## Facts

- Susan McEvoy and her minor daughter, Angela, were enrolled in a health plan operated by Group Health Cooperative of Eau Claire, Inc. (GHC), an HMO requiring prior approval for out-of-network services.
- A GHC physician diagnosed Angela with anorexia nervosa and sought authorization for inpatient treatment at the University of Minnesota Hospital’s specialized eating-disorder program.
- GHC approved and paid for six weeks of inpatient treatment, but refused to authorize additional inpatient care despite hospital physicians’ view that continued inpatient treatment was medically necessary; Angela was discharged after six weeks.
- Approximately two months later, Angela experienced significant weight loss and was readmitted; GHC initially paid but later terminated coverage after about one month.
- Angela and Susan alleged GHC’s denial and threatened denial of further inpatient coverage was driven by cost concerns, breached the plan, and was made in bad faith.

## Issues

1. Whether Wisconsin’s first-party tort of bad faith applies to an HMO when it makes coverage and authorization decisions for medical treatment.
2. Whether the summary-judgment record created genuine issues of material fact on bad faith, making dismissal improper.

## Decision

- The Wisconsin Supreme Court held that the first-party bad-faith tort may apply to an HMO when it acts in an insurer-like role by deciding whether to authorize or pay for covered medical services.
- The court held summary judgment dismissing the bad-faith claim was improper because the plaintiffs produced evidence from which a jury could find bad faith.
- The court affirmed the court of appeals’ reversal of summary judgment and remanded for further proceedings on the bad-faith claim.

## Legal Principles

- A party functioning as a first-party insurer owes a duty of good faith and fair dealing in handling benefit determinations.
- Bad faith may be found where: (1) there is no reasonable basis to deny benefits, and (2) the decision-maker knew or recklessly disregarded the lack of a reasonable basis.
- An HMO is not exempt from bad-faith liability merely because it also arranges or provides medical services; the relevant inquiry is whether the challenged conduct is a coverage/authorization decision rather than medical treatment by clinicians.
- On summary judgment, courts must view evidence in the light most favorable to the nonmoving party; disputed facts about medical necessity, justification for denial, and potential cost-driven decision-making may preclude dismissal.

## Conclusion

Wisconsin recognized that an HMO’s coverage and authorization determinations can be subject to first-party bad-faith tort liability, and it allowed the plaintiffs’ bad-faith claim to proceed because factual disputes existed over whether GHC reasonably denied continued inpatient treatment.


McEvoy ex rel. Finn v. Grp. Health Coop. of Eau Claire, 570 N.W.2d 397 (Wis. 1997)