Dilger Signals End to Claim File Discovery in Wis. Stat. § 628.46 Interest Cases

WDC Journal Edition: Summer 2016
By: Sara C. Mills, Crivello Carlson, S.C.


Just over a year ago, the Wisconsin Court of Appeals issued the published decision of Dilger v. Metropolitan Property & Casualty Insurance Company.[i] The decision confirms the applicability of work-product protections to insurance company claim files when defending against claims for interest under Wis. Stat. § 628.46. This protection should extend regardless of whether the claim for interest is bifurcated under Wis. Stat. § 805.05(2).

Bad Faith Litigation and Discovery Protections

It is true that an insurer has the right to litigate a claim when it feels there is a question of law or fact that needs to be decided before it is required in good faith to pay.[ii] Yet this truth gives little comfort to insurers when facing discovery requests for claim file materials. Part of the reason that insurers lack confidence in their rights is the lack of traditional discovery protections when litigating a claim of bad faith. The protections give way because the evidence necessary to support a claim of bad faith is “very different” from that necessary to support a claim for benefits under a policy of insurance.[iii] Perhaps as a result of insurers’ often knee-jerk reactions to charges of bad faith, concerns about claim file discovery arise even when the specter of bad faith has yet to rear its head.

To prevail on a claim for bad faith, a plaintiff must show 1) the absence of a reasonable basis for denying benefits of the policy; and 2) the insurer’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim.[iv] This is determined by examining the insurer’s handling of the claim—was it properly investigated? Were the results of the investigation subjected to a reasonable evaluation and review?[v] Thus, in the context of a bad faith claim, the plaintiff may be entitled to the insurer’s work product and even attorney-client privileged material containing information relevant to how the plaintiff’s claim was handled.[vi]

The potential for a claim file to be turned over in discovery is, of course, sometimes met with trepidation by an insurance company. Plaintiff’s attorneys often suggest that if an insurance company has handled a claim properly, it should have nothing to fear. Defense counsel’s vehement objections to disclosure must indicate that the claim file contains damning evidence of delay, cut corners, or unfounded assumptions. On the contrary, insurance companies’ concerns arise from their duty to objectively and thoroughly investigate claims and subject the results of that investigation to reasonable evaluation and review.[vii] An insurer’s conclusions about a claim “should be the result of the weighing of probabilities in a fair and honest way.”[viii] Further complicating the issue, personal injury claims inherently involve variable and subjective considerations that require the insurer to make a “discretionary decision.”[ix]

Otherwise innocuous claim notes that memorialize an adjuster’s impressions, theories, or reservations about a claim or the facts upon which it is based could later be manipulated and exploited by opposing counsel into allegations against the insurance company of bad faith. This fear is not mere unfounded paranoia: courts have recognized the allure of claim file materials. “Undoubtedly, [the insured] would love to scour through [the insurer’s] files in an attempt to find some dirt. Indeed, his lawyer told the circuit court as much during the hearing on [the insurer’s] motion for summary judgment on the bad-faith claim.”[x] Moreover, claims of bad faith appear to be on the rise.[xi] Perhaps one reason for the increase in such claims is a perception that the plaintiff will gain leverage by asserting a claim that may result in the disclosure of such sensitive information—even if the claim is dubious at best.

Case law discussing discovery of claim files has evolved primarily in the context of bad faith litigation. Over the past several decades, a robust body of jurisprudence has developed establishing that an insurer is entitled to traditional discovery protections in bad faith suits unless and until the plaintiff has established a breach of contract (and regardless of whether the plaintiff separately pleads a claim for breach of contract).[xii] In both the first-party and third-party context, an insurer can prevail on the breach of contract element by establishing that the claim was “fairly debatable.” [xiii] Thus, claim file materials are protected while the parties are litigating the fairly debatable element of the bad faith claim.

Statutory Interest Under Wis. Stat. § 628.46

In addition to claims of bad faith, claims for statutory interest under Wis. Stat. § 628.46 also result in questions about the discoverability of claim files. These claims may accompany separately pleaded claims of bad faith, but they may also be asserted without any reference to or allegation of bad faith.[xiv] Section 628.46, which is applicable to both first-party and third-party claims,[xv] sets forth the mandate that an insurer “shall promptly pay every insurance claim.”[xvi] The statute construes promptness by explaining that payment on a claim is overdue if not made within 30 days after the insurer is furnished with “written notice of the fact of a covered loss and of the amount of the loss.”[xvii] As incentive for insurers to timely pay valid claims, the statute imposes a penalty on late payments of simple interest at the rate of 12% per year.[xviii]

However, the statute does not require an insurer to make payouts blindly without considering whether the alleged loss is actually covered. “Any payment shall not be deemed overdue when the insurer has reasonable proof to establish that the insurer is not responsible for the payment.”[xix] Although claim files are protected in the context of bad faith when determining whether a claim was “fairly debatable,” until the recent Dilger decision, it was not entirely clear if such protections existed when determining whether an insurer had “reasonable proof” of non-responsibility for purposes of Wis. Stat. § 628.46.

The 2006 decision of the Wisconsin Supreme Court in Kontowicz v. American Standard Insurance Co. confirmed that Wis. Stat. § 628.46 applies to third-party claims under certain circumstances. [xx] The statute applies when the following conditions are met: (1) “there can be no question of liability on the part of the insured,” (2) “the amount of the damages must be in a sum certain amount,” and (3) “the claimant must provide written notice of both liability and the sum certain amount owed” to the insurer.[xxi] In other words, if the insurer has “reasonable proof” that it is not responsible for the payment demanded, then § 628.46 “does not apply.”[xxii]

“Reasonable proof” means that amount of information which is sufficient to allow a reasonable insurer to conclude that it may not be responsible for payment of a claim. Our case law has generally equated “reasonable proof” of non-responsibility under § 628.46 with whether the coverage issue was fairly debatable. If coverage is fairly debatable, the insurer must be considered to have had the required “proof” of non-responsibility.[xxiii]

Despite the confirmation that having “reasonable proof” is tantamount to a “fairly debatable” claim, Kontowicz did not answer the discovery question.[xxiv] Is a plaintiff litigating a claim for statutory interest entitled to the same type of broad discovery as a plaintiff litigating a claim of bad faith? Is claim file information necessary to establish the applicability of the statute under the three-prong test outlined in Kontowicz?

Dilger and Claim File Discovery

The Dilger court called its decision “the follow-up to Kontowicz.”[xxv] In Dilger, the plaintiff was a City of Brookfield police officer. While on duty on December 10, 2009, he was struck by a hit-and-run drunk driver as he walked along a street. His injuries ended his career. The driver turned herself into police three days later. She admitted hearing and feeling an impact between her vehicle and “some object” but continued to maintain that she thought she had hit a deer.[xxvi] She also admitted that she never saw what she hit and never saw a deer. The driver had insurance through Metropolitan Property and Casualty Insurance Company (“Metropolitan”) with liability coverage of $500,000 and umbrella coverage of $1,000,000.[xxvii] Dilger filed suit for compensatory and punitive damages and for interest under Wis. Stat. § 628.46.

The statutory interest claim was a result of Dilger’s written “partial demand” to Metropolitan on May 11, 2011 for $500,000.[xxviii] On June 13, 2011, Metropolitan rejected Dilger’s demand. Metropolitan cited “significant questions concerning liability” because its insured persisted in her belief that she hit a deer.[xxix] However, on September 22, 2011, Metropolitan’s insured pleaded guilty to hit-and-run causing injury in a related criminal case.[xxx] The insured was sentenced on January 5, 2012.[xxxi] On February 14, 2012, Dilger demanded the full $1.5 million policy limits from Metropolitan along with statutory interest.[xxxii] In support of this demand, Dilger provided medical treatment records and support for past and future earning losses that totaled between $1.6 million and $1.85 million.[xxxiii]

Metropolitan did not settle until late January 2013, when it paid out its limits and its insured personally paid $40,000.[xxxiv] The settlement did not encompass the claim for statutory interest under Wis. Stat. § 628.46, and thereafter Dilger sought production of Metropolitan’s “complete claims file … as it existed as of June 13, 2011” (the date that Metropolitan rejected Dilger’s partial demand).[xxxv] Metropolitan refused to produce the claim file, asserting work-product and attorney-client privilege protections. On motions, the trial court found that the attorney-client privilege did not protect the communications “as the communications were made prior to the commencement of litigation and that the privilege did not apply to a bifurcated Wis. Stat. § 628.46 interest proceeding.”[xxxvi]

The trial court subsequently determined that Dilger was entitled to an award of interest under Wis. Stat. § 628.46 because the hit-and-run driver’s guilty plea resolved any question of her liability. Further, by the time the insured was convicted, Metropolitan had notice of damages that “were far, far in excess of what was the insurance available under the circumstances.”[xxxvii] The trial court held that interest accrued on the date of sentencing, January 5, 2012. Metropolitan appealed Dilger’s entitlement to a statutory interest award altogether, while Dilger cross-appealed the date that interest accrued. Dilger argued that interest should begin accruing as of the date of the insured’s guilty plea, September 22, 2012. Metropolitan argued that the award was invalidated by the trial court’s erroneous order requiring the production of its claim file.[xxxviii]

While the court of appeals agreed with Metropolitan’s position on discovery protections, it did not agree with Metropolitan’s proffered result. First, the circuit court erred when it based its decision on the timing of the preparation of the documents in Metropolitan’s claim file. It was error to hold that the protections did not apply “either because they were asserted after liability issues had been determined or because the communications occurred prior to the commencement of the case.”[xxxix] In any context, the work-product protection applies to documents “prepared in anticipation of litigation” regardless of whether litigation had commenced at the time of their preparation or whether the “litigation” is the proceeding in which the protection is asserted.[xl]

Second, in the context of a third-party claim for interest under Wis. Stat. § 628.46, an award for interest “is unrelated to the tort of bad faith.”[xli] Interest may be imposed without a finding of bad faith. “Metropolitan’s claim file is not relevant to Dilger’s burden of proof that ‘there is clear liability, a sum certain owed, and written notice of both.’”[xlii] As such, the party seeking interest under Wis. Stat. § 628.46 must overcome the work-product objection in the normal fashion in order to obtain the claim file: the court must make findings as to whether the requested claim file materials were prepared in anticipation of litigation and whether the requesting party has a “substantial need” or other means to obtain the information.[xliii] That the action is one for interest under Wis. Stat. § 628.46 should not change the analysis.

Ultimately, although the court of appeals sided with Metropolitan on the discovery issue, it also held that the trial court’s error was harmless and therefore the interest award was affirmed. The appellate court determined that the underlying decision to impose interest accruing on the date of the insured’s sentencing, January 5, 2012, was not premised on “any of the information from the claim file” but was instead based on other, admissible evidence.[xliv] Further, even assuming that the trial court “had relied on protected information in its decision, the court’s determination was strongly supported by evidence untainted by error.”[xlv] The court of appeals was not willing to presume that prejudice resulted from the erroneous discovery order as required by Wis. Stat. § 805.18(2) to set aside the award.[xlvi]

Dilger and Bifurcation

While courts have examined and explained discovery protections applicable to claim file materials in the context of bad faith claims, Dilger now offers insurers some clarity regarding statutory interest claims. Additionally, even if a claim for interest has not been bifurcated, work-product protections should still apply.

Defendants often seek to bifurcate claims of bad faith or for statutory interest and to stay any related discovery as part of an overall strategy to limit discovery into claim file materials.[xlvii] Indeed, an insurer is entitled to bifurcation of the underlying claim for insurance benefits and a stay of any claim file discovery when defending against an allegation of bad faith. A court’s failure to grant such a motion is ripe for reversal.[xlviii] Bifurcation is a preemptive tactic that may help avoid costly and time consuming litigation of the discovery dispute as the case progresses.

Dilger suggests that motions to bifurcate and stay are now superfluous in the context of a claim for statutory interest under Wis. Stat. § 628.46. Claim file materials are not relevant to a claimant’s burden of proof to show that there is clear liability, a sum certain owed, and written notice of both. Because a plaintiff has no need of an insurer’s file to establish whether Wis. Stat. § 628.46 applies, the discovery concerns that are normally addressed through bifurcation do not exist. An award for statutory interest is unrelated to the tort of bad faith. The scope of and protections applicable to discovery are the same in both bodily injury claims for coverage and claims under Wis. Stat. § 628.46. Thus, bifurcation is not necessary to ensure that claim file materials remain protected.


Dilger is definitive in its holding: insurance company claim files are not discoverable as a matter of course merely because a plaintiff alleges entitlement to Wis. Stat. § 628.46 interest. Pursuant to Dilger, in order to obtain the claim file, plaintiffs must overcome the traditional obstacles necessary to compel production of any work-product protected materials. Dilger also signals an end to the need for defense counsel to seek a bifurcation and stay in cases involving only interest claims, as work-product protections are now available from the outset.


[i] Dilger v. Metropolitan Prop. & Cas. Ins. Co., 2015 WI App 54, 364 Wis. 2d 410, 868 N.W.2d 177.

[ii] Benke v. Mukwonago-Vernon Mut. Ins. Co., 110 Wis. 2d 356, 366, 329 N.W.2d 243 (Ct. App. 1982).

[iii] Dahmen v. Am. Family Mut. Ins. Co., 2001 WI App 198, ¶ 12, 247 Wis. 2d 541, 635 N.W.2d 1; see also Kontowicz v. Am. Std. Ins. Co., 2006 WI 48, ¶ 49, 290 Wis. 2d 302, 714 N.W.2d 105.

[iv] Anderson v. Continental Ins. Co., 85 Wis. 2d 675, 687-694, 271 N.W.2d 368 (1978).

[v] Id. at 693.

[vi] Dahmen, 247 Wis. 2d 541, ¶ 13.

[vii] See Brethorst v. Allstate Prop. & Cas. Ins. Co., 2011 WI 41, ¶ 36, 334 Wis. 2d 23, 798 N.W.2d 467 (citing Wis. JI-Civil 2761).

[viii] Poling v. Wisconsin Physicians Serv., 120 Wis. 2d 603, 608, 357 N.W.2d 293 (Ct. App. 1984) (citing Anderson, 85 Wis. 2d at 688).

[ix] See Belongia v. Wis. Ins. Security Fund, 195 Wis. 2d 835, 844, 537 N.W.2d 51 (1995) (quoting Davis v. Allstate Ins. Co., 55 Wis. 2d 56, 58, N.W.2d 734 (1972)).

[x] Farmers Auto. Ins. Ass’n v. Union Pac. Ry. Co., 2008 WI App 116, ¶ 28, 313 Wis. 2d 93, 756 N.W.2d 461.

[xi] See Victor E. Schwartz & Christopher E. Appel, Common-Sense Construction of Unfair Claims Settlement Statutes: Restoring the Good Faith in Bad Faith, 58 Am. U. L. Rev. 1477, 1480 (2009) (citing Mark J. Browne, Ellen S. Pryor & Bob Puelz, The Effect of Bad Faith Laws on First-Party Insurance Claims Decisions, 33 J. Legal Stud. 355, 355 (2004); Alan O. Sykes, Bad Faith Breach of Contract By First-Party Insurers, 25 J. Legal Stud. 405, 406 (1996)).

[xii] See Brethorst, 334 Wis. 2d 23.

[xiii] Mowry v. Badger State Mut. Cas. Co., 129 Wis. 2d 496, 516-17, 385 N.W.2d 171 (1986); Brethorst, 334 Wis. 2d 23, ¶ 76.

[xiv] See Kontowicz, 290 Wis. 2d 302; Dilger, 364 Wis. 2d 410.

[xv] Kontowicz, 290 Wis. 2d 302, ¶ 27.

[xvi] Wis. Stat. § 628.46(1).

[xvii] Id.

[xviii] Id.; see also Kontowicz, 290 Wis. 2d 302, ¶ 47 (“The purpose of § 628.46 is to discourage insurance companies from creating unnecessary delays in paying claims and to compensate claimants for the value of the use of their money.”).

[xix] Wis. Stat. § 628.46(1) (emphasis added).

[xx] See Kontowicz, 290 Wis. 2d 302, ¶ 47.

[xxi] Id., ¶¶ 2, 48.

[xxii] Id., ¶ 48.

[xxiii] Id. (internal citations and quotations omitted).

[xxiv] See Dilger, 364 Wis. 2d 410, ¶ 22.

[xxv] Id., ¶ 2.

[xxvi] Id., ¶ 5.

[xxvii] Id.

[xxviii] Id., ¶ 7.

[xxix] Id.

[xxx] Id., ¶ 8; see also Waukesha County Circuit Court Case No. 10-CF-758 (the criminal proceedings).

[xxxi] Id.

[xxxii] Id.

[xxxiii] Id.

[xxxiv] Id.

[xxxv] Id., ¶ 16.

[xxxvi] Id., ¶ 17.

[xxxvii] Id., ¶ 9.

[xxxviii] Id., ¶ 10.

[xxxix] Id., ¶ 21.

[xl] Id. (citing Wis. Stat. § 804.01(2)(c); Borgwardt v. Redlin, 196 Wis. 2d 342, 353-54, 538 N.W.2d 581 (Ct. App. 1995)).

[xli] Id., ¶ 23.

[xlii] Id., ¶ 24.

[xliii] Id.

[xliv] Id., ¶¶ 18, 26.

[xlv] Id., ¶ 26.

[xlvi] Id., ¶ 25.

[xlvii] See e.g., Ullerich v Sentry Ins., 2012 WI App 127, 344 Wis. 2d 708, 824 N.W.2d 876.

[xlviii] See Dahmen, 247 Wis. 2d 541, ¶ 20.