Insurance is a necessity we cannot escape. No one likes paying premiums; but it is far better to spend a little now and be covered against catastrophic financial loss in the future. When we purchase insurance, we are buying peace of mind—at least, supposedly. Make no mistake, an insurance company is not a charitable organization, but a for-profit business. The insurance policy you purchase is a contract between you and the insurance company, and that contract you signed was designed to generate revenue for the insurer. This means that when you sustain a loss on an insured interest, the insurance company will oftentimes do its best to minimize your payout. Depending on the terms of the policy, the insurer may even deny compensation entirely. When an insurance company denies coverage under your policy, it is time to seek the help of an attorney to determine whether you have any recourse.
As noted above, an insurance policy is simply a contract between you and the insurance company. Like any contract, parties to the insurance policy owe certain duties to one another. “Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.” This means that insurance companies are expected to act in good faith in settling claims under the policy. Equally important, Wisconsin courts have held that the relationship between insurer and insured (the customer) is a special one that imposes a heightened duty on the insurer to act in your best interest at all times. The law calls this duty a “fiduciary duty.” When an insurance company denies your claim of loss outright, with little or no investigation, the insurer may have violated its fiduciary duty owed to you.
When you make a claim of loss under your insurance policy, the insurer has a legal duty to “promptly pay every insurance claim.” Once your claim is filed, the insurer then conducts an investigation to determine 1) whether your loss is covered under the policy, and 2) how much it will pay to compensate for your loss. Generally, the insurer must pay “within 30 days after the insurer is furnished written notice of the fact of a covered loss and of the amount of the loss.” If, on the other hand, the insurance company chooses to deny coverage, it must have a reasonable basis for denying your claim or else it exposes itself to a bad-faith denial of coverage tort action.
Not every coverage denial is made in bad faith. Indeed, the circumstances leading to your loss may in fact not be covered under your policy. If you believe, however, that your insurer lacked a reasonable basis in denying your claim, you may have a viable bad-faith tort action against the insurer. In a bad-faith tort action, “[a] plaintiff must show the absence of a reasonable basis for denying benefits under the terms of the policy and the defendant's knowledge or reckless disregard of the lack of a reasonable basis for denying the claim. The plaintiff cannot maintain a cause of action for the tort of bad faith if the validity of his claim under the policy was fairly debatable.” Breaking this quote down, Wisconsin law requires a plaintiff to prove the following in a bad faith tort claim:
No reasonable basis exists for denying the claim.
The insurer knew, or should have known, that no reasonable basis existed (i.e. the insurer had bad faith intent to deny coverage)
The claim for loss is not “fairly debatable,” meaning that the insurer’s justification for the denial does not has merit.
It is important to understand that a bad faith tort action is not the same as a breach of contract. 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.” Proving a breach of duty in a bad faith denial claim requires significant time and effort. Namely, an extensive investigation to gather evidence showing the insurer’s bad faith intent to deny coverage. This is no easy task, and you should seek legal advice if you believe your insurance company has wrongfully denied your claim. At Levine Lyon & Eisberner LLC, our attorneys can help you obtain the insurance coverage you have paid for with your hard-earned money.
In Anderson v. Continental Ins. Co., 85 Wis.2d 675, 686, 271 N.W.2d 368 (1978), we stated: “By virtue of the relationship between the parties created by the contract, a special duty arises, the breach of which duty is a tort and is unrelated to contract damages.” Also at 686, 271 N.W.2d 368:
“[B]ad faith conduct by one party to a contract toward another is a tort separate and apart from a breach of contract per se and it fails to emphasize *34 the fact that separate damages may be recovered for the tort and for the contract breach.”
Finally, at 85 Wis.2d at 687, 271 N.W.2d 368 we also stated:
“We emphasize at this juncture only that the tort of bad faith is not a tortious breach of contract. It is a separate intentional wrong, which results from a breach of duty imposed as a consequence of the relationship established by contract. This rationale had its origin in an opinion of this court. Hilker v. Western Automobile Ins. Co., 204 Wis. 1, 231 N.W. 257, 235 N.W. 413 (1930, 1931).”
We emphasized in Davis v. Allstate Ins. Co., 101 Wis.2d 1, 303 N.W.2d 596 (1981) that the tort claim is based upon the duty that the insurer has toward its insured and we recognized this to be analogous to a fiduciary duty.
**925 12 A cause of action for bad faith does not arise in every case in which there has been an allegation of a breach of the contract. Additional facts must be alleged. Anderson, 85 Wis.2d at 692, 271 N.W.2d 368. The plaintiff must show the absence of a reasonable basis for denying benefits under the terms of the policy and the defendant's knowledge or reckless disregard of the lack of a reasonable basis for denying the claim. The plaintiff cannot maintain a cause of action for the tort of bad faith if the validity of his claim under the policy was fairly debatable. Id.
Warmka v. Hartland Cicero Mut. Ins. Co., 136 Wis. 2d 31, 33–34, 400 N.W.2d 923, 924–25 (1987)
The rationale which recognizes an ancillary duty on an insurance company to exercise good faith in the settlement of third-party claims is equally applicable and of equal importance when the insured seeks payment of legitimate damages from his own insurance company. That such a duty arises out of the relationship between the contracting parties themselves cannot be doubted. As black letter law, Restatement, Law of Contracts 2d, *689 sec. 231 (Tentative Drafts Nos. 1-7, Rev. and Edited, 1973), provides: “Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.” The Hilker situation as pertinent to this section of the Restatement is specifically recognized by the footnote to Comment d, page 525, which cites Keeton, Ancillary Rights of the Insured against His Liability Insurer, 13 Vanderbilt L.Rev. 837 (1960), and Brassil v. Maryland Cas. Co., 210 N.Y. 235, 104 N.E. 622 (1914), a case relied upon in Hilker.
Anderson v. Cont'l Ins. Co., 85 Wis. 2d 675, 688–89, 271 N.W.2d 368, 375 (1978)
 Restatement, Law of Contracts 2d, sec. 205
 See Anderson v. Cont'l Ins. Co., 85 Wis. 2d 675, 688–89, 271 N.W.2d 368, 375 (1978)
 See Warmka v. Hartland Cicero Mut. Ins. Co., 136 Wis. 2d 31, 33–34, 400 N.W.2d 923, 924–25 (1987)
 Wis. Stat. § 628.46(1)
 Warmka, 136 Wis. 2d at 34.