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  • April 18, 2018

    Protecting Against Bad Behavior by Insurance Companies

    Recent legislation has lowered the interest rate in the timely payment of claims statute. While not often used, this statute continues to have an important role in providing incentive for prompt resolution of claims or a mechanism for compensation to plaintiffs subjected to unreasonable delays, writes Amy Risseeuw.

    Amy M. Risseeuw

    insurance company holding family with umbrella

    As mentioned in the February 2018 Litigation Section Blog article, Assembly Bill 773/Senate Bill 645 proposed multiple changes to the rules of civil procedure.

    That bill was signed into law April 3, 2018. The changes to the rules of discovery will apply only to actions filed after July 1, 2018.

    There are other changes that went into effect April 5, 2018, including the reduction of the prejudgment interest rate in Wis. Stat. section 628.46, the “Timely payment of claims” statute.

    This statute provides:

    Unless otherwise provided by law, an insurer shall promptly pay every insurance claim. A claim shall be overdue if not paid within 30 days after the insurer is furnished written notice of the fact of a covered loss and of the amount of the loss. If such written notice is not furnished to the insurer as to the entire claim, any partial amount supported by written notice is overdue if not paid within 30 days after such written notice is furnished to the insurer. Any part or all of the remainder of the claim that is subsequently supported by written notice is overdue if not paid within 30 days after written notice is furnished to the insurer. … All overdue payments shall bear simple interest at the rate of 12% 7.5% per year.

    To summarize, this statute states that:

    1) An insurer shall promptly pay every insurance claim.
    2) A claim that is not paid within 30 days is overdue.
    3) Even if only a portion of the claim is supported, the partial amount of the claim is overdue if not paid within 30 days.
    4) Overdue payments shall bear 7.5 percent interest until paid.

    This section applies equally to first-party claims and third-party claims.1 There are three requirements to be met before a payment will be found to be overdue:

    1) there can be no question of liability on the part of the insured;
    2) the damages are stated in a sum certain;
    3) written notice has been provided to the insurance company describing liability and the sum certain owed.2

    In the majority of personal injury claims, a plaintiff has incurred a loss and seeks to recover from an insurance company.

    Section 628.46 provides incentive for insurance companies to not take advantage of that situation by needlessly dragging out justified claims.

    Thankfully, it is a statute that is rarely used. However, in the right circumstances, the timely payment of claims statute can be a powerful weapon and deterrent. Here are two examples:

    Case 1

    The plaintiff was getting tools out of the trunk of his parked car in a residential neighborhood. A large pickup truck with a protruding hook below the front bumper was parked a few feet behind the plaintiff’s vehicle. The defendant was driving down the residential street with his family, heading out for a weekend of camping. It was daylight and weather was clear. The defendant inexplicably rear-ended the large pickup truck. The hook on the front of the pickup was driven through the plaintiff’s lower leg. The plaintiff’s leg was amputated below the knee in an emergency surgery. The defendant driver had a $500,000 underlying policy and $1,000,000 umbrella policy.

    Amy M. Risseeuw Amy M. Risseeuw, U.W. 2005, practices plaintiff’s personal injury at Peterson, Berk & Cross SC, Appleton.

    Approximately eight months after the accident, an evaluation of the plaintiff’s damages was provided to the insurance company, demanding a sum certain. The insurance company responded that it needed more time to review the matter. After eight weeks, the plaintiff filed a lawsuit given no substantive response to the demand. Discovery commenced, and almost a year after the lawsuit was filed, the insurance company sent a private investigator to interview the plaintiff’s neighbors to verify the plaintiff’s injuries.

    In mediation, plaintiff’s counsel argued that the insurance company’s behavior likely constituted a violation of the timely payment of claims statute and interest payments should be calculated in to the settlement discussions. The insurance policy language stated that the insurance company would be responsible for any additional costs or interest caused by their actions on top of the policy limit. Roughly 18 months after the lawsuit was filed, the case settled for $1,980,000.

    Case 2

    A plaintiff sustained significant injuries in a car accident. The defendant had crossed the centerline and hit the plaintiff head-on. The defendant was killed in the crash.

    The plaintiff had fractured his left and right femurs, left and right tibias, left fibula and three vertebrae. In the three months after the crash, the plaintiff incurred over $350,000 in medical expenses and wage loss.

    After three months, documentation of the plaintiff’s claimed damages were provided to the insurance company with a partial demand of $750,000 for the damages to date. In conversations with the insurance company, the insurance company refused to disclose the policy limit value, and said it was not company policy to issue a partial payment. The insurance company adjuster recommended that plaintiff wait until an end of healing and then the claim value could be discussed.

    Six months after the crash, the plaintiff had incurred over $450,000 in past medical bills and lost wages. Plaintiff had to establish a Special Administration for the deceased and the personal injury lawsuit was filed about nine months after the accident. Approximately 11 months after the accident, the full policy limit of $500,000 was paid by the insurance company. Plaintiff then pursued interest for a violation of the timely payment of claims statute. An additional settlement of $32,000 was reached to compensate the plaintiff for six months’ interest and for the costs of litigation.

    Statue Continues to have an Important Role in Civil Litigation

    These two examples took place about eight years apart. Whether coincidence or not, both examples involved the same defendant insurance company.

    The interest charges in the second case example were much smaller, as the length of the delay was considerably shorter, but also because of policy language changes – even though both examples involved the same insurer.

    In the first case example, the insurance policy arguably stated it would pay interest on the verdict amount. In the second case example, the insurance policy explicitly stated it would pay interest based upon its policy amount.

    While the recent legislation change has lowered the interest rate, the timely payment of claims statute continues to have an important role in civil litigation.

    This article was originally published on the State Bar of Wisconsin’s Litigation Section Blog. Visit the State Bar sections or the Litigation Section web pages to learn more about the benefits of section membership.


    1 Kontowicz v. Am. Standard Ins. Co. of Wisconsin, 2006 WI 48, ¶ 27, 290 Wis. 2d 302, 714 N.W.2d 105, clarified, 206 WI 90, ¶ 27, 293 Wis. 2d 262, 718 N.W.2d 111.

    2 Singler v. Zurich Am. Ins. Co., 2014 WI App 108, ¶ 18, 357 Wis. 2d 604, 855 N.W.2d 707.

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