Anderson v. Continental Ins. Co.

• Decision Date: 31 October 1978
• Docket Number: No. 76-242,76-242
• Citation: 85 Wis.2d 675,271 N.W.2d 368
• Parties: Jacob R. ANDERSON and Gertrude J. Anderson, his wife, Plaintiffs-Appellants, v. CONTINENTAL INSURANCE COMPANY and Underwriters Adjusting Company and Bernard A. Anderson, a/k/a B. A. Anderson, Defendants-Respondents.
• Court: Wisconsin Supreme Court

Page 368

271 N.W.2d 368

85 Wis.2d 675

Jacob R. ANDERSON and Gertrude J. Anderson, his wife Plaintiffs-Appellants, v. CONTINENTAL INSURANCE COMPANY and Underwriters Adjusting Company and Bernard A. Anderson, a/k/a B. A Anderson, Defendants-Respondents.

No. 76-242.

Supreme Court of Wisconsin.

Argued Oct. 2, 1978.

Decided Oct. 31, 1978.

Robert Arthur Melin, Milwaukee (argued), for appellants; Schroeder, Gedlen, Riester & Moerke, Milwaukee, on brief.

Joseph D. McDevitt, Milwaukee (argued), for respondents; Borgelt, Powell, Peterson & Frauen, S. C., Milwaukee, on brief.

HEFFERNAN, Justice.

We conclude that, upon the pleading of appropriate facts, an insured may assert a cause of action in tort against an insurer for the bad faith refusal to honor a claim of the insured.

The appeal is from an order of the circuit court, which dismissed the plaintiffs' complaint on defendants' motion grounded on the assertion that, in Wisconsin, no cause of action arises on behalf of a named insured, even where, under the pleadings, it is conceded that the insurer acted in bad faith in its refusal to honor the claim of the insured. The plaintiffs are Jacob R. Anderson and his wife, owners of a home in the City of Milwaukee. Effective October 1, 1973, they obtained a homeowner's insurance policy from the Continental Insurance Company, which, among other things, provided coverage for loss occasioned by fire, lightning, explosion, or smoke. While the policy was in effect, the plaintiffs, Anderson and wife, returned to their home on November 30, 1975, to discover that the walls, carpeting, furniture, draperies, and clothing in the house were covered with an oil and smoke residue, which allegedly was the result of a fire or an explosion in the furnace. On the following day, Continental Insurance Company was given notice of the damage.

It is alleged by the plaintiffs that the Underwriters Adjusting Company was delegated by Continental Insurance Company to handle the claim on behalf of Continental. Underwriters called in cleaners, who attempted to renovate and clean the premises and its contents. It nevertheless was necessary, according to the complaint, for the plaintiffs to repaint, clean, and restore the premises, and to replace carpets which shrank due to excessive cleaning ordered by Underwriters Adjusting Company. A pecuniary loss of $4,611.77 was alleged by the plaintiffs.

The Andersons attempted to negotiate with Underwriters as the agent for Continental Insurance Company, but all said negotiations were "to no avail."

It is alleged that Continental Insurance Company, Underwriters Adjusting Company, and Underwriters' manager in the area, Bernard A. Anderson, refused to negotiate in good faith concerning the amount of payment, and that each of them has submitted offers in settlement which were completely unrealistic and which had no relation to the damage incurred by the plaintiffs.

The plaintiff homeowners further recite that, when it became apparent that negotiations were not forthcoming or were to no avail, they retained an attorney to represent them in their claim against the insurance company. The complaint recites that counsel immediately filed a sworn proof of loss, which set forth in detail the inventory, the cost and the value, and the amount claimed in respect to the damages sustained. The proof of loss was filed within the time limit prescribed by the policy. On January 16, 1976, the proof of loss was transmitted to Underwriters Adjusting Company at Wauwatosa to the attention of B. A. Anderson. On January 23, 1976, the proof of loss was returned to plaintiffs' counsel by Underwriters' agent, B. A. Anderson, on behalf of Continental and Underwriters Adjusting Company. On January 28, 1976, the proof of loss was sent to Continental's home office in New York City. On February 3, 1976, plaintiffs' counsel was informed by Continental that the proof of loss had been referred to a Continental Vice President in charge of the Western Department of Continental. On February 19, 1976, plaintiffs' counsel made inquiry in respect to the disposition of the proof of loss; and on March 3, 1976, Roger S. Olson, Senior Vice President of Continental, informed plaintiffs' counsel that the matter had been turned over to Underwriters Adjusting Company and that B. A. Anderson, to whom counsel had sent the proof of loss on January 16, was authorized to handle any claims under the policy. After these peregrinations of the document, Continental again returned the proof of loss to plaintiffs' counsel.

The plaintiffs have alleged that the consistent refusal of Continental Insurance Company, Underwriters Adjusting Company, and B. A. Anderson to accept the sworn proof of loss and the refusal to negotiate in good faith were done with the knowledge and design of avoiding the obligations under the insurance contract. It is alleged that the conduct of each of the defendants was wilful, fraudulent, intentional, and in bad faith and for the purpose of discouraging, avoiding, or reducing the payment due under the terms of the policy. It is further alleged that each of the defendants acted maliciously and oppressively, with the design and intent to harass the plaintiffs maliciously and in an outrageous manner. Compensatory damages in the sum of $15,000 and punitive damages in the sum of $100,000 are demanded.

A second cause of action was alleged for the simple breach of the contract. For that breach, the plaintiffs demand payment in the amount of $4,611.77, the sum set forth in the proof of loss, together with interest, costs, and attorney's fees. Apparently no objection was made to the second cause of action, and the motion to dismiss for failure to state a claim upon which relief could be granted was directed solely to Count 1, the count which alleges bad faith.

The motion to dismiss the first cause of action is based upon sec. 802.06(2) (f), Stats.: " . . . failure to state a claim upon which relief can be granted." The motion to dismiss, like a demurrer, admits the facts that are pleaded, but only for the purpose of testing whether a claim was stated and whether relief could be granted upon those facts if such facts are proved. Neither a demurrer nor a motion to dismiss admits facts for purposes of trial. The plaintiff is still put to his proof.

The relationship of the motion to dismiss for failure to state a claim to the prior rule in respect to demurrers is set forth in Clausen and Lowe, The New Wisconsin Rules of Civil Procedure, Chapters 801-803, 59 Marq.L.Rev. 1, 54 (1976):

"The motion to dismiss for failure to state a claim upon which relief can be granted serves basically the same function as the demurrer for failure to state ultimate facts constituting a cause of action under former section 263.06(6), that is, to test the legal sufficiency of the complaint. Unlike section 263.03(2), however, the new rules do not require that the complaint state all the 'ultimate facts constituting each cause of action.' Thus, the motion to dismiss usually will be granted only when it is quite clear that under no conditions can the plaintiff recover."

As the comment by Clausen and Lowe makes clear, the new rules of civil procedure provide for notice pleading, and the resolution of the precise facts which sustain the claim is left to discovery. Clausen and Lowe, Supra at 38.

Although under the prior demurrer provision, complaints were to be construed liberally in favor of stating a cause of action, under the new rules complaints are to be construed even more liberally. A complaint which might well have failed under the old procedure for failure to state sufficient facts now will be sustained if reasonable notice is given to the defendant in respect to the nature of the claim.

The plaintiffs' complaint gives adequate notice of the circumstances of the claim and the nature of the claim asserted. From a pleading viewpoint, the complaint is sufficient. It alleges a tort by an insurer, because it is alleged the insurer and the other defendants acted in bad faith intentionally and maliciously for the purpose of harassing the plaintiffs to discourage them from asserting their rightful claim and to prevent them from collecting the amounts due under the insurance policy. This claim was entirely separate and apart from the claim for the breach of the insurance contract, which is not questioned at this stage of the proceedings.

The plaintiffs have therefore stated a claim upon which relief could be granted in some jurisdictions of the United States. It is conceded by the defendants that, under the tort rules adopted by the Supreme Court of California, particularly in Gruenberg v. Aetna Insurance Co., 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032 (1973), a cause of action or a claim for relief would be stated. It is asserted by the defendants on this appeal that such cause of action does not exist, however, in Wisconsin.

Although such a cause of action has never been explicitly recognized in this state, implicit recognition to such a claim for relief was given in the case of Drake v. Milwaukee Mutual Ins. Co., 70 Wis.2d 977, 236 N.W.2d 204 (1975). Therein, the named insured sought recovery under the uninsured motorist provisions of an automobile policy. The court in Drake, at 983, 236 N.W.2d at 208, stated:

"Drake also seeks recovery for what amounts to a tortious breach of contract. In addition to the failure to pay benefits under the policy, she claims that the company is also liable for what she characterizes, in the alternative, as a bad faith refusal to honor her claim, or as an intentional infliction of emotional distress."

Had the court reached the conclusion that, under no set of pleadings, a claim for what it called a tortious breach of contract could be asserted against an insurer, it would not have proceeded to determine whether the facts were sufficient to state that cause of action, but it did just that. The claim of tortious...