Wisconsin

Section INS 6.11 of the Wisconsin Administrative Code vests power with the Commissioner of Insurance to penalize insurers for bad faith violations. There is no private cause of action under the statute; however, violation of the Rules may be evidence of bad faith. Heyden v. Safeco Title Ins. Co., 175 Wis. 2d 508, 498 N.W.2d 905 (Ct. App. 1993), overruled on other grounds Weiss v. United Fire and Cas. Co., 197 Wis. 2d 365, 541 N.W.2d 753 (1995).

“Under well-settled Wisconsin law, a third party who has asserted a claim against an insured cannot bring a bad faith claim against the insured's insurance company.” Neri v. Barber, 353 Wis. 2d 553, 846 N.W.2d 34, (Wis. 2014). As held by the Wisconsin Supreme Court: "The insurer's duty of good faith and fair dealing arises from the insurance contract and runs to the insured. No such duty can be implied in favor of the claimant from the contract since the claimant is a stranger to the contract and to the fiduciary relationship it signifies." Kranzush v. Badger State Mut. Cas. Co., 103 Wis. 2d 56, 73, 307 N.W.2d 256 (Wis. 1981). Thus, the court explained: "In the absence of any such duty, the third-party claimant cannot assert a claim for failing to settle h[er] claim ...." Id. at 74. However, an insured may assign his or her cause of action against the insurer to the third party claimant. Alt v. American Family Mut. Ins. Co., 71 Wis. 2d 340, 341-342, 237 N.W.2d 706, 708, (Wis. 1976).

“To show a claim for bad faith, a plaintiff must show the absence of a reasonable basis for denying benefits of the policy and the defendant's knowledge or reckless disregard of the lack of a reasonable basis for denying the claim. It is apparent, then, that the tort of bad faith is an intentional one.” Anderson v. Cont'l Ins. Co., 271 N.W.2d 368, 376, 85 Wis. 2d 675, 691, (Wis. 1978). “The tort of bad faith can be alleged only if the facts pleaded would, on the basis of an objective standard, show the absence of a reasonable basis for denying the claim, i.e., would a reasonable insurer under the circumstances have denied or delayed payment of the claim under the facts and circumstances.” Id. “[A]n insurance company, however, may challenge claims which are fairly debatable and will be found liable only where it has intentionally denied (or failed to process or pay) a claim without a reasonable basis.” Id.

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Statute of Limitations

There is a two-year statute of limitations for bad faith causes of action. Section 893.57, Wis. Stat. An insured’s bad faith claim accrues when the insured discovers, or in the exercise of due diligence should have discovered, the injury. Davis v. Am. Family Mut. Ins. Co., 212 Wis.2d 382, 391-92 569 N.W.2d 64, 68 (Ct. App. 1997).

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Recoverable Damages

"[W]hen an insurer acts in bad faith by denying benefits, it is liable to the insured in tort for any damages which are the proximate result of that conduct." These damages are available even in the absence of a valid breach of contract claim, and also include “damages that were otherwise recoverable in a breach of an insurance contract claim.” However, an insured “should not be able to recover duplicative damages under both a bad faith tort claim and a breach of contract claim.” Jones v. Secura Ins. Co., 2002 WI 11, 249 Wis. 2d 623, 638 N.W.2d 575 (2002). Emotional distress damages are recoverable but only for severe distress, and when substantial other damage is suffered apart from the loss of contract benefits.” Jones, 2002 WI 11, 249 Wis. 2d 623, 638 N.W.2d 575 (2002). “Attorney fees incurred in proving a bad faith claim are not awarded as attorney fees, but rather as an item of damages caused by an insurer's bad faith refusal to pay benefits owed.” Danner v. Auto-Owners Ins., 2001 WI 90, ¶79, 245 Wis.2d49, 629 N.W.2d 159. Punitive damages are also recoverable, but a finding of bad faith does not guarantee them. The intent necessary to maintain an action for bad faith is distinct from what must be shown to recover punitive damages. The factors necessary for an award of punitive damages require a showing of: (1) evil intent deserving of punishment or of something in the nature of special ill-will; or (2) wanton disregard of duty; or (3) gross or outrageous conduct. Anderson v. Continental Ins. Co., 85 Wis. 2d 675, 271 N.W.2d 368 (1978).