Wis JI-Civil 2760

A policy of insurance is a contract between the insurance company and the person

who buys the policy, who is known as the "insured." Under the terms of a policy, the

insurance company reserves the right to exclusively control the defense of a claim filed by an

injured party against the insured and the company. If the claim or demand is less than the

limits of the policy, normally the insured is excluded from interfering in any way in the

investigation and the negotiations for settlement of the claim and has no voice in the legal

procedures to be followed by the insurance company in defending the claim filed against him

or her and the insurance company.

Thus, so long as the ultimate settlement or recovery by the injured party does not

exceed the monetary limits of the insured's policy, the question of whether the claim should

be settled or the manner in which it is defended usually is of no concern to the insured.

When, however, an injury does occur and a claim or demand is made, which should

alert the insurance company that the injured party's recovery might exceed the insured's

policy limits, then the interest of the policyholder must become a matter of concern to the

insurance company.

At this point, certain duties on the part of an insurance company do arise. Stated

generally, it is a duty to exercise ordinary care in the handling of the injured party's claim to

the end that the insured's interest will be protected. This duty arises because the insured, by

virtue of the policy with the insurance company, has agreed to let the company investigate

and defend the claim, has given the insurance company the exclusive right to settle or

compromise the claim, has given the company complete control in the defense of the claim,

and further has agreed not to participate except at his or her own expense by hiring his or her

own lawyer to represent him or her on any financial risk above the limits in the policy.

Because of this relationship, an insurance company has the following duties to its

insured in handling an injured party's claim filed against it and the insured:

1. To conduct an investigation of the facts and circumstances of the accident by

all available and reasonable means, as well as to inform itself of the nature and extent of the

injuries sustained by an injured party and the extent to which the injured party has recovered

from those injuries. [This duty includes gathering information about who was at fault in

causing the accident, which would include interviewing witnesses to the accident or taking or

attending depositions of those persons who had personal knowledge of the facts necessary to

make an overall evaluation of the case.]

On the basis of all information learned from its investigation, the company then must

make a reasonable appraisal of the injured party's chances of winning if the lawsuit should go

to trial and the amount of damages the injured party will probably recover against it and the

insured if the case were tried.

2. The further duty to advise its insured if it is satisfied from the investigation and

evaluation of all the facts that it appears probable that the injured party will recover an

amount in excess of the policy limits so that the insured can take appropriate and timely

action for his or her own protection. (This could involve the insured's desire to retain his or

her own lawyer to represent him or her on any probable monetary claim above the policy

limits.)

3. To timely and adequately advise the insured of any and all meaningful

negotiations for settlement between the company and the injured party, particularly of any

offers and counter-offers of settlement.

The proper fulfillment of these obligations which I have just given to you imposes

upon an insurance company a duty to act fairly and reasonably toward its insured at all stages

of its investigation and in the handling of the defense of the injured party's claim. To put it

another way, the insurance company must use reasonable diligence, which means such care

and diligence as the ordinarily prudent insurance company would use under like or similar

circumstances in investigating, evaluating, defending, and negotiating on behalf of its

insured. While there is no requirement that an insurance company must absolutely exhaust all

sources of information, it is required to exercise reasonable care and diligence to that end.

In answering question 1, the burden of proof is on (plaintiff) to satisfy you, by the

greater weight of the credible evidence, to a reasonable certainty, that the question should be

answered "yes."

Question 2 reads as follows: "If you have answered question 1 'yes,' then answer this

question. Did the failure of the insurance company to perform its duties to its (plaintiff), as

found in question 1, demonstrate such a significant disregard of (plaintiff)'s interests that the

insurance company's final decision not (to pay policy limits) to settle the case was made in

bad faith?"

In answering question 2, you are now called upon to determine whether the company's

refusal to settle the case (for policy limits), and thereby expose its insured to a judgment over

the policy limits, was made in bad faith.

"Bad faith" is a term of broad application, and it is sometimes difficult to exactly

define within the framework of every case. The term "bad faith" carries with it a suggestion

of dishonest or deceitful conduct. In deciding whether the insurance company acted in bad

faith in this case, you should carefully consider whether the company, in failing to perform

the duties it owed to (plaintiff), demonstrated a significant disregard of (plaintiff)'s rights and

economic interests.

In deciding not (to pay (plaintiff)'s policy limits) to settle the case, you are advised that

an insurance company, because it has the right to exercise its own judgment whether the

claim should be contested or settled, has an obligation to its insured to make an informed and

reasonable judgment.

Its conduct should be accompanied by considerations of good faith. Its decision not to

settle (by paying an insured's policy limits) should be an honest one, taking into consideration

both the interest of the company and the interest of the insured. It should be the result of

weighing of probabilities in a fair and honest way.

Even though you may have concluded that the insurance company acted negligently in

the performance of its duties in your answer to question 1, that alone is not enough to show

that the company acted in bad faith. Rather, you should consider the totality of the company's

conduct in the handling of the injured party's claim to determine whether the company's

decision to expose its insured to a judgment over the policy limits was an intellectually

honest and reasonable decision. If you determine that it was not an honest and reasonable

decision, then the company may be said to have acted in bad faith. On the other hand, if you

conclude from all the evidence that the insurance company's decision not to settle the case

was reasonable under the circumstances and made in the honest belief that the injured party's

claim could be defeated or that the damages could be kept within the insured's policy limits,

then you should find that the insurance company did not act in bad faith in refusing to settle

the case.

The burden of proof to satisfy you that question 2 should be answered "yes" is on

(plaintiff). This means that (plaintiff) must satisfy you by evidence that is clear, satisfactory,

and convincing, to a reasonable certainty, that (defendant insurance company) acted in bad

faith toward (plaintiff) in the performance of its duties.

SPECIAL VERDICT

Question 1: Did (insurance company) acting through its lawyers breach any of the duties

that it owed to its insured, (insured), in the handling of (injured party)'s claim

against (insured) and the insurance company?

Answer:_________

Yes or No

Question 2: If you have answered question 1 "yes," then answer this question. Did the

failure of (insurance company) to perform its duties to (insured), as found in

question 1, demonstrate such a significant disregard of (injured)'s interests that

the insurance company's final decision not to [pay policy limits to] settle the

case was made in bad faith?

Answer:_________

Yes or No