LAW NOTES from the Law Offices of
Kay & Andersen, LLC

May, 2012
What Every Insurer Should Know . . . . . . . . . . . . . . . 
                             ABOUT BAD FAITH LIABILITY FOR FIXED OBLIGATIONS ​

​​Disclaimer: The information contained on this page is not legal advice. The information provided on this website is for general informational purposes and is not necessarily updated to account for changes in the law. You should consult with an attorney for legal advice regarding your individual circumstances.

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In Wisconsin, bad faith claims against insurance companies were traditionally limited to first party claims where the carrier denied payment to its own insured. Recent developments have expanded the original scope of bad faith, including the recent decision of Meleski v. Schbohm LLC, Appeal No. 2010AP2951 (May 1, 2012) found at: http://www.wicourts.gov/ca/opinion/DisplayDocument.ht ml?content=html&seqNo=81710 (recommended for publication). In this case, Patricia Meleski was injured when she fell on Schbohm’s property, claiming personal injury and medical expense damages, with the latter claim being the subject of the appeal. Meleski sued Schbohm and its insurance carrier, Partners Mutual. The Partners Mutual policy promised to “pay medical expenses” for “bodily injury” caused by an accident either “on premises” Schbohm owned or rented, or “on ways next to premises” Schbohm owned or rented. While the case does not identify the amount or nature of the medical bills, Partners Mutual evidently refused to pay her medical expenses, resulting in a bad faith claim. The circuit court dismissed the bad faith claim, holding that such a claim could only be asserted by someone in privity of contract with the insurance company. The Court of Appeals reversed. Citing earlier Wisconsin precedent, the Court of Appeals held that the third party beneficiary doctrine permits a non-insured to sue an insurance company in order to seek fulfillment of the insurance company’s promise to pay that non-insured once that promise becomes fixed by a triggering event. Id, ¶7. The key is whether a person seeking to assert a bad faith claim is in a contractual relationship with the insurance company, and third party beneficiaries of contracts are in such a relationship, i.e., they are in the class of parties that the insurance contracts were designed to benefit. Id, ¶8. Meleski’s entitlement to her medical expenses under the policy was fixed the moment she fell and was injured in the area covered by the policy. Id. Her right to recover her medical expenses did not depend on fault and was fixed once she fell. As such, Partners Mutual was subject to a bad faith action because Meleski was a fixed third party beneficiary of the Partners Mutual Insurance contract with Schbohm and she may enforce her third party beneficiary rights. Id. ¶10. The Court Appeals noted that a judge or jury would still sit as factfinder to determine whether Partners Mutual acted in bad faith. Id. This case serves as a reminder to insurance carriers that they have an obligation to deal in good faith not only with their own insureds but also third party claimants in situations where the third party claimant’s right to recover is fixed under the terms of the policy. While that situation is likely to arise only in cases where fault need not be proven to trigger insurance, Wisconsin courts are encouraging insurance companies to focus their attention on the merits of claims rather than the identity of claimants.

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