Anderson, and Wife, Plaintiffs-Appellants v. Continental Insurance Company, and Others, Defendants-Respondents

Summary

The Wisconsin Supreme Court expressly recognized for the first time that an insured may sue its own insurer in tort for bad faith refusal to honor a first-party claim, adopting the implied-covenant-of-good-faith rationale of California authority that the court traced to early Wisconsin precedent. It announced a two-part, objectively measured test — absence of a reasonable basis for denying benefits plus the insurer's knowledge or reckless disregard of that absence — while preserving a 'fairly debatable' safe harbor, and held the Andersons' complaint sufficient under notice pleading. The court further limited emotional-distress recovery in bad-faith actions and confirmed that the augmented-interest statute does not bar punitive damages, which require oppression, fraud, or malice in an aggravated sense. The dismissal of the bad-faith count was reversed and the cause remanded for trial.