Baires et al v. State Farm Mutual Automobile Insurance Company

Filing 56

ORDER signed by Judge J.P. Stadtmueller on 2/3/2017: GRANTING 39 Defendant State Farm's Motion for Partial Summary Judgment; GRANTING 49 Plaintiffs' Motion to Seal Documents re 48 Affidavit of Mark L. Thomsen in Opposition to Stat e Farm's Motion for Partial Summary Judgment; and DISMISSING with prejudice Count III of Plaintiffs' Amended Complaint and Plaintiffs' prayer for prejudgment interest pursuant to Wis. Stat. § 628.46 (Docket #15). (cc: all counsel) (jm)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
ELIZABETH MOCTEZUMA BAIRES
and WALTER A. BAIRES,
Plaintiffs,

Case No. 16-CV-402-JPS

v.
STATE FARM MUTUAL AUTOMOBILE
INSURANCE COMPANY,

ORDER

Defendant.
1.

INTRODUCTION
Plaintiff Elizabeth Moctezuma Baires (“Mrs. Baires”) was injured in a

car accident in September 2010. The other driver was underinsured. After his
insurance company paid Baires what it could under its policy, Baires turned
to her own insurance company, Defendant State Farm Mutual Automobile
Insurance Company (“State Farm”). Her policy with State Farm included
underinsured motorist (“UIM”) benefits. In this action, she and her husband
allege that State Farm failed to pay as required under the UIM policy.
Plaintiffs bring three separate claims: (1) breach of contract; (2) loss of
consortium; and (3) bad faith refusal to pay on Plaintiffs’ claim.
This case was originally filed in Milwaukee County Circuit Court and
was removed by State Farm on the basis of this Court’s diversity jurisdiction.
See 28 U.S.C. § 1332(a)(1). On December 5, 2016, State Farm filed a motion for
partial summary judgment. (Docket #39). In it, State Farm requests that the
Court dismiss Plaintiffs’ bad-faith claim and dismiss their prayer for

prejudgment interest pursuant to Wis. Stat. § 628.46. The motion has been
fully briefed and, for the reasons stated below, it will be granted.1
2.

STANDARD OF REVIEW
Federal Rule of Civil Procedure 56 provides that the court “shall grant

summary judgment if the movant shows that there is no genuine dispute as
to any material fact and the movant is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56(a); see Boss v. Castro, 816 F.3d 910, 916 (7th Cir. 2016).
A fact is “material” if it “might affect the outcome of the suit” under the
applicable substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986). A dispute of fact is “genuine” if “the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.” Id. The court
construes all facts and reasonable inferences in the light most favorable to the
non-movant. Bridge v. New Holland Logansport, Inc., 815 F.3d 356, 360 (7th Cir.
2016). The court must not weigh the evidence presented or determine
credibility of witnesses; the Seventh Circuit instructs that “we leave those
tasks to factfinders.” Berry v. Chicago Transit Auth., 618 F.3d 688, 691 (7th Cir.
2010). The party opposing summary judgment “need not match the movant
witness for witness, nor persuade the court that [his] case is convincing, [he]
need only come forward with appropriate evidence demonstrating that there
is a pending dispute of material fact.” Waldridge v. American Hoechst Corp., 24
F.3d 918, 921 (7th Cir. 1994).

1

In their response to State Farm’s motion, Plaintiffs themselves request
summary judgment on these issues. (Docket #47 at 19, 21). Plaintiffs’ response was
not filed until well after the dispositive motion deadline, and the Court will not
consider Plaintiffs’ belated and passing request for judgment in their favor. In any
event, it would not matter if the Court treated Plaintiffs’ request as timely, since
it finds below that summary judgment is appropriate in State Farm’s favor on the
matters raised herein.

Page 2 of 23

3.

RELEVANT FACTS
As noted above, Mrs. Baires was involved in a severe automobile

accident with Eric Steele (“Steele”) on September 2, 2010. (Docket #54 ¶¶
8–10)2; (Docket #53 ¶¶ 1–5). Plaintiffs notified State Farm of the accident on
September 3, 2010. (Docket #53 ¶ 6). After the accident, Mrs. Baires
underwent physical therapy, cervical epidural injections, and other
treatments. Id. ¶ 8.
The parties agree that the accident was Steele’s fault. (Docket #54 ¶
10). Steele was insured by American Family Mutual Insurance Company
(“American Family”) with a $100,000 policy. Id. ¶ 11. Plaintiffs brought an
action in Wisconsin state court against Steele and American Family to recover
damages for Mrs. Baires’ injuries sustained in the accident. Id. ¶ 12.
Plaintiffs also had two insurance policies with State Farm in effect on
the date of the accident. Id. ¶ 13. Each policy had a UIM limit of $100,000,
and the policies stacked. Id. The total amount of UIM coverage for the
accident, then, was $200,000. Id. ¶ 17. The terms of each policy were identical
with respect to UIM coverage, so they will be treated as one policy for
grammatical purposes. Id. ¶ 14. The policy provides, in relevant part, as
follows:
[State Farm] will pay compensatory damages for bodily injury
an insured is legally entitled to recover from the owner or
driver of an underinsured motor vehicle. The bodily injury
must be:

2

State Farm filed a reply in support of its statement of material facts.
(Docket #54). The Local Rules do not contemplate a reply in support of the moving
party’s own statement of facts, see Civil L. R. 56(b)(3)(B), but Plaintiffs did not
object to its filing and the document succinctly presents the parties’ competing
views of the record evidence. As a result, the Court will reference it here.

Page 3 of 23

1. sustained by an insured, and
2. caused by an accident that involves the ownership,
maintenance, or use of an underinsured motor vehicle as a
motor vehicle.
We will pay only if the full amount of all available limits of all
bodily injury liability bonds, policies, and self-insurance plans
that apply to the insured’s bodily injury have been used up by
payment of judgments or settlements, or have been offered to
the insured in writing.
Id. ¶ 15.
In April 2014, State Farm received notice from Plaintiffs’ attorney,
Mark Thomsen (“Thomsen”), that American Family had offered the $100,000
limit of Steele’s liability coverage to settle Plaintiffs’ claims against Steele and
American Family. Id. ¶ 18. A note in State Farm’s claim file, written by State
Farm employee Mary Medicus (“Medicus”) on April 16, 2014, reads:
Per recent correspondence in documents Elizabeth’s specials w/
wage loss exceed $87,000 O/C AmFam has $100,000 BI limit
C/V is a UIM as defined due to the 6949B endorsement. I see a
brain scan was done—we will want to r/o the need for SIR.
Please also address reserves. I note we’ve tiered the claim as a
3 as we learned of the UIM in conjunction w/ suit. I note that
we have not been served with an amended summons for UIM
yet.
(Docket #53 ¶ 12). Rae Lynn Kahle (“Kahle”), a State Farm auto claim
representative, was assigned to handle Plaintiffs’ claim. (Docket #54 ¶ 19). On
April 17, 2014, Kahle wrote to Thomsen, acknowledging receipt of notice of
American Family’s settlement offer and providing State Farm’s consent to the
settlement. Id. ¶ 20. Plaintiffs’ action against Steele and American Family was
dismissed on September 5, 2014. Id. ¶ 22.

Page 4 of 23

On May 12, 2014, State Farm received a demand letter from Thomsen,
in which he demanded that State Farm pay the full $200,000 available under
Plaintiffs’ UIM policies. Id. ¶ 23. Attached to the letter were some of Mrs.
Baires’ pre- and post-accident medical records, post-accident healthcare bills,
and other documents purporting to evidence costs to date of $430,860.61. Id.
Also enclosed with the letter was a medical expert report authored by
Michael McNett, M.D. (“Dr. McNett”), dated March 14, 2014. Id. ¶ 24.
Dr. McNett first saw Mrs. Baires on January 16, 2012, sixteen months
after the accident. Id. ¶ 25. He diagnosed Mrs. Baires with cervical spinal
stenosis and cervical radiculopathy. Id. ¶ 26. The report further stated that
Mrs. Baires was reporting bilateral hand numbness. Id. Dr. McNett concluded
that “there was at least some radiographic evidence for degenerative disc
disease. . .prior to her accident” and that “there were some early signs
possibly of right carpal tunnel syndrome prior to the accident.” Id. ¶ 27.
However, he attributed her current symptoms to the accident, noting that her
post-accident symptoms “were clearly more significant, as indicated by the
fact that she required multiple cervical epidurals and treated by a
comprehensive pain clinic.” Id. He found that the accident represented a
“significant exacerbation of what was probably a mild problem prior to the
accident.” Id. Importantly, Dr. McNett believed that the aggravation of Mrs.
Baires’ symptoms caused by the accident would be permanent. Id. He opined
that she would require as many as three cervical epidural injections per year,
four doses of tramadol daily, quarterly visits with a physician, and at least
eight physical therapy sessions per year. Id. ¶¶ 26–27; see also (Docket #53 ¶
11). Based this report, Mrs. Baires claimed future medical expenses of
$341,662.06, of which $223,314.30 was for future cervical epidural injections.
(Docket #54 ¶ 31).
Page 5 of 23

In July 2016, Dr. McNett drafted an updated report on Mrs. Baires’
conditions and treatment. (Docket #53 ¶ 18). In March 2015, she returned to
Dr. McNett, complaining of neck pain radiating to her left elbow. Id. He
prescribed medication and physical therapy. Id. She was rechecked regularly
after that time until as late as June 2016, but she continued to report pain and
Dr. McNett continued to try different medications and other treatments. Id.
Similar to the March 2014 report, Dr. McNett believed that although Mrs.
Baires had suffered “minor neck problems” before the accident, the “dramatic
worsening of symptoms starting very shortly after the incident and persisting
to this day” meant that the accident caused a permanent aggravation of her
neck problems. Id. He also noted that her “use of health care accelerated
dramatically within a reasonably short time after the accident, which to me
indicates that there was a significant worsening of her clinical condition
following the accident.” Id. ¶ 19; (Docket #48-10 51:13–25). He prescribed
ongoing follow-up appointments with physicians, medications, and other
treatments for Mrs. Baires’ neck pain. (Docket #53 ¶ 19).
At his deposition in this case in October 2016, Dr. McNett expressed
less certainty than in his earlier reports. He testified that he has no opinion
as to whether the accident was a cause of Mrs. Baires’ spinal stenosis, one of
the two major conditions he identified in that report. (Docket #54 ¶ 29). Dr.
McNett also acknowledged that his diagnosis of cervical radiculopathy was
one about which reasonable medical experts could disagree. Id. ¶ 30.
Returning to the investigation timeline, on May 19, 2014, a week after
receiving Thomsen’s demand package, Cindy Boyer, another State Farm
employee, documented in the claim file that Plaintiffs’ demand has “claimed
futures [that] exceed available coverage. I suggest setting up a stacking file.
. . . Let’s provide available coverage to the [insured’s attorney]. I note
Page 6 of 23

evaluation is in process.” (Docket #53 ¶ 16). On June 21, 2014, Kahle noted in
the claim file that she “reviewed all of the submitted medical bills and
records for Elizabeth Baires. This was a significant impact which resulted in
the DV rolling over.” Id. ¶ 17. She also wrote that “[p]ast specials are nearly
84k with more than 35k of diagnostics and future treatment in excess of
$341k.” Id.
In light of Dr. McNett’s March 2014 analysis and the records provided,
Kahle determined that she needed to investigate further to determine what
part of Mrs. Baires’ symptoms were attributable to the accident and what
part was the natural progression of her pre-existing conditions. (Docket #54
¶ 32). To that end, she requested a recorded statement from Mrs. Baires and
indicated that State Farm may want to obtain an examination of Mrs. Baires
by its own physician. Id.3 On July 28, 2014, Kahle requested that Medical
Communications Corporation contact Thomsen to schedule an independent
medical examination (“IME”) of Mrs. Baires by an orthopedic spine specialist.
Id. ¶ 33. This examination was conducted by Dr. Christopher Noonan (“Dr.
Noonan”) on September 12, 2014. Id. ¶ 34. Kahle had had no contact with Dr.
Noonan prior to receiving his report of that examination, other than sending

3

Plaintiffs question her motives, arguing that Kahle was not trying to
determine how to fairly apportion the cause of Mrs. Baires’ injuries but was
instead looking for evidence on which to deny the claim. (Docket #54 ¶ 32). Yet
Plaintiffs cite no evidence on this point, and without evidence to support a factual
dispute about Kahle’s motivations, the Court views Plaintiffs’ statement as
superfluous legal argument. See Johnson v. Shiseki, No. 08–C–471, 2010 WL 1287037,
at *2 (E.D. Wis. Mar. 29, 2010) (“To the extent that an objection to a proposed
finding of fact fails to cite specific evidentiary support, the objection has no
weight. Moreover, if an objection is non-responsive to the proposed finding of fact,
the objection does not create a dispute of fact. Similarly, arguments have no place
in proposed findings of fact or responses to such findings.”) (internal citations
omitted).

Page 7 of 23

the letter which transmitted some documents to Dr. Noonan and providing
the questions she asked him to address. Id. ¶ 35.
On August 24, 2014, according to Plaintiffs, Kahle changed Mrs.
Baires’ injury evaluation from “Current [range of value (“ROV”)] Low” to
“Current ROV High” in the claim file. (Docket #53 ¶ 20). Plaintiffs offer this
fact without much explanation. The Court gathers that these changes to the
claim file, in Plaintiffs’ view, represent Kahle increasing her valuation of the
claim. Yet, as State Farm notes, the change log for the claim file only shows
that a change was made to each of these fields, not that the “ROV High”
figure replaced the “ROV Low.” Id. The entries are unclear in this regard. See
(Docket #48-8 at 27). Thus, it is not possible to discern that Kahle increased
her valuation of Plaintiffs’ claim solely on the ground that these changes were
made to the claim file.
On August 28, 2014, State Farm sent Thomsen a check in the amount
of $4,139.64. Id. at 10 ¶ 22.4 This payment exhausted the $10,000 limit of Mrs.
Baires’ medical payments coverage from State Farm. Id. Plaintiff thus
received a total of $110,000 in payments from insurance other than the State
Farm UIM coverage as a result of the accident—American Family’s $100,000
plus State Farm’s $10,000 in medical payments coverage. Id. at ¶ 23.
State Farm received Dr. Noonan’s report of his IME on October 7, 2014
and mailed Thomsen a copy the next day. Id. ¶ 36. Dr. Noonan did not agree
with Dr. McNett’s report. Id. ¶ 36.5 Dr. Noonan opined that the accident was
a contributing factor to “temporary aggravation of her underlying

4

This paragraph number and the next were typographical errors by State
Farm. The Court preserves them for the sake of clarity.
5

This should be numbered paragraph 37, but the Court will again preserve
State Farm’s typographical error for consistency’s sake.

Page 8 of 23

degenerative changes at C5-6.” Id. In particular, Dr. Noonan believed that
Mrs. Baires’ “condition was not caused by the accident, but appears to have
been temporarily aggravated, accelerated and precipitated by the motor
vehicle accident.” Id. He concluded that Mrs. Baires had reached her healing
plateau from the accident after six months, in April 2011. Id. Dr. Noonan
attributed Mrs. Baires’ complaints after April 2011 to her pre-existing
degenerative cervical condition. Id. ¶ 38. He stated that “[t]he numbness she
has into both upper extremities would be related to her carpal tunnel
syndrome and not to the motor vehicle accident of September 2, 2010, as she
certainly has no neural compressive lesion on her cervical MRI that would be
causing the numbness.” Id.
On October 10, 2014, Medicus wrote the following in the claim file:
[Kahle] and I discussed at length. Roll over MVA with a
physically and emotionally fragile insured. Four years of
[treatment] including [chiropractic], [physical therapy],
injections/pain management. Her pain specialist Dr. McNett
acknowledges the related prior complaints, but concludes they
were mild when compared to MVA [treatment]. He opines
permanency with the need for significant future care. On the
other hand, IME Dr. Noonan relates 6 months before
attributing the remaining care as related to her pre-existing
degeneration. We are not sure we have all of the prior records.
[Kahle] will complete her evaluation attempting to balance
both views and in consideration of the risks. [Insured’s
attorney’s] firm is a competent, successful able litigators [sic].
If a pre-suit compromise can’t be reached discovery will afford
us a thorough review of records and NID’s deposition.
Whether she continues to treat will also be a factor.
(Docket #53 ¶ 21).
On December 1, 2014, Kahle requested from Medicus, her superior,
authority of $50,000 to resolve Plaintiffs’ claims. Id. ¶ 22. She arrived at this

Page 9 of 23

figure by first evaluating the bodily injury damages a jury would likely award
to Mrs. Baires. (Docket #45 ¶¶ 17–18). Based on Dr. Noonan’s opinions, she
estimated Mrs. Baires’ damages to be $35,378.11 in healthcare costs and
$10,000 in pain and suffering, for a total of $45,378.11. Id. That represented
the low end of her damages range. Id. The high end, $160,504.13, was
determined in part by valuing Mrs. Baires’ to-date healthcare expenses with
the assumption that the “aggravation” Dr. Noonan referred to persisted until
May 2014. Id. Thus, Mrs. Baires’ total damages, in Kahle’s opinion, fell
between $45,378.11 and $160,504.13. Id. She then subtracted what Mrs. Baires
had already been paid—$110,000—to arrive at her compromise range, which
was zero to approximately $50,000. Id.; (Docket #53 ¶ 22).
Also on December 1, 2014, Kahle discussed Dr. Noonan’s report with
Thomsen. (Docket #54 ¶ 39). She stated that the $110,000 that had already
been paid had fully compensated Mrs. Baires for the injuries sustained as a
result of the accident. (Docket #54 ¶ 39). Thomsen’s response is not provided
in the record, but it is clear that he disagreed with Kahle’s assessment.
On December 2, 2014, Medicus granted Kahle the requested $50,000
in settlement authority. (Docket #53 ¶ 23). On January 6, 2015, Kahle
extended a compromise offer of $5,000 to Thomsen by telephone. (Docket #54
¶ 40). She sent him a letter on January 8, 2015, confirming the conversation.
Id. ¶ 41. In it, she stated State Farm “believe[s] that a jury could find she has
been fully compensated for this accident” since “[m]any of her complaints
were present prior to the accident.” Id. Nevertheless, she agreed to “increase
[State Farm’s] offer to $5,000.00.” Id. On February 9, 2015, Thomsen made a
counteroffer of $175,000. Id. ¶ 42. State Farm responded that same day with
a counteroffer of $40,000, which Kahle confirmed in writing. Id. On February
18, 2015, Medicus commented in the claim file that “[t]here is no benefit to
Page 10 of 23

advancing our current offer of $40k. . . . Rae will call [insured’s attorney] and
discuss. If [he] made a demand under $100k, we would consider
recommending an increase in authority.” (Docket #53 ¶ 24).
Thomsen did not respond to State Farm’s $40,000 counteroffer until
August 4, 2015. (Docket #54 ¶ 44). That day, he sent additional medical
records and bills to State Farm and again demanded that State Farm pay the
UIM policy limits of $200,000. Id. ¶ 45. Kahle informed Thomsen on
September 3, 2015, that she would send the new information Thomsen
provided to Dr. Noonan for his consideration and, once she received a
response from the physician, she would then respond to Plaintiffs’ renewed
demand. Id. ¶ 46. She received Dr. Noonan’s follow-up report, dated October
28, 2015, on November 11, 2015. Id. ¶ 47. She then noted in the claim file that
“I recommend we provide a copy of the IME supplement report to the
[insured’s attorney] and reiterate our offer of $40k to resolve and stop there.
[Insured’s attorney] has never countered with a demand below limits.”
(Docket #53 ¶ 26). Kahle provided a copy of the report to Thomsen on
November 13, 2015. (Docket #54 ¶ 47).
In the follow-up report, Dr. Noonan confirmed his opinion that, as a
result of the accident, Mrs. Baires had sustained temporary aggravation of
pre-existing degenerative changes to her cervical spine. Id. ¶ 48.
Consequently, the follow-up report did not change Kahle’s view that State
Farm did not owe Plaintiffs any UIM benefits. Id. ¶ 49. Thomsen did not
make any further attempts to negotiate a settlement. Id. at 17 ¶ 24. Instead,
in a letter dated December 1, 2015, he demanded that State Farm pay the
amount of its last offer, $40,000, or provide “a prompt reasonable explanation
of the basis in the policy contract or applicable law for denial of [the Baires’]

Page 11 of 23

claim for UIM benefits.” Id.; (Docket #53 ¶ 27). On December 24, 2015, Kahle
wrote to Thomsen, explaining that (1) she was unaware of any law or
contract provision requiring that State Farm provide advance payment of
UIM benefits; and (2) no advance payment was available under State Farm’s
business practice as State Farm’s initial offer was zero and because it was
fairly debatable whether Mrs. Baires had been made whole by prior insurance
payments. (Docket #54 ¶¶ 50–51). On February 5, 2016, Plaintiffs initiated this
suit in Milwaukee County Circuit Court. (Docket #53 ¶ 28). On May 17, 2016,
three months after this suit was filed, State Farm made an advance payment
of $5,000 under the policy’s UIM coverage. (Docket #54 ¶ 52).
It was State Farm’s business practice that, for first-party UIM claims
like Plaintiffs, where the parties reach a “bona fide impasse” in their
compromise negotiations, State Farm will advance the initial compromise
offer it had made. (Docket #53 ¶ 13); (Docket #48-5 41:20–24). According to
Medicus, the initial compromise offer is an amount that State Farm knows it
owes “without a doubt.” (Docket #48-5 158:3–19). Of course, according to
State Farm, its first “offer,” made on December 1, 2014, was zero. See (Docket
#53 ¶¶ 13, 25); (Docket #48-7 59:7–23). Plaintiffs disagree, arguing that the
first offer was the $5,000 offered on January 6, 2015. (Docket #53 ¶ 25).
4.

ANALYSIS
Plaintiffs’ bad-faith claim arises under Wisconsin law, and the Court,

sitting in diversity, is obliged to apply that law to the claim. In Wisconsin,
“every insurance contract has an implied duty of good faith and fair dealing
between the insurer and insured.” Brethorst v. Allstate Prop. & Cas. Ins. Co.,
798 N.W.2d 467, 475 (Wis. 2011). A claim for bad-faith refusal to pay a claim
sounds in tort, rather than contract, and is “a separate intentional wrong,
which results from a breach of duty imposed as a consequence of the
Page 12 of 23

relationship established by contract.” Anderson v. Continental Ins. Co., 271
N.W.2d 368, 374 (Wis. 1978).
To prevail on a claim of bad faith in the insurance context, an insured
must establish that (1) there was no reasonable basis for denying or delaying
payment of the claim and (2) the insurer acted with knowledge or reckless
disregard for the lack of a reasonable basis. Id. In determining whether there
is evidence of a reasonable basis for denying a claim, courts examine whether
a claim was investigated appropriately and whether the results of the
investigation were evaluated and reviewed reasonably. Id. If an insured’s
claim is “fairly debatable” either in fact or law, then there existed a
reasonable basis for denying the claim, and an insurer cannot have denied the
claim in bad faith. Id. The Wisconsin Supreme Court has explained that
“when a claim is ‘fairly debatable,’ the insurer is entitled to debate it, whether
the debate concerns a matter of fact or law.” Id. at 376. This is true even if the
insurer ultimately loses on its argument that the claim should have been
denied. See Mills v. Regent Ins. Co., 449 N.W.2d 294, 298 (Wis. Ct. App. 1989).
Plaintiffs’ bad-faith claim has several component parts, but whether
considered alone or combination, they fall markedly short of establishing that
State Farm’s denial lacked a reasonable basis for denying their claim. The
Court will address each part of Plaintiffs’ theory in turn to demonstrate why
none of them hold water.
4.1

Dr. Noonan’s Opinion

First, Plaintiffs allege that State Farm could not reasonably have relied
on the opinion of Dr. Noonan to deny their claim. (Docket #47 at 10–14).
Their expert, Dr. McNett, believed that while Mrs. Baires had some preexisting cervical spine problems, the accident permanently aggravated them.
Dr. Noonan, by contrast, opined that the accident caused only a temporary
Page 13 of 23

aggravation of those conditions. In his view, Mrs. Baires’ ongoing healthcare
needs are related mostly to the natural progression of her conditions, not the
accident.
Without deciding which physician is correct, the Court concludes that
Plaintiffs’ evidence does not show that the extent and permanency of Mrs.
Baires’ injuries was beyond debate. Other than pointing to the opinion of
their own expert, Plaintiffs do little to question Dr. Noonan’s conclusions.
Moreover, despite his conviction in the March 2014 and mid-2016 reports, Dr.
McNett conceded at his deposition that reasonable physicians could disagree
as to his cervical radiculopathy diagnosis and that he has no opinion about
the cause of her spinal stenosis. Without a greater showing that Dr. Noonan
was mistaken, the Court is obliged to conclude that the claim was fairly
debatable. Tripalin v. American Fam. Mut. Ins. Co., 880 N.W.2d 183, 2016 WL
1370129, at *3 (Wis. Ct. App. Apr. 7, 2016) (“[T]o establish a bad faith denial
of coverage, [the plaintiff] would need to show that the opposing expert was
so obviously wrong in his opinion that [the insurer] could not have
reasonably relied on his opinion in its decision to deny coverage.”). Further,
it is of no moment that Mrs. Baires underwent extensive treatment after the
accident; this alone does not definitively establish the causal relationship
between the accident and Mrs. Baires’ injuries, as Dr. Noonan’s opinion
demonstrates. See Bushey v. Allstate Ins. Co., 670 A.2d 807, 810 (Vt. 1995) (even
“voluminous” medical records from treating physicians opining on causation
did not render it bad faith for the insurer to seek an independent evaluation
to examine causation).
Nor does the record reveal that State Farm failed to adequately
investigate and address Plaintiffs’ views regarding Mrs. Baires’ injuries. State
Farm obtained Dr. Noonan’s initial IME and discussed its implications with
Page 14 of 23

Thomsen in light of Dr. McNett’s competing report. When Plaintiffs pressed
their demand in August 2015 by submitting new medical records, State Farm
sent them to Dr. Noonan, who dutifully examined them and found that they
did not change his opinion. There is, therefore, no reason in the record to
suspect that State Farm failed to properly investigate and evaluate Plaintiffs’
view on the matter before disagreeing with it. Farmers Auto. Ins. Ass’n v.
Union Pac. Ry. Co., 756 N.W.2d 461, 473 (Wis. Ct. App. 2008) (“[A]bsent an
objectively unreasonable response to an insured’s offer of settlement, we are
left with a mere legitimate disagreement, which. . .is not enough to state a
cause of action on the objective aspect of a bad-faith claim.”); Fehring v.
Republic Ins. Co., 347 N.W.2d 595, 601 (Wis. 1984) (insurer flatly ignored
insured’s expert’s analysis regarding extent of needed repairs to home),
overruled on other grounds, Dechant v. Monarch Life Ins. Co., 547 N.W.2d 592
(Wis. 1996); see also Dahmen v. American Family Mut. Ins. Co., 635 N.W.2d 1,
3 (Wis. Ct. App. 2001) (insurer refused to provide “consultant” records it
relied on to determine the extent of insured’s injuries).
4.2

Investigation Delays

Plaintiffs also impugn State Farm’s work ethic in investigating their
claim. According to them, it was unreasonable for State Farm to cause the
following delays: (1) one month between receiving Thomsen’s first demand
letter and arranging Dr. Noonan’s IME—an IME which Plaintiffs believe was
itself an unnecessary delay tactic; (2) four months between the IME
evaluation and receiving Dr. Noonan’s report; (3) two months after that to
communicate to Plaintiffs on December 1, 2014, the denial of their claim; (4)
an additional month before Kahle exercised any of the settlement authority
she requested on December 1, 2014, and then only an initial offer of ten
percent of the total authority, or $5,000; and (5) one more month before Kahle
Page 15 of 23

offered $40,000 to compromise the claim—apparently the first reasonable
action State Farm took in this whole process, according to Plaintiffs. (Docket
#47 at 11–12).
These delays are not enough to permit an inference of bad faith.
Conducting a thorough investigation takes time. While overlong or deliberate
delays might, in part, contribute to a viable bad-faith claim, Plaintiffs offer no
more than their own dissatisfaction with the timeline—a dissatisfaction that
they never expressed during the course of the investigation—to support their
allegations of impermissible delay. They also fail to mention that the single
longest delay during the entire process was their own attorney’s six-month
delay in responding to State Farm’s $40,000 compromise offer from February
2015.
State Farm’s conduct is a far cry from that of the insurer in Danner v.
Auto-Owners Ins., 629 N.W.2d 159 (Wis. 2001), on which Plaintiffs principally
rely. The insurer’s egregious misconduct in that case afforded an ample body
of evidence to support a finding of bad faith: it largely ignored evidence that
the underinsured motorist was ninety percent at fault for the accident
underlying the claim; it resisted the notion that the applicable policies
stacked, although its attorney had no doubt on this point; and the insurer’s
doctor, who debated causation on the notion that the insured’s injuries were
pre-existing, was contradicted by three treating physicians’ reports and was
“so weak” in his conclusions that his report was likely not even admissible.6

6

It should be noted that the case was appealed from a jury verdict in favor
of the insureds, meaning that the Wisconsin Supreme Court was merely
determining whether there was evidence from which the jury could have found
bad faith, not for a prima facie showing thereof. See Danner, 629 N.W.2d at 162,
173–74.

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Id. at 174–76. Wherever the threshold for bad faith lay, the insurer in Danner
crossed it.
Plaintiffs focus on the timeline of Danner, apparently contending that
it was the years-long investigation in that case which undergirded the badfaith determination. (Docket #47 at 12–14). But reading Danner, it is hard to
see how the pace of the investigation had much impact in light of the
insurer’s other conduct. The court did not expressly mention the delay as
being probative on the bad-faith question. Danner, 629 N.W.2d at 174–76.
Further, a comparison of comparable events in Danner and this case shows
that none of the delays here came close to those experienced by the Danner
plaintiff. Instead, Plaintiffs’ challenge to the delays is largely idiosyncratic
and does not support a finding of bad faith.
Additionally, Plaintiffs do no more than state that Dr. Noonan’s IME
was itself a delay tactic, without corroborating evidence. This Court is not
ready to deny insurers the right, under appropriate circumstances, to seek an
independent medical opinion when evaluating a claim. Indeed, in Brethorst,
the plaintiffs included in their theory of bad faith the fact that the insurer in
that case did not seek an IME before denying their claim. Brethorst, 798
N.W.2d at 472, 485. Here, State Farm did not wait until it was being sued to
seek Dr. Noonan’s advice, and the time it took to schedule the appointment
and receive the report do not, standing alone, go so far as to show bad faith.
See Gentry v. State Farm Mut. Auto. Ins. Co., 726 F. Supp. 2d 1160 (E.D. Cal.
2010) (failure to obtain an IME to dispute the insured’s claims of injury until
a lawsuit was filed could show bad faith).
4.3

Admissions by State Farm Employees

Next, Plaintiffs believe that State Farm’s employees recognized the
extent of the damages Mrs. Baires sustained and willfully ignored them when
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denying and compromising the claim. Plaintiffs appear to reference the
various claims file notes in which Kahle, Medicus, and others wrote about
Plaintiffs’ claimed damages. These notes reflect Plaintiffs’ valuation of the
claim, not necessarily State Farm’s agreement with the valuation. For
example, the October 10, 2014 note written by Medicus includes statements
about Dr. McNett’s diagnosis and the competing report from Dr. Noonan, as
well as analysis of how to proceed in light of the record as a whole at that
time. The reflections of State Farm employees on the facts of the claim and
the best strategic approach are not admissions of liability, such as those at
issue in Davis v. Allstate Ins. Co., 303 N.W.2d 596, 600 (Wis. 1981). In Davis the
insurer had no evidence to contradict the insured’s proof of the amount of
loss, and its notes reflected that the employees knew the value of the claim,
yet the claims adjuster decided to offer the insured less than a third of that
amount, threatening drawn-out litigation as an alternative. See id. By contrast,
here State Farm’s employees investigated and considered Plaintiffs’ claim,
including their valuation and evidence, as well as State Farm’s evidence,
among other considerations, when evaluating the claim.
4.4

Failure to Advance Initial Compromise Offer

Finally, Plaintiffs assert that State Farm acted in bad faith when it
refused to advance its January 6, 2015 compromise offer of $5,000. (Docket
#47 at 2). Plaintiffs’ theory is based on State Farm’s business practice, which
State Farm admits is to advance the amount of the initial compromise offer
when it believes the parties have reached a “bona fide impasse.” The parties
do not dispute that they reached such an impasse in this case; rather, they
dispute what the amount of State Farm’s “first” offer was. State Farm says
that its first offer was zero, since Kahle told Thomsen on December 1, 2014
that Mrs. Baires had been fully compensated by the $110,000 she had already
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received. (Docket #41 at 22–23); (Docket #52 at 12). Plaintiffs, on the other
hand, think that the first compromise offer was $5,000, the first actual amount
of money offered to resolve the claim. (Docket #47 at 17–18).
More importantly, however, they dispute whether State Farm was
required to advance a compromise offer in the first place. State Farm does not
believe so, arguing that although its business practice was to advance an offer
when an impasse occurred, it was not contractually obligated to do so under
the policy. (Docket #41 at 22–23). Without making the threshold showing that
its actions were a breach of the policy, State Farm reasons, Plaintiffs cannot
maintain a bad-faith claim based on the failure to advance the compromise
offer. Plaintiffs, however, believe that State Farm has an affirmative duty to
settle claims, the violation of which can give rise to a bad-faith claim. (Docket
#47 at 14–15). Moreover, Plaintiffs assert that State Farm knew “without a
doubt” that it must advance the original offer—$5,000—so they can maintain
a bad-faith claim for State Farm’s failure to do so. Id. at 17.
State Farm has the better argument. The Wisconsin Supreme Court has
held that “some breach of contract by an insurer is a fundamental prerequisite
for a first-party bad faith claim against the insurer by the insured.” Brethorst,
798 N.W.2d at 482. Although the court was careful to note that it does not
“countenance bad behavior by insurers against their insureds,” it nevertheless
held that even “egregious conduct toward its insured” does not give rise to
a bad-faith claim for coverage “that does not otherwise exist under the
policy.” Id. Doing otherwise would, in the court’s view, untether the insurer’s
liability from the contract that forms the basis of its relationship with the
insured. Id. The court explained that “the insurer’s implied covenant of good
faith and fair dealing arises out of the relationship created by the contract. If
there is no contract, the insurer has no duty to act in good faith with respect
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to a claim.” Id. at 480. The court further found that allowing bad-faith claims
without an underlying breach of contract would also “invite the filing of
unmeritorious claims, focused on the insurer's alleged misconduct.” Id. at 482.
In sum, the court found that “[a]n insurer’s bad behavior unrelated to a
breach of contract might be subject to some sanction, but it does not warrant
a first-party bad faith claim.” Id. at 483.
Brethorst’s reasoning forecloses Plaintiffs’ theory regarding State
Farm’s failure to advance its compromise offer, for they point to no provision
in the policy that requires such an advance. See LeFevre v. Westberry, 590 So.2d
154, 162 (Ala. 1991) (bad faith claim cannot be premised on failure to advance
UIM funds because advances are not required by the terms of the policy);
accord Voland v. Farmers Ins. Co. of Ariz., 943 P.2d 808, 814 (Ariz. Ct. App.
1997). Even if Plaintiffs are correct that State Farm knew “without a doubt”
that it must, as a matter of internal procedure, advance the $5,000 it initially
offered, this is not enough to support a bad-faith claim. Plaintiffs are not in
privity of contract with State Farm’s business practices. Its failure to follow
those practices does not amount to “wrongful denial of some contracted-for
benefit” under the policy. Brethorst, 798 N.W.2d at 480.7

7

The actual holding of Brethorst concerned a slightly different scenario than
that presented here. In that case, the court was concerned with whether a bad-faith
claim could be maintained where the injury was ultimately determined to not be
covered under the policy. See Brethorst, 798 N.W.2d at 479–80. The court answered
“no,” finding that a bad-faith claim cannot extend coverage where none exists. Id.
at 482. By contrast, there is no dispute here that the September 2010 accident was
covered under the UIM policy. The issue is instead whether, as part of its duty to
investigate and evaluate claims in good faith, State Farm was also required to
advance its initial settlement offer, something required only by its operating
procedures and not by the policy itself. The Court finds that the extension of
Brethorst to Plaintiffs’ situation is straightforward.

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Alt v. American Family Mut. Ins. Co., 237 N.W.2d 706 (Wis. 1976), relied
on by Plaintiffs, is inapposite. Underlying that suit was another case in which
the defendant-insurer defended its insured from the claim of a third party. Id.
at 708. The insurer failed to settle that underlying case, and the assignees of
the insured brought an action against it for its bad-faith failure to do so. Id.
The court, relying on Hilker v. Western Automobile Ins. Co., 231 N.W. 257 (Wis.
1930), found that the plaintiffs could maintain a bad-faith claim in that
instance, reasoning that in third-party excess liability cases, the insurer owed
a fiduciary duty to the insured to investigate and settle claims where liability
was clear. Alt, 237 N.W.2d at 711–12.
Plaintiffs’ reliance on Alt is misplaced because they neglect the
important distinction between third-party claims like that in Alt and Hilker
and first-party claims like the one presented here. In third-party cases, the
insurer defends the insured and has a duty to engage in good-faith settlement
efforts to protect the insured. For a first-party claim like Plaintiffs’, however,
the relationship between insurer and insured is merely contractual. Brethorst
makes this plain, noting that “[i]n circumstances like Hilker, the insurer’s
complete takeover of the insured’s defense creates a quasi-fiduciary
relationship. That relationship is different from the insurer-insured
relationship in a first-party claim. In a first-party bad faith claim, the insured
insists that the insurer wrongfully denied benefits or intentionally mishandled
a legitimate claim for benefits.” Brethorst, 798 N.W.2d at 479. State Farm’s
duty to settle first-party claims is not comparable to its duty to settle thirdparty claims. Thus, Alt is of no help to Plaintiffs.
Similarly, Government Employees Ins. Co. v. Quine, No. CIV–08–1140–C,
2009 WL 2497305 (W.D. Okla. Aug. 17, 2009), does not suggest Plaintiffs’
preferred result. There, the court found that a bad-faith claim could rest on
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the insurer’s refusal to promptly pay the undisputed portion of a UIM claim.
Id. at *2. Wisconsin courts also appear to take the view that failure to pay a
clearly valid claim (or a clearly valid portion of a claim) can constitute bad
faith. See Danner, 629 N.W.2d at 169–70; Murphy ex rel. Schulz v. Cincinnati
Ins. Co., 728 N.W.2d 374, 2007 WL 149119, at *4 (Wis. Ct. App. 2007). Yet
here, State Farm contested that it owed Plaintiffs anything at all. Its
settlement offer did not represent an admission that the claim or any portion
of it was clearly valid; the offer was, like all settlement offers, simply a
strategic decision to head off potential future liability. Thus, the $5,000
compromise offer did not represent the undisputed portion of Plaintiffs’
claim, and State Farm was not required to pay it to avoid accusations of bad
faith.
4.5

Pre-Judgment Interest Under Section 628.46

Because Plaintiffs’ bad-faith claim will be dismissed, the Court must
also dismiss their prayer for pre-judgment interest. Section 628.46 provides,
in pertinent part, that an insurance claim is overdue if not paid within thirty
days, unless the insurer has “reasonable proof to establish that [it] is not
responsible for the payment.” Wis. Stat. § 628.46(1). “Reasonable proof” here
means evidence “sufficient to allow a reasonable insurer to conclude that it
may not be responsible for payment of a claim.” Kontowicz v. Am. Standard
Ins. Co., 714 N.W.2d 105, 117 (Wis. 2006). The Wisconsin Supreme Court has
held that the “reasonable proof” standard is generally met where the claim
is “fairly debatable.” Id. Thus, because the Court has found that Plaintiffs’
claim was fairly debatable, it must also conclude that there was reasonable
proof showing that State Farm was not responsible for paying their claim,
thereby eliminating the availability of statutory prejudgment interest. See
Manpower Inc. v. Ins. Co. of Pa., No. 08–C–0085, 2010 WL 3809695, at *5 (E.D.
Page 22 of 23

Wis. Sept. 24, 2010) (dismissing prejudgment interest demand where badfaith claim was also dismissed).
5.

CONCLUSION
Plaintiffs’ evidence of alleged bad faith does not pass the high bar

required to show that State Farm lacked a reasonable basis on which to
dispute and ultimately deny their claim. Thus, their bad-faith claim cannot go
to the jury. Neither can their claim for pre-judgment interest, which is
dependent on the survival of the bad-faith claim.
Accordingly,
IT IS ORDERED that Defendant State Farm’s motion for partial
summary judgment (Docket #39) be and the same is hereby GRANTED;
IT IS FURTHER ORDERED that Plaintiffs’ motion to seal documents
(Docket #49) be and the same is hereby GRANTED; and
IT IS FURTHER ORDERED that Count III of Plaintiffs’ Amended
Complaint and Plaintiffs’ prayer for prejudgment interest pursuant to Wis.
Stat. § 628.46 (Docket #15) be and the same are hereby DISMISSED with
prejudice.
Dated at Milwaukee, Wisconsin, this 3rd day of February, 2017.
BY THE COURT:

J.P. Stadtmueller
U.S. District Judge

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