Does an Insured Have to Wait to Pursue Bad Faith?

A recent decision from the Supreme Court of Wisconsin addresses an issue that has come up frequently in bad faith litigation across the country: does an insured have to wait for a resolution of the breach of contract case against the insurance company before pursuing a bad faith action? Because the Court’s ruling is a bit lengthy, I will evaluate the Court’s ruling in more than one post. Let’s start at the beginning…

In Brethorst v. Allstate Property and Casualty Insurance Company, Wanda Brethorst and her husband, William, were involved in a car accident caused by an uninsured motorist, Margy L. Raymond. Raymond was highly intoxicated when she pulled her vehicle onto the highway in front of the Brethorsts’ vehicle. Wanda sustained injuries as a result of the collision and filed a claim with Allstate, her automobile and uninsured motorist carrier. Diane Watke with Allstate acknowledged receipt of the claim and wrote to the Brethorsts:

Losses are always difficult, but rest assured that we will work to make the claim process smooth and resolve the claim promptly.

The Brethorsts’ attorney responded to a second letter from Allstate, clarifying that William had not sustained injuries and that it was unclear how long Wanda’s treatment would continue. Kahn, another Allstate employee, took over the claim, and wrote to the Brethorsts that Allstate viewed the occurrence as a minor accident and did not anticipate much injury and treatment. The letter requested a demand in an effort to resolve the matter in the near future.

For the next few months, Wanda continued to receive physical therapy and kept Allstate advised of the status of her treatment. Ultimately, she incurred $9,789 in medical expenses and submitted a demand for the settlement of her claim.
 

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.”

Wanda’s response to Kahn’s offer was a letter from her treating physician, Dr. Jerome Lerner, of Advanced Pain Management:

[W]hile 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.

Kahn increased Allstate’s settlement offer to $1,800, making reference to the low dollar amount of damage sustained by the vehicle and reiterated Allstate’s opinion 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. Wanda then sued Allstate alleging bad faith denial of benefits. Her complaint alleged:

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 opinion of Dr. Lerner and the law of Wisconsin governing liability for medical bills and expenses.

Although Allstate admitted that it had a MIST policy, it denied Wanda’s characterization of that policy and asserted various affirmative defenses. One of its defenses was that, to the extent Wanda set forth a valid claim for bad faith, it should be bifurcated from other claims, and proceedings on bad faith should be stayed until all other claims were resolved. Accordingly, Allstate filed a motion to bifurcate Wanda’s contract claim from her bad faith claim and sought a stay of all proceedings on the bad faith claim until the breach of contract claim could be resolved. In her response, Wanda argued that she asserted only one claim, for bad faith, so there was nothing to bifurcate. The circuit court denied Allstate’s motion on grounds that Wisconsin law allows a party to bring a bad faith claim separate and distinct from any underlying breach of contract claim. It is this legal issue that I will further evaluate in next week’s post.