v. Pertzborn, 2001 WI 62, ¶ 31, 243 Wis. 2d 703, 627 N.W.2d 497.
There is only one statutory exception to this otherwise hard-and-fast rule: "An exception to [the rule] is the bifurcation of an issue of insurance coverage under 803.04(2)(b)." Id., ¶ 21. Wisconsin Stat. § 803.04(2)(b) provides: "Nothing herein contained shall be construed as prohibiting the trial court from directing and conducting separate trials on the issue of liabil*69ity. . . and on the issue of whether the insurance policy in question affords coverage."
The majority confuses the law by asserting that "the legislative history" of Wis. Stat. § 805.05(2) "clearly demonstrates that the rule barring bifurcation of issues was not intended to apply to cases involving insurance coverage." Majority op., ¶ 20, n.4. What does the majority mean? The majority's attempted explanation misstates our holding in Waters, and it misstates the applicable statutes.