Brethorst v. Allstate Property & Casualty Insurance
798 N.W.2d 467
Wis.2011Background
- Brethorst pursued an uninsured motorist (UM) claim against Allstate after a December 12, 2006 accident; Allstate offered only $1,800 above $5,000 paid, totaling inadequate payment for medical expenses.
- Brethorst incurred $9,789 in medical expenses related to the accident, with ongoing physical therapy and medical evidence supporting compensable injuries.
- Brethorst filed a single bad-faith claim alleging Allstate’s handling of her UM claim and a national “MIST” policy; Allstate moved to bifurcate the contract claim from the bad-faith claim and stay discovery on the bad-faith claim.
- Circuit court denied the bifurcation and stay, holding a bad-faith claim may be pursued without a breach-of-contract claim as a condition precedent.
- Court of appeals certified the case to the Wisconsin Supreme Court to resolve whether (a) wrongful denial of benefits is a prerequisite to discovery in a first-party bad-faith claim when no breach claim is pleaded, and (b) whether bifurcation/stay are proper under these circumstances.
- Majority held that some breach of contract is a fundamental prerequisite for a first-party bad-faith claim and that discovery may proceed only after pleading a breach of contract and demonstrating its provable elements, with discovery subject to protective measures for the insurer’s privileged material.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Prerequisite for discovery in first-party bad faith | Brethorst may pursue bad faith without a separate contract claim. | Allstate is prejudiced and discovery should be limited until breach is shown. | Some breach of contract is required before discovery on bad faith. |
| Bifurcation and discovery handling | No bifurcation needed when only bad-faith claim exists. | Dahmen supports bifurcation to protect the insurer and avoid prejudice. | Bifurcation guided by the underlying breach requirement; discovery limited until breach shown. |
| Existence of threshold showing for discovery | Insured may obtain discovery based on bad faith without a fully pleaded breach. | Need for threshold showing of breach to justify discovery. | Insured must plead breach and show it or show future proof to proceed to discovery. |
| Role of policy and damages framework | Bad-faith discovery should not require expansion of coverage. | Discovery should be controlled to avoid compensating for non-covered harms. | Discovery allowed only within the threshold breach framework; damages to be addressed later. |
Key Cases Cited
- Anderson v. Continental Insurance Co., 85 Wis. 2d 675 (Wis. 1978) (established first-party bad-faith claim and two-part test)
- Dahmen v. American Family Mutual Insurance Co., 247 Wis. 2d 541 (Wis. Ct. App. 2001) (bifurcation and discovery protections when both bad faith and coverage issues are present)
- DeChant v. Monarch Life Ins. Co., 200 Wis. 2d 559 (Wis. 1996) (damages for bad faith proximate result of contract relationship)
- Jones v. Secura Insurance Co., 249 Wis.2d 623 (Wis. 2002) (bad-faith damages may include contract damages; focus on damages stage)
- Weiss v. United Fire & Casualty Co., 197 Wis.2d 365 (Wis. 1995) (two-prong bad-faith test: objective basis and knowledge or reckless disregard)
- Danner v. Auto-Owners Insurance, 245 Wis.2d 49 (Wis. 2001) (duty to investigate and determine coverage; bad-faith limits)