Hughes v. Nat'l Gen. Ins. Co.

1

Michael A. Hughes, Plaintiff-Respondent, v. National General Insurance Company, Defendant-Appellant.

No. 2022AP1217

Court of Appeals of Wisconsin, District III

September 24, 2024

This opinion will not be published. See WIS. STAT. RULE 809.23(1)(b)5.

APPEAL from a judgment of the circuit court for Outagamie County No 2018CV833: VINCENT R. BISKUPIC, Judge.

Before Stark, P. J., Hruz and Gill, JJ.

Per curiam opinions may not be cited in any court of this state as precedent or authority, except for the limited purposes specified in WIS. STAT. RULE 809.23(3).

PER CURIAM.

¶1 National General Insurance Company appeals from a judgment entered upon a jury's verdict, finding that it acted in bad faith and was liable to Michael A. Hughes for damages. For the reasons that follow, we affirm the judgment in part with regard to most of National General's challenges on appeal. However, pursuant to our discretionary reversal authority, we reverse that part of the judgment awarding Hughes punitive damages in an amount greater than that allowed under WIS. STAT. §895.043(6) (2021-22).^[1] We remand with directions for the circuit court to amend the judgment to reflect the proper punitive damages amount, as detailed below.

BACKGROUND

¶2 In 1983, Hughes was involved in a car crash in Michigan. As a result of the crash, Hughes suffered a spinal cord injury that rendered him partially hemiplegic.^[2] Since the accident, National General has paid for Hughes's medical bills pursuant to an insurance policy issued to Hughes's parents prior to his accident, while Hughes lived in Michigan. Hughes is provided benefits under the policy according to Michigan's No-Fault Act. See MICH COMP. LAWS § 500.2006(4) (2024).^[3] Pursuant to the policy Hughes is entitled to lifetime benefits for all reasonably necessary medical expenses for his injuries resulting from the 1983 accident.

¶3 Beginning in the early 2000s, Hughes began experiencing severe muscle spasms that caused him to lose consciousness vomit, and soil himself. Hughes moved from Michigan to Wisconsin in 2002, and in 2009, Hughes began receiving massages to treat his muscle spasms. Initially, National General paid for this treatment.

¶4 In 2017, National General assigned a new adjuster, Jamie Gustafson, to manage Hughes's massage treatments claim. Gustafson questioned the need for ongoing massage treatments. Gustafson identified "red flags" related to Hughes's massage treatments, including that Hughes's condition was not improving with the treatments and that Hughes was receiving no other treatment except for massage therapy and medication.

¶5 Based on Gustafson's identified red flags, she ordered an Independent Medical Examination (IME) in relation to Hughes's claim for massage treatments. Doctor Paul Drouillard, an orthopedic surgeon, was selected to perform the IME. Upon his review, Drouillard concluded that the massage treatments were not medically necessary. National General then discontinued payment for Hughes's massage treatments in May 2017. Hughes did not continue the massage treatments at his own expense.

¶6 In September 2017, Gustafson was terminated from National General, and Hughes's claim was reassigned to the prior adjuster, Christy Meadows. Meadows ordered a second IME, and Dr. Barbara Heller, a physical medicine and rehabilitation specialist, was selected for the review. Heller opined that massages three times per week, for two hours per session, are a medically necessary treatment for Hughes's injuries. National General then reinstated payment for Hughes's massage treatments. Hughes was without massage treatments for approximately five months.

¶7 Hughes filed the underlying lawsuit in Wisconsin, alleging that National General acted in bad faith when it, among other things, failed to provide or pay for the necessary massage treatments. Hughes sought both compensatory and punitive damages. National General filed a motion arguing that Michigan law (which does not recognize the tort of bad faith for a breach of an insurance contract) controls and that Hughes's exclusive remedy was through Michigan's No-Fault Act. The circuit court denied National General's motion after applying the standard articulated in State Farm Mutual Automotive Insurance Co. v. Gillette, 2002 WI 31, 251 Wis.2d 561, 641 N.W.2d 662.^[4]

¶8 The lawsuit eventually proceeded to a jury trial. The circuit court requested briefing from the parties regarding the availability of punitive damages, and it planned to address the issue prior to the end of trial. Following the parties' briefing and a hearing outside the presence of the jury, the court determined that it would provide the jury with a punitive damages instruction and would include a corresponding question on the verdict form. The jury returned a verdict in Hughes's favor, finding National General liable for the bad faith claim, and it awarded Hughes $100,000 in compensatory damages and $1,000,000 in punitive damages.

¶9 The parties filed several post-trial motions. National General moved for judgment notwithstanding the verdict, requesting that the circuit court reduce the punitive damages award to $200,000. See WIS. STAT. § 895.043(6). It also moved the court to reconsider its decision denying National General's motion to dismiss the bad faith claim because Michigan law should apply. National General also sought the dismissal of the jury's punitive damages award, arguing that there was insufficient evidence presented to demonstrate that National General acted "maliciously" toward Hughes. Lastly, National General asked the court to change two of the jury's answers to "no," such that the verdicts read that National General did not exercise bad faith and did not act maliciously toward Hughes. See WIS. STAT. §805.14(5)(c).

¶10 Conversely, Hughes filed a motion for attorney fees and costs. Hughes sought $365,000 in attorney fees and $37,886.62 in litigation expenses.

¶11 The circuit court did not make a decision on the parties' motions within ninety days of the jury's verdict. See WIS. STAT. §805.16(3). Nonetheless, the court entered an order addressing the parties' motions. The court awarded Hughes an additional $264,870.29 in attorney fees and costs, bringing the total compensatory damages award to $364,870.29. The court also reduced the punitive damages award to $729,740.58. See WIS. STAT. § 895.043(6).

¶12 Hughes filed a proposed order for judgment and a bill of costs pursuant to the circuit court's order. National General objected, arguing that the court lacked competency to award additional compensatory damages because the deadline to rule on the motions after the verdict had lapsed. See WIS. STAT. § 805.16(3). Later, the court entered its "Final Decision & Orders," ruling that it lacked competency to reduce the jury's punitive damages award. The court stated that an appellate court would need to exercise its discretionary reversal authority to change the amount pursuant to WIS. STAT. § 895.043(6). The court determined, however, that it had retained competency to rule on Hughes's postverdict motion for attorney fees and costs.

¶13 The circuit court entered a final judgment awarding Hughes $364,870.29 in compensatory damages and $1,000,000 in punitive damages. National General now appeals.

DISCUSSION

I. Choice of law

¶14 National General first contends that the circuit court erred by applying Wisconsin law, as opposed to Michigan law, to Hughes's bad faith claim. Michigan's No-Fault Act provides for a statutory penalty of twelve percent interest per year for the bad faith denial of benefits due under an insurance policy. See MICH. COMP. LAWS § 500.2006(4). Michigan law does not, however, recognize a common law tort for bad faith breach of an insurance contract. See Kewin v. Massachusetts Mut. Life Ins. Co., 295 N.W.2d 50, 56 (Mich. 1980).

¶15 In contrast, Wisconsin recognizes bad faith as a tort claim. SeeRoehl Transp., Inc. v. Liberty Mut. Ins. Co., 2010 WI 49, ¶57, 325 Wis.2d 56, 784 N.W.2d 542. "The tort cause of action for bad faith arises out of a contractual arrangement but is not a contract action." Id., ¶40; see also Anderson v. Continental Ins. Co., 85 Wis.2d 675, 687, 271 N.W.2d 368 (1978) ("[B]ad faith is not a tortious breach of contract. It is a separate intentional wrong, which results from a breach of duty imposed as a consequence of the relationship established by contract.").

¶16 Whether Wisconsin or Michigan law governs the underlying bad faith claim presents a question of law, which we review de novo. See Render v. Auto-Owners Ins. Co., 2010 WI.App. 121, ¶14, 329 Wis.2d 378, 793 N.W.2d 88. "The choice[-]of[-]law rules of the forum state, Wisconsin, control this question." Id. (alterations in original; citation omitted).

¶17 "In contractual disputes, Wisconsin courts apply the 'grouping[-]of[-]contacts' rule, that is, that contract rights must be 'determined by the law of the [jurisdiction] with which the contract has its most significant relationship.'" Gillette, 251 Wis.2d 561, ¶26 (third alteration in original; footnote omitted; citation omitted). To determine the jurisdiction with which a contract has its most significant relationship, courts consider: "(a) the place of contracting[;] (b) the place of negotiation of the contract[;] (c) the place of performance[] (d) the location of the subject matter of the contract[;] and (e) the domicile, residence, nationality, place of incorporation and place of business of the parties." NCR Corp. v. Transport Ins. Co., 2012 WI.App. 108, ¶13, 344 Wis.2d 494, 823 N.W.2d532.

¶18 The tort choice-of-law analysis dictates that under the "primary choice of law rule," "the law of the forum should presumptively apply unless it becomes clear that non[-]forum contacts are of...