74 F.4th 803
7th Cir.2023Background
- Chris and Betsy Daniels obtained a self-funded employee health plan through their school district; the district is the plan sponsor, guarantor, and administrator.
- The district engaged United HealthCare as a third‑party claims administrator (TPA) with authority to decide claims but not financial liability for benefits.
- In 2017 the Daniels’s daughter Megan received inpatient mental‑health treatment; United HealthCare approved some days but denied additional coverage, paying about $30,755.33 of the charges.
- The Daniels sued United HealthCare (and United Behavioral Health) in state court for breach of contract, bad faith, punitive damages, and interest under Wisconsin’s prompt‑pay statute; the case was removed to federal court.
- The district court dismissed: no contract privity with United HealthCare (so contract and bad‑faith claims fail), the prompt‑pay statute applies only to insurers, and punitive damages are a remedy not a standalone claim.
- The Seventh Circuit affirmed, holding Wisconsin law requires contractual privity for ordinary insurance bad‑faith claims (with limited worker’s‑comp exceptions) and United HealthCare as a TPA is not an insurer liable here.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a plaintiff may sue a non‑insurer TPA for tortious bad faith absent contractual privity | Bad faith liability extends to any party responsible for determining eligibility for “insurance‑type” benefits; TPAs are agents and owe same duties | Wisconsin requires contractual privity for bad‑faith claims; a TPA that is not the insurer cannot be sued for bad faith | Held: No. Wisconsin law requires a contractual relationship for first‑ and third‑party bad‑faith claims; Lueck is not controlling here and does not revive an agency‑based exception |
| Whether Lueck v. Aetna authorizes bad‑faith suits against TPAs as agents of the insurer/employer | Lueck (administrative agent theory) supports liability of administrators for bad faith | Lueck’s holding is not good law for this purpose; later Wisconsin decisions do not rely on it and the U.S. Supreme Court reversed parts of it | Held: Lueck’s agency rationale is not treated as controlling precedent; Wisconsin decisions post‑Lueck confine bad‑faith liability to parties in contractual relation |
| Whether worker’s‑compensation bad‑faith precedents (e.g., Aslakson) permit claims against TPAs in other contexts | Worker’s‑comp cases authorize bad‑faith suits against TPAs; Daniels analogize those principles to their case | Worker’s‑comp law is a special statutory scheme with unique reasons for non‑privity liability; those rules don’t extend to ordinary health‑benefit disputes | Held: Worker’s‑comp exceptions do not apply; Aslakson is fact‑specific and limited to the worker’s‑comp statutory context |
| Whether statutory interest (WIS. STAT. § 628.46) or punitive damages are available against a TPA | Plaintiffs seek interest under the prompt‑pay statute and punitive damages as relief | § 628.46 applies to insurers’ overdue benefit payments; punitive damages are a remedy contingent on a viable substantive claim | Held: Denied. § 628.46 does not apply to non‑insurer TPAs; punitive damages unavailable absent a surviving substantive claim |
Key Cases Cited
- Lueck v. Aetna Life Ins. Co., 342 N.W.2d 699 (Wis. 1984) (Wisconsin Supreme Court held a plan administrator could be liable for bad faith as agent of plan sponsor; later partially reversed on other grounds)
- Allis‑Chalmers Corp. v. Lueck, 471 U.S. 202 (U.S. 1985) (U.S. Supreme Court reversed Wisconsin on preemption grounds but did not review Lueck’s agency bad‑faith holding)
- Anderson v. Continental Ins. Co., 271 N.W.2d 368 (Wis. 1978) (recognized first‑party bad‑faith tort rooted in contractual duty of good faith and fair dealing)
- Kranzush v. Badger State Mut. Cas. Co., 307 N.W.2d 256 (Wis. 1981) (limits Coleman and explains worker’s‑comp bad‑faith claims arise from statutory scheme distinct from ordinary contract‑based bad faith)
- Roehl Transp., Inc. v. Liberty Mut. Ins. Co., 784 N.W.2d 542 (Wis. 2010) (comprehensive survey reaffirming that bad‑faith duty is rooted in the insurance contract and declines to extend liability absent privity)
- Aslakson v. Gallagher Bassett Servs., 729 N.W.2d 712 (Wis. 2007) (allowed bad‑faith claim against a TPA in the unique uninsured‑employer/worker’s‑comp context with sovereign‑immunity considerations)
- Brethorst v. Allstate Prop. & Cas. Ins. Co., 798 N.W.2d 467 (Wis. 2011) (explains first‑party bad‑faith claims require some breach of contract as a prerequisite)
- Danner v. Auto‑Owners Ins. Co., 629 N.W.2d 159 (Wis. 2001) (holds implied covenant of good faith runs through insurance contracts from inception)