Kranzush v. Badger State Mut. Cas. Co.

• Decision Date: 30 June 1981
• Docket Number: No. 80-504,80-504
• Citation: 103 Wis.2d 56,307 N.W.2d 256
• Parties: E. D. KRANZUSH, special administrator of the Estate of Dorothy Gerlikovski, Deceased, Plaintiff-Appellant-Petitioner, v. BADGER STATE MUTUAL CASUALTY COMPANY, a Wisconsin insurance corporation, Defendant-Respondent.
• Court: Wisconsin Supreme Court

Page 256

307 N.W.2d 256

103 Wis.2d 56

E. D. KRANZUSH, special administrator of the Estate of Dorothy Gerlikovski, Deceased, Plaintiff-Appellant-Petitioner, v. BADGER STATE MUTUAL CASUALTY COMPANY, a Wisconsin insurance

corporation, Defendant-Respondent.

No. 80-504.

Supreme Court of Wisconsin.

Argued March 30, 1981.

Decided June 30, 1981.

J. Robert Kaftan and Kaftan, Kaftan, Kaftan, Van Egeren, Ostrow & Gilson, S. C., J. Robert Kaftan, Green Bay, for plaintiff-appellant-petitioner.

Kurt H. Frauen, W. Ted Tornehl and Borgelt, Powell, Peterson & Frauen, S. C., Kurt H. Frauen, Milwaukee, for defendant-respondent.

CALLOW, Justice.

The sole issue presented on this review is whether a tort victim can bring an action against the tortfeasor's insurer for bad faith in failing to settle the victim's claim. Both the trial court, in granting the defendant-insurer's motion to dismiss, and the court of appeals, in affirming the dismissal, 98 Wis.2d 748, 297 N.W.2d 515, concluded that no such cause of action exists in this state. We affirm.

Because this matter is before us on a motion to dismiss for failure to state a claim upon which relief can be granted, the only facts are those stated in the complaint, which for purposes of this review must be taken as admitted. Scarpaci v. Milwaukee County, 96 Wis.2d 663, 669, 292 N.W.2d 816 (1980); Ollerman v. O'Rourke Co., Inc., 94 Wis.2d 17, 24, 288 N.W.2d 95 (1980); General Split Corp. v. P & V Atlas Corp., 91 Wis.2d 119, 122-23, 280 N.W.2d 765 (1979); Morgan v. Pennsylvania General Ins. Co., 87 Wis.2d 723, 731, 275 N.W.2d 660 (1979); Anderson v. Continental Ins. Co., 85 Wis.2d 675, 683, 271 N.W.2d 368 (1978). As pleaded, the facts indicate that on November 10, 1974, Dorothy Gerlikovski was injured when the automobile in which she was a passenger struck a utility pole in a motel parking lot. The car was being driven by Dorothy's husband. Dorothy commenced an action in the circuit court for Brown county against her husband and his liability insurer, Badger State Mutual Casualty Company (Badger), the respondent herein, alleging negligence and seeking damages for her injuries. This action is still pending in the circuit court and is not involved in this review.

Following Dorothy's death the administrator of her estate commenced the instant action against Badger. The material allegations of the complaint are as follows:

"8. That the injuries which she sustained resulting from the accident consisted of injuries to her left shoulder, elbow, knee, right leg, forehead and neck, and that at the time of the injury the plaintiff's decedent had recently had a radical mastectomy, which was performed on August 14, 1974, and that she was in a weakened condition as a result of such mastectomy; and that at the time of the accident the area of the breast upon which the mastectomy was performed was further injured and damaged.

"9. That after the commencement of the action, the defendants, by their attorneys, through repeated requests for medical reports and hospital reports and through the filing of interrogatories, which were answered, were fully aware of the circumstances relating to the plaintiff's decedent's injuries and of the progress of the cancer which gave rise to the mastectomy and were fully apprised of the fact that the mortality of the plaintiff's decedent as a result of the aggravation of the cancer area in the left breast was very limited.

"10. That the defendants at all times had available to them all medical information needed to supply them with information relating to the plaintiff's decedent's injuries, and the defendants knew that the plaintiff's decedent was going to die within a short period of time from the cancer; and that the defendants used every means available to them to prolong the litigation so that the plaintiff's decedent either would be unable to assert herself while in good health or that she would die before the matter came to trial.

"11. That the action of the defendant herein was intentional and taken with the knowledge of the plaintiff's decedent's physical and emotional condition and the protraction of the litigation was adversely affected by the bad faith conduct of the defendant.

"12. That the defendant herein acted arbitrarily, wilfully and in bad faith and with malice and outrageously and for the purpose of saving the company money.

"13. That these acts of constant delay, and even an attempt to delay twelve days before the death of the plaintiff's decedent, were intentional, malicious and outrageous and were meant to take advantage of Dorothy Gerlikovski's physical and mental condition. That these tactics of harrassment (sic) and delay were meant to cause the plaintiff's decedent to give up her claim and to minimize the amount of the defendants' liability. That such acts were in bad faith and with intent and effect of causing emotional distress.

"14. That during the protraction of the litigation, the defendant had numerous opportunities to settle the litigation on a fair and reasonable basis but that at all times while the plaintiff's decedent was capable of making decisions it arbitrarily, intentionally and in bad faith refused to consider the settlement of an obvious claim for damages made by the plaintiff's decedent, which failure to settle caused her grief and emotional distress."

On July 2, 1979, Badger moved to dismiss the complaint for failure to state a claim upon which relief can be granted. In a memorandum decision dated February 7, 1980, the circuit court for Brown county, the Hon. William J. Duffy presiding, granted Badger's motion, concluding that an insurer owes no duty to third-party claimants relative to the settlement of claims. ¹ On appeal the court of appeals, in an unpublished opinion, concluded likewise and affirmed. Kranzush v. Badger Casualty Co., 98 Wis.2d 748, 297 N.W.2d 515 (Ct.App.1980).

I.

Under our case law the notion that an insurance company may be required to respond in extracontractual damages as a result of certain tortious conduct in the settlement of claims or the payment of benefits has evolved into three separate theories of bad faith recovery. In this case the petitioner urges us to recognize a fourth. Before addressing the particulars of this new theory of bad faith recovery, we will briefly review the development of the first three.

Where an injured party makes a claim against the tortfeasor's insurer, we have held that the insurer has an obligation to the insured to exercise good faith in the settlement of the claim. This obligation, which arises by virtue of the contractual relationship of the insurer and the insured, reflects the fact that in the standard liability insurance contract the insured surrenders completely the right to control the settlement or litigation of the victim's claim within the limits of the insurer's exposure. The threat to the insured is obvious: if the insurer fails to settle a third-party claim within the limits of the policy and chooses instead to litigate the matter, the insured will be exposed to that portion of any judgment which exceeds the policy limits. Thus in Hilker v. Western Automobile Ins. Co., 204 Wis. 1, 231 N.W. 257, 235 N.W. 413 (1931), we affirmed a plaintiff-insured's recovery of an excess judgment against his insurer and held that in the processing of claims against an insured an insurer has a duty to make a diligent investigation of the facts and a duty to inform the insured of the possibility of a recovery in excess of the policy limits. A third duty, a duty to keep the insured timely and adequately informed of all settlement offers received from the claimant, was added by the court in Baker v. Northwestern National Casualty Co., 22 Wis.2d 77, 125 N.W.2d 370 (1963). The essence of this aspect of bad faith is explicated in Alt v. American Family Mutual Ins. Co., 71 Wis.2d 340, 348, 237 N.W.2d 706 (1976), where we stated:

"It is obvious, then, that what we speak of when referring to bad faith is the breach of a known fiduciary duty. This carries with it the duty to act on behalf of the insured and to exercise the same standard of care that the insurance company would exercise were it exercising ordinary diligence in respect to its own business. Since that is the accepted standard, an insurance company, in which is vested the exclusive control of the management of a case, breaches its duty when it has the opportunity to settle an excess liability case within policy limits and it fails to do so."

See also: Johnson v. American Family Mutual Ins. Co., 93 Wis.2d 633, 287 N.W.2d 729 (1980); Howard v. State Farm Mutual Auto. L. Ins. Co., 70 Wis.2d 985, 236 N.W.2d 643 (1975); Howard v. State Farm Mutual Automobile Ins. Co., 60 Wis.2d 224, 208 N.W.2d 442 (1973); Nichols v. United States Fidelity & Guaranty Co., 37 Wis.2d 238, 155 N.W.2d 104 (1967); Baker v. Northwestern National Casualty Co., 26 Wis.2d 306, 132 N.W.2d 493 (1965); Maroney v. Allstate Ins. Co., 12 Wis.2d 197, 107 N.W.2d 261 (1961); Berk v. Milwaukee Automobile Ins. Co., 245 Wis. 597, 15 N.W.2d 834 (1944); Lanferman v. Maryland Casualty Co., 222 Wis. 406, 267 N.W. 300 (1936).

A second basis for a bad faith claim may arise from an insurer's handling of an insured's claim under a casualty, life, health, or accident policy. This type of claim is exemplified by Anderson v. Continental Ins. Co., supra, in which we held that an insurer's unreasonable failure to pay its insured's smoke damage claim was an actionable tort. Reiterating the fiduciary relationship between the insurer and the insured first articulated in Hilker, we adopted the following statement as the law of this state:

" 'It is manifest that a common legal principle underlies all of the foregoing decisions; namely, that in every insurance contract there is an implied covenant of good faith and fair dealing. The duty to so act is imminent in the contract whether the company is attending to the claims of third persons against...