DeChant v. Monarch Life Ins. Co.
| Decision Date | 08 May 1996 |
| Docket Number | No. 93-2220,93-2220 |
| Citation | 200 Wis.2d 559,547 N.W.2d 592 |
| Parties | Keric T. DeCHANT, Plaintiff-Respondent, v. MONARCH LIFE INSURANCE COMPANY, Defendant-Appellant. |
| Court | Wisconsin Supreme Court |
Appeal from Circuit Court, Waukesha County; J. Mac Davis, Judge.
For the defendant-appellant there were briefs by Eliott R. Good and Chorpenning, Good & Mancuso Co., LPA, Columbus, OH and Alan Derzon and Derzon, Menard & Noonan, S.C., Milwaukee.
For the plaintiff-respondent there were briefs by Thomas W. St. John, S. Todd Farris, Cordelia S. Munroe and Friebert, Finerty & St. John, S.C., Milwaukee.
Monarch Life Insurance Company (Monarch) appeals from a judgment in excess of $2.5 million for bad faith and breach of contract with respect to a disability policy that it issued to Keric T. DeChant (DeChant). Two issues are presented. The first issue is whether attorney's fees and bond premiums incurred by DeChant in prosecuting a breach of contract and insurance bad faith action constitute compensable damages for bad faith. We hold that DeChant is entitled to recover attorney's fees and bond premiums in a first-party bad faith action as compensatory damages flowing from Monarch's bad faith. The second issue is whether expert testimony is required to prove a claim of bad faith against an insurer. We hold that expert testimony was not necessary in the present case.
The relevant facts are not in dispute. Monarch issued a disability insurance policy to Keric T. DeChant in December of 1984. At that time, DeChant was employed as a sales representative. The Monarch policy provides for payment of "residual" 1 or "total" disability benefits, depending on the degree of the disability. Total disability is defined as the inability "to do the substantial and material duties of your regular occupation." The policy also provides that after 60 months of continuous total disability, the insured must meet the condition of not working in any reasonable occupation. Under the policy, a "reasonable occupation is any gainful work you can do based on your education, training or experience, and with due regard to your earnings before total disability starts."
DeChant was injured in an automobile accident in June 1985. After an initial attempt to return to work, although on a less than full-time basis, DeChant was advised to either stop or cut back on driving due to nerve damage in his legs. After that, he secured a management position which did not require extensive driving, but did entail taking a $50,000 pay cut. DeChant then applied to Monarch for total disability benefits on the basis that he had accepted the new position because he was no longer able to perform his duties as a sales representative.
The total disability benefits continued until early 1990 when Monarch notified DeChant that under its 60-month limitation, total disability would be discontinued in 23 months because, as a sales manager, he was employed in a "reasonable occupation." Having previously received communication from Monarch that he would receive total disability benefits for his lifetime, DeChant contacted Monarch to protest. Monarch initially told DeChant that the 60-month limitation would be waived. In April 1990, however, Monarch subsequently informed him that it was changing his status from totally to residually disabled. This change in status meant that DeChant would receive no more money.
DeChant filed a breach of contract and bad faith action against Monarch. Additionally, he sought a preliminary injunction to require Monarch to resume the disability payments. The injunction was granted, but DeChant was required to post a bond of $24,000 to secure payment of the benefits.
After DeChant presented his case-in-chief, Monarch moved to dismiss on the grounds of insufficiency of evidence due to DeChant's failure to prove the existence of any compensable damages for bad faith. The circuit court denied Monarch's motion to dismiss and permitted the matter to go to the jury.
The case was submitted to the jury upon a series of seven special interrogatories. The jury responded to each interrogatory in the affirmative, finding that Monarch had breached the policy, and further finding Monarch's conduct to have been in bad faith. As damages for Monarch's bad faith, the jury awarded "100 percent" of the attorney's fees incurred by DeChant in prosecuting the lawsuit, "100 percent" of the bond premiums DeChant had been required to pay in order to obtain the preliminary injunction, and $300,000 "for all other" bad faith damages. In addition, the jury awarded DeChant $1,000,000 in punitive damages.
Following the jury's verdict and prior to entry of judgment, Monarch filed various motions seeking to set aside the verdict and enter judgment in accordance with its previous motion to dismiss, for judgment notwithstanding the verdict, to strike certain of the jury's responses, and for a new trial.
DeChant filed post-trial motions seeking to "insert" amounts into the verdict form for attorney's fees and bond premium damages, and requesting an accelerated award of present value damages for Monarch's breach of contract.
At the post-trial motion hearing, the circuit court denied each of Monarch's post-trial motions and granted each of DeChant's motions. The court awarded to DeChant $1,175,832.85, an amount representing the lump-sum present value of all projected future disability payments due under the policy based upon DeChant's life expectancy. DeChant was awarded $1,000,000 in punitive damages. In addition, based upon a post-trial affidavit of DeChant's counsel, the court awarded attorney's fees in the amount of $82,855.58, and $1,440.00 for the bond premiums, "inserting" these amounts into the verdict form as damages for bad faith. Monarch appealed. The court of appeals certified the case to this court to resolve the following two issues: 2
(1) Under Elliott v. Donahue, 169 Wis.2d 310, 485 N.W.2d 403 (1992), can a successful insured in a breach of contract and bad faith action recover attorney's fees and bond premiums as damages?
(2) Is expert testimony required as a predicate to instructing the jury in a bad faith action in conformity with the pattern jury instruction, Wis. J I--Civil 2761, as to the conduct of a reasonable insurer?
Upon further review of the issues and the briefs filed, we determined that the first issue was unduly limited to our decision in Elliott v. Donahue. Therefore, on January 19, 1996, we ordered that the parties submit additional briefs on the following issue:
Whether attorney's fees and bond premiums incurred by a plaintiff in prosecuting a breach of contract and insurance bad faith action constitute compensable damages for bad faith.
The first issue we address is whether attorney's fees and bond premiums incurred by DeChant in prosecuting a breach of contract and insurance bad faith action against Monarch are recoverable as compensatory damages. Whether an insured can recover attorney's fees as damages is a question of law which this court decides independently and without deference to the lower courts. Newhouse v. Citizens Security Mut. Ins., 176 Wis.2d 824, 837, 501 N.W.2d 1 (1993).
The court of appeals certified this case in terms of our decision in Elliott. In Elliott, an automobile liability insurer denied defense of a third party's suit and brought a declaratory judgment action to establish that it did not owe coverage. The insured was therefore forced to obtain independent counsel and ultimately established coverage under the policy. The insured then sought to recover his attorney's fees for the litigation on the basis of the supplemental relief provision of the declaratory judgment act in Wis.Stat. § 806.04(8). 3 This court found that § 806.04(8) "permits a recovery of attorney fees ... because the recovery is proper under the principles of equity ... Therefore, we need not fashion an exception to the American Rule...." Elliott, 169 Wis.2d at 324-25, 485 N.W.2d 403.
We agree with DeChant that our decision in Elliott stands for the proposition that courts have the equitable power to award attorney's fees to insureds in limited circumstances. However, our result in Elliott was firmly grounded within the statutory authority found in Wis.Stat. § 806.04(8) (1993-94). 4 Elliott involved a declaratory judgment action in which the insurer breached its duty to defend. Therefore, although some of the rationale expressed in Elliott is supportive, we decline to extend Elliott beyond its particular facts and circumstances.
Instead, we base our present decision on the tort of first-party bad faith. It is well-settled that if an insurer fails to deal in good faith with its insured by refusing, without proper cause, to compensate its insured for a loss covered by the policy, such conduct may give rise to a cause of action in tort for bad faith. Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566, 108 Cal.Rptr. 480, 485, 510 P.2d 1032, 1037 (1973). By virtue of the relationship between the parties created by an insurance contract, a special duty arises, the breach of which duty is a tort and is unrelated to contract damages. Anderson v. Continental Ins. Co., 85 Wis.2d 675, 686, 271 N.W.2d 368 (1978). The tort of bad faith "is a separate intentional wrong, which results from a breach of duty imposed as a consequence of the relationship established by contract." Id. at 687, 271 N.W.2d 368. When such a breach occurs, the insurer is liable for any damages which are the proximate result of that breach.
The tort of bad faith was created to protect the insured. See Lawrence D. Rose, Attorney's Fee Recovery in Bad Faith Cases: New Directions For Change, 57 S.Cal.L.Rev. 503 (1984). Its primary purpose is to redress all economic harm proximately caused by an insurer's bad faith. Gruenberg, 108 Cal.Rptr. at 488-89, 510 P.2d at 1040-41. One commentator states the policy as follows:
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