Coleman v. American Universal Ins. Co.

• Decision Date: 09 January 1979
• Docket Number: No. 76-341,76-341
• Citation: 273 N.W.2d 220,86 Wis.2d 615
• Parties: John COLEMAN, Plaintiff-Appellant, v. AMERICAN UNIVERSAL INSURANCE COMPANY, Crawford & Company and Thomas Elsen, Defendants-Respondents.
• Court: Wisconsin Supreme Court

Page 220

273 N.W.2d 220

86 Wis.2d 615

John COLEMAN, Plaintiff-Appellant, v. AMERICAN UNIVERSAL INSURANCE COMPANY, Crawford & Company and Thomas Elsen, Defendants-Respondents.

No. 76-341.

Supreme Court of Wisconsin.

Argued Nov. 27, 1978.

Decided Jan. 9, 1979.

Richard A. Sachs, Jr., Milwaukee (argued), for appellant; Marjan R. Kmiec Law Offices, Milwaukee, on brief.

Kenton E. Kilmer, Milwaukee (argued), for Crawford & Co. and Thomas Elsen; Gregory J. Cook and Kasdorf, Dall, Lewis & Swietlik, Milwaukee, on brief.

Robert C. Burrell, Milwaukee (argued), for American Universal Ins. Co.; Borgelt, Powell, Peterson & Frauen, S. C., Milwaukee, on brief.

HEFFERNAN, Justice.

The plaintiff, John Coleman, was injured in the course of his employment by the Sentry Food Stores on July 30, 1975. Sentry Foods was insured for worker's compensation by American Universal Insurance Company, which employed Crawford & Company and Thomas Elsen, an employee of Crawford, to adjust worker's compensation claims.

The plaintiff, Coleman, received substantial worker's compensation payments. This action, brought against the compensation insurer, its adjusting company, and Elsen, is not, however, for compensation payments but is for an alleged separate injury arising out of the bad-faith conduct of all the defendants for refusing to honor Coleman's claim and for the intentional infliction of emotional distress.

Coleman alleged that his compensation payments were arbitrarily cut off on at least three occasions when the defendants knew his claim was valid. He alleges that the defendants knew of his inability to work and had in their possession uncontradicted medical reports which demonstrated his continuing entitlement to compensation payments. He alleged that the actions of the defendants were intentional and taken with the knowledge that his physical and emotional condition was adversely affected by their bad-faith conduct. He alleges the defendants acted "arbitrarily, willfully and in bad faith" and "with malice or oppression . . . for the purpose of saving the company money . . . ." He specifically alleged:

"These acts were intentional, malicious and outrageous, and were meant to take advantage of John Coleman's present physical and mental condition. That these tactics of harassment and delay were meant to cause the plaintiff to give up on his claims, to minimize the amount of the defendants' liability or to cause the (plaintiff) to starve. That such acts are in bad faith and with the intent and effect of causing emotional distress."

The defendants answered, denying the allegations of the complaint. In addition, they moved for summary judgment on the ground that the plaintiff's exclusive remedy was under the Worker's Compensation Act and that, accordingly, the courts had no jurisdiction to entertain this action.

The affidavit of the plaintiff in response to the motions of the defendants alleged additional acts of defendants and stated that the denial of payments caused him to be evicted from his rented quarters and resulted in severe emotional distress. He again stated that he at all times cooperated with the defendants by permitting examinations by physicians and submitting appropriate reports.

At the hearing of the motion in trial court, the plaintiff stressed, as he does here on appeal, that his cause of action is for a separate injury resulting from the intentional tort of the insurer and its agents and that he does not seek remedy for an injury which is covered by, and put exclusively within the ambit of, the Worker's Compensation Act.

The question on appeal, then, is whether a worker who sustains an injury covered by the Worker's Compensation Act may assert in the courts a separate claim for damages where the worker's compensation insurer and its agent allegedly acted in bad faith in the processing and payment of the claim.

We conclude that, where a worker's compensation insurer acts in bad faith in the settlement or payment of compensation benefits, a separate tort is committed that is not within the purview of the exclusivity provisions of the worker's compensation law and that the separate tort of bad faith may be alleged and proved in the courts. Accordingly, we reverse the judgment that dismissed Coleman's complaint against American Universal Insurance Company, and we reverse the judgment that dismissed the complaint against Crawford & Company and Thomas Elsen.

The tort of bad faith was recently recognized by this court in Anderson v. Continental Insurance Co., 85 Wis.2d 675, 271 N.W.2d 368 (1978). It is apparent that the rationale of Anderson is applicable not only to the claim of a first-party insured against its insurance company, but is also applicable when the case involves a third-party claim against an insurer.

The defendants herein do not dispute the existence of the tort of bad faith even though their briefs preceded the Anderson decision. Rather, their claim is that, because the initial relationship between the insurance company and Coleman arose under the worker's compensation statute, proceedings under that statute are Coleman's exclusive remedy. The trial court accepted that argument, granted the motions for summary judgment, and dismissed the complaint. The trial court thought it unnecessary to determine whether there were controverted factual matters, because of its determination as a matter of law that the plaintiff's exclusive remedy was under the Worker's Compensation Act, ch. 102, Stats.

It is boilerplate law in Wisconsin that the rationale underlying statutory worker's compensation is that workers accept smaller recoveries than those potentially available at common law in return for coverage of all work-related injuries regardless of fault. See, Hunker v. Royal Indemnity Co., 57 Wis.2d 588, 204 N.W.2d 897 (1973), and Page, The Exclusivity of the Workmen's Compensation Remedy: The Employee's Right to Sue His Employer in Tort, 4 B. C. Indus. & Com. L.Rev. 555 (1963). Instead of damages, the statutory compensation scheme provides an injured employee with medical care and income maintenance, the latter being figured as a percentage of pre-injury income. Sec. 102.43, Stats. Smith and Ramos, Exclusive Remedy Under Workers' Compensation Laws, 25 Fed'n of Ins. Counsel Q. 383 (1975).

The compensation remedy is exclusive, however, only if the Injury falls within the coverage of the act. 2A Larson, Workmen's Compensation Law, sec. 65.00, p. 12-1 (1978). A distinction is made between a covered injury and compensable damages. If an injury is covered by the act, an action for damages is barred, even though the particular element of damages is not compensable under the act. Larson, Supra at 12-1.

The principle of exclusivity is firmly entrenched in Wisconsin law. Even though the injury is covered by the worker's compensation statute, damages that are not specifically set forth under the statutory scheme may not be recovered. Kerner v. Employers Mutual Liability Insurance Co., 35 Wis.2d 391, 151 N.W.2d 72 (1967); Beck v. Hamann, 263 Wis. 131, 56 N.W.2d 837 (1953); Guse v. A. O. Smith Corp., 260 Wis. 403, 51 N.W.2d 24 (1952).

Hence, it is apparent that, if the injury is one covered by the Worker's Compensation Act, the compensation remedy is exclusive. If it is not so covered, the fact that a worker's compensation remedy exists for a separate injury is irrelevant. This rationale is borne out by the express words of the statute. Sec. 102.03(2), Stats.1973, the provision in effect at the time the plaintiff was injured on the premises of Sentry Foods, stated:

"Where such conditions exist the right to the recovery of compensation pursuant to this chapter shall be the exclusive remedy against the employer and the workmen's compensation insurance carrier."

The conditions which must exist to make the worker's compensation remedy exclusive are set forth in sec. 102.03(1), Stats. Pertinent to this appeal, the following provisions are relevant:

"102.03 Conditions of liability. (1) Liability under this chapter shall exist against an employer only where the following conditions concur:

"(a) Where the employe sustains an injury.

"(b) Where, at the time of the injury, both the employer and employe are subject to the provisions of this chapter.

"(c) 1. Where, at the time of the injury, the employe is performing service growing out of and incidental to his employment. . . .

". . . .her

"(d) Where the injury is not intentionally self-inflicted.

"(e) Where the accident or disease causing injury arises out of his employment.

". . . ."the

It is apparent that the injury sustained by the alleged bad-faith conduct of the defendants does not meet these conditions. Certainly, at the time it was alleged that the insurance company arbitrarily terminated compensation payments Coleman was not performing service growing out of and incidental to his employment. Condition (c) 1. is not satisfied. Moreover, the event the alleged intentional and malicious withholding of compensation payments which caused the injury did not arise out of the employment but occurred long after the employment had ceased and had its genesis in conduct by the insurer that arose not out of the employment but out of the contractual obligation of the insurer to pay.

The injury for which remedy is sought in the instant case is the emotional distress and other harm caused by the defendants' intentional acts during the investigation and during the course of payment of the claim. This claimed injury was distinct in time and place from the original on-the-job physical injury which was subject to the Compensation Act. The injury for which recovery is sought in the present actions did not occur while the plaintiff was employed or while he was performing services growing out of and incidental to his employment. As the plaintiff repeatedly and correctly stresses in his brief, this action is based not on the original work-related injury but on a second and...