## Facts

- Jacob and Gertrude Anderson held a homeowner’s policy issued by Continental Insurance Company covering loss caused by “fire, lightning, explosion, or smoke.”
- During the policy period, the Andersons returned home to find oil and smoke residue throughout the house, allegedly caused by a furnace fire or explosion.
- Continental was notified and referred the claim to Underwriters Adjusting Company and its manager, Bernard A. Anderson, who arranged cleaning and restoration efforts.
- The Andersons alleged the cleaning ordered by the adjuster caused additional damage (including carpet shrinkage) and that they incurred $4,611.77 in losses.
- The Andersons alleged the insurer and adjusters refused to negotiate in good faith and made settlement offers bearing no relation to the damage.
- The Andersons submitted a timely sworn proof of loss, which was returned and redirected between the adjuster and Continental while the adjuster was represented as authorized to handle the claim.
- The Andersons sued for compensatory and punitive damages, alleging intentional bad faith in refusing to accept and settle the claim.

## Issues

1. Whether Wisconsin law permits a named insured to sue an insurer in tort for bad-faith refusal to honor a first-party claim for policy benefits.
2. Whether the Andersons’ complaint adequately alleged facts sufficient to state such a tort claim under Wisconsin notice pleading rules.

## Decision

- The Wisconsin Supreme Court reversed the order dismissing the bad-faith count and remanded for further proceedings.
- The court held that, with appropriate factual allegations, an insured may assert a tort claim against an insurer for bad-faith refusal to honor the insured’s claim.
- The court concluded the complaint’s allegations of intentional bad faith and unrealistic settlement positions were sufficient at the pleading stage.

## Legal Principles

- Every insurance contract includes an implied duty of good faith and fair dealing owed by the insurer to the insured in claim handling.
- An insurer’s intentional or reckless breach of that duty in refusing to pay a claim can constitute a tort separate from breach of contract.
- Bad faith requires more than negligent claim handling; it involves denial or refusal to pay without a reasonable basis, coupled with the insurer’s knowledge of, or reckless disregard for, the lack of a reasonable basis.
- Tort remedies may include compensatory damages beyond contract benefits; punitive damages may be available where the insurer’s conduct is malicious, oppressive, or in reckless disregard of the insured’s rights.
- Under notice pleading, a complaint need not plead evidentiary detail if it gives fair notice of the nature of the bad-faith conduct alleged.

## Conclusion

The court recognized a first-party tort action for insurer bad faith in Wisconsin and held that the Andersons’ allegations were sufficient to proceed, reversing dismissal and remanding for further litigation on the bad-faith claim.


Anderson v. Cont'l Ins. Co., 271 N.W.2d 368 (Wis. 1978)