Brethorst v. Allstate Prop.

• Decision Date: 14 June 2011
• Docket Number: No. 2008AP2595.,2008AP2595.
• Citation: 334 Wis.2d 23,798 N.W.2d 467,2011 WI 41
• Parties: Wanda BRETHORST, Plaintiff–Respondent,v.ALLSTATE PROPERTY AND CASUALTY INSURANCE COMPANY, Defendant–Appellant.
• Court: Wisconsin Supreme Court

334 Wis.2d 23

798 N.W.2d 467

2011 WI 41

Wanda BRETHORST, Plaintiff–Respondent,

v.ALLSTATE PROPERTY AND CASUALTY INSURANCE COMPANY, Defendant–Appellant.

No. 2008AP2595.

Supreme Court of Wisconsin.

Argued Sept. 7, 2010.Decided June 14, 2011.

For the defendant-appellant there were briefs by James M. Ryan, Jason P. Gehring, and Kasdorf, Lewis, & Sweitlik, S.C., Milwaukee, and oral argument by James M. Ryan.For the plaintiff-respondent there was a brief and oral argument by Timothy S. Knurr and Schoone, Leuck, Kelley, Pitts & Knurr, S.C., Racine.An amicus curiae brief was filed by James A. Friedman, Kendall W. Harrison and Godfrey & Kahn, S.C., for Wisconsin Insurance Alliance.DAVID T. PROSSER, J.

[334 Wis.2d 27] ¶ 1 This case comes to the court on certification by the court of appeals, pursuant to Wis. Stat. § (Rule) 809.61 (2007–08).¹ The case arises out of an uninsured motorist (UM) claim submitted by Wanda Brethorst (Brethorst) to her insurer, Allstate Property and Casualty Insurance Company (Allstate). When Brethorst made a demand for settlement, Allstate offered only a partial settlement of Brethorst's claim for $4,789 in medical expenses above the $5,000 in medical expenses covered by her policy. Brethorst rejected the offer, then filed suit against Allstate for bad faith.

¶ 2 Allstate filed a motion with the circuit court asking that Brethorst's contract claim for UM coverage of her personal injuries be bifurcated from her bad faith claim. Allstate also requested that discovery on the bad faith claim be stayed until the contract claim was resolved. Brethorst opposed the motion on grounds that she had filed only one claim—bad faith—and thus no bifurcation or stay of discovery was appropriate.

¶ 3 The circuit court agreed with Brethorst and denied both parts of Allstate's motion. The court concluded that a party may maintain a bad faith claim without first proving a breach of contract claim as a condition precedent.

¶ 4 Allstate appealed, and the court of appeals certified the matter to this court. We granted certification on the following issues:

(1) 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?

(2) In a first-party bad faith claim, if a finding of wrongful denial of benefits is a condition precedent to proceeding with bad faith discovery, does the trial court err if it refuses to grant the insurance company's motion to bifurcate the issues for discovery? Do the same policy considerations that make it error for the trial court to refuse a motion to bifurcate simultaneous bad faith and breach of contract claims—avoiding undue prejudice to the insurance company, avoiding jury confusion and promoting settlement—make it error to refuse a motion to bifurcate the same two issues when the insured's only claim is bad faith?

¶ 5 We conclude the following:

(A) Some breach of contract is a fundamental prerequisite for a first-party bad faith claim against an insurer.

(B) Breach of contract and first-party bad faith are separate claims.

(C) An insured may file a bad faith claim without also filing a breach of contract claim. The policies articulated in Dahmen v. American Family Mutual Insurance Co., 2001 WI App 198, 247 Wis.2d 541, 635 N.W.2d 1, which require bifurcation when both bad faith and breach of contract claims are brought together, are only partially applicable when a party has chosen to plead only a bad faith claim.

(D) The insured may not proceed with discovery on a first-party bad faith claim until she has:

(1) pleaded a breach of contract by the insurer as part of a separate bad faith claim, and

(2) satisfied the court that she has established such a breach or will be able to prove such a breach in the future.

(E) In this case, Brethorst has supplied the insurer and the court with sufficient evidence of a breach of contract by the insurer that she may proceed with discovery on her bad faith claim. On the facts before us, Brethorst has shown uncontradicted evidence that she incurred $9,789 in medical expense for treatment from injuries she suffered in an automobile accident caused by an uninsured motorist. The insurer's failure to pay all these expenses without submitting any reasonable basis in law or fact (as opposed to theory) for its failure to do so justifies Brethorst going forward with discovery on her bad faith claim.

I. BACKGROUND AND PROCEDURAL HISTORY

¶ 6 This is an appeal from a nonfinal order of the Racine County Circuit Court, Wayne J. Marik, Judge, denying Allstate's motion to bifurcate claims and stay discovery. The court heard argument but did not conduct an evidentiary hearing. The following facts are drawn from the parties' pleadings and communications found in the record.

¶ 7 On December 12, 2006, around 8 p.m., Brethorst and her husband William were involved in a motor vehicle accident near the intersection of State Highway 32/Douglas Avenue and 4 Mile Road in Racine County. The accident was caused by an uninsured motorist, Margy L. Raymond, who was highly intoxicated when she pulled her vehicle onto the highway in front of the Brethorsts' vehicle. William Brethorst was driving the Brethorsts' vehicle at the time, and Wanda Brethorst sustained injuries as a result of the ensuing collision. The Brethorsts were insured under an automobile liability policy with Allstate. Their policy included coverage for injuries caused by an uninsured motorist as well as $5,000 in medical expenses.

¶ 8 Wanda Brethorst submitted a UM claim to Allstate for her injuries from the accident about January 23, 2007. In a March 1 letter to the law firm representing the Brethorsts,² an Allstate employee, Diane Watke, acknowledged receipt of the claim and state that she had begun working on it. The letter added, “Losses are always difficult, but rest assured that we will work to make the claim process smooth and resolve the claim promptly.”

¶ 9 On March 27, Ms. Watke sent a second letter addressed to attorney Timothy S. Knurr (Knurr), inquiring whether William Brethorst had received medical treatment and “how much longer” Wanda Brethorst would continue to be treated by PT Plus, which was providing Brethorst with physical therapy. On April 4, Knurr responded that William was not claiming injury and that Knurr did not know how much longer Wanda Brethorst's treatment would continue, but that “[w]e will keep you posted.”

¶ 10 In another letter dated April 4, an Allstate employee named Michael Kahn (Kahn) informed Knurr that he had assumed the handling of Brethorst's claim. Kahn state that Allstate viewed the occurrence as “a minor accident” and “wouldn't expect much of any injury and treatment.” The letter added: “Please send us your demand material so we can attempt to conclude this matter in the near future.” The letter also attached photos and a damage estimate on the Brethorst's vehicle . The damage estimate for the vehicle—a Jeep Cherokee with a plow undercarriage—was listed as $486.62.

¶ 11 In the following months, Brethorst continued to receive physical therapy for her injuries and provided Allstate notice of that ongoing treatment. In total, Brethorst incurred $9,789 in medical expenses related to treatment of her injuries. Brethorst submitted a demand for settlement of her claim on September 12, 2007.

¶ 12 On October 9 Kahn offered to settle the injury claim for $1,500 above the $5,000 in medical expenses already paid. His letter cited the severity of the impact, the damages sustained by the vehicles, injuries claimed, and medical records provided as factors considered in arriving at this amount. Kahn also reiterated Allstate's position that “this was a minor accident and [we] question any injury resulting from this accident.”

¶ 13 Brethorst responded on November 16 with a letter from her treating physician, Dr. Jerome Lerner, of Advanced Pain Management. The letter stated that Dr. Lerner had examined Brethorst nine days after the accident, reviewed the report and diagnosis of her primary physician, recommended physical therapy, and had seen her several times during the course of her treatment. Dr. Lerner explained that, while Brethorst had suffered from chronic pain stemming from arthritis and fibromyalgia prior to December 12, 2006, the accident had resulted in “acute cervical and back strain/sprain,” exacerbating her pre-existing conditions. Lerner wrote that the physical therapy he ordered ultimately resulted in returning Brethorst to the baseline pain she had experienced prior to the accident. Dr. Lerner further stated that in his opinion, “to a reasonable degree of medical certainty,” the physical therapy had not been ordered to treat the pre-existing conditions but instead was reasonably necessary “to treat the acute injuries from” the accident.

¶ 14 Upon receiving this letter, Kahn increased Allstate's settlement offer to $1,800. This second offer, dated December 14, referenced the low dollar amount of damage sustained by the vehicle and reiterated Allstate's assessment that the collision was only a minor accident. Kahn also pointed out that Allstate had already paid $5,000 under the policy's medical payments coverage.

¶ 15 After receiving this second offer of partial settlement, Brethorst filed suit for bad faith denial of benefits. Her January 11, 2008, complaint alleged that Allstate had adopted a company-wide policy of routinely “offering sums substantially less than the medical bills incurred” in accidents involving “minor impact soft tissue” (MIST) injuries. She asserted that her claim was assigned to Kahn because he was responsible for implementing this MIST policy. Specifically, Brethorst alleged that Allstate, by and through Kahn's actions, acted in bad faith (a) by failing to conduct a full and fair investigation of the case, (b) by failing to have her claim evaluated by anyone with medical training, and (c) by ignoring both the medical...