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TRANSCRIPT
Spring 2013 • Volume 11 • Number 1
Wisconsin Civil Trial Journal
In This IssuePresident’s Message: Performance Evaluation of Outside Counsel and Litigation Management Metrics Rollin E. Krafft
Legislative Update—Legislation Introduced Will Allow Juries to See Evidence of Collateral Source Payments When Determining Medical Expenses in Personal Injury Cases Andrew Cook
Enhanced Injury Claims: The Basics Quentin F. Shafer
Security for Costs: The Best Security Is a Reserve of Knowledge, Experience, and Ability Vincent J. Scipior & Amy F. Scholl
Coming Full Circle?—The Elimination of the Subcontractor Exception Mark D. Malloy
The Duty to Supplement Discovery Danielle N. Rousset &
Christopher John Koppes
ww
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Officers
Presidentrollin Krafft
West Bend Mutual Insurance Companies [email protected]
President electArthur simpson
Simpson & Deardorff, [email protected]
secretAry/treAsurerKara Burgos
Moen Sheehan Meyer, [email protected]
PAst PresidentMike Gill
Hale, Skemp, Hanson, Skemp & [email protected]
PrOGrAM chAir Jeffrey leavell
Jeffrey Leavell, [email protected]
directOrs
Mark BudzinskiCorneille Law Group, [email protected]
spencer davczyk Davczyk & Varline, LLC [email protected]
tom devineHostak, Henzl & Bichler, [email protected]
Amy Goyette West Bend Mutual Insurance Companies [email protected]
Michael happe Ryberg & [email protected]
laura lyonsBell, Moore & Richter, [email protected]
Mary richardsAmerican Family Mutual Insurance [email protected]
todd smithGodfrey & Kahn, [email protected]
fred strampe Borgelt, Powell, Peterson & Frauen, S.C. [email protected]
Brian WeberJohns, Flaherty & [email protected]
Committee Chairs
Amicus curiae chair Beth Hanan
Gass Weber Mullins, LLC [email protected]
dri representative Matthew Yde
Strasser & Yde, SC [email protected]
General tort & negligence chair Catherine Rottier
Boardman & Clark LLP [email protected]
insurance coverage chair Terry Booth
Piper & Schmidt [email protected]
legislative chair Bernard McCartan
American Family Mutual Insurance Co. [email protected]
Worker’s compensation & employment law
Kurt Anderson Anderson Kramer, S.C.
executive director Jane Svinicki, CAE [email protected]
Account executive Jenni Rodriguez
Account coordinator Beth Riefe
legislative Advisors Andy Cook
Hamilton Consulting [email protected]
Jim Hough Hamilton Consulting
Columnists
editor
Andrew hebl Boardman & Clark LLP
Andrew cook Hamilton Consulting Group, LLC
rollin e. Krafft Wisconsin Defense Counsel President
christopher John Koppes Jeffrey Leavell, S.C.
Mark d. Malloy Meissner Tierney Fisher & Nichols, S.C.
danielle n. rousset Jeffrey Leavell, S.C.
Amy f. scholl Coyne, Schultz, Becker & Bauer, S.C.
Vincent J. scipior Coyne, Schultz, Becker & Bauer, S.C.
Quentin f. shafer Peterson, Johnson & Murray, S.C.
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in this issue…
Journal PolicyWDC Members and other readers are encouraged to submit articles for possible publication in the Civil Trial Journal, particularly articles of use to defense trial attorneys. No compensation is made for articles published and all articles may be subjected to editing.
Statements or expression of opinions in this publication are those of the authors and not necessarily those of the WDC or Editor. Letters to the Editor are encouraged and should be sent to the WDC office at 6737 W. Washington St., Suite 1300, Milwaukee, WI 53214. The Editor reserves the right to publish and edit all such letters received and to reply to them.
President’s Message: Performance evaluation of Outside counsel and litigation Management Metrics by: Rollin E. Krafft, President, Wisconsin Defense Counsel ..............................................4
legislative update—legislation introduced Will Allow Juries to see evidence of collateral source Payments When determining Medical expenses in Personal injury cases by: Andrew Cook, Hamilton Consulting Group, LLC ........................................................6
the duty to supplement discovery by: Danielle N. Rousset & Christopher John Koppes, Jeffrey Leavell S.C. .....................13
enhanced injury claims: the Basics by: Quentin F. Shafer, Peterson, Johnson & Murray, S.C. ................................................ 24
security for costs: the Best security is a reserve of Knowledge, experience, and Ability by: Vincent J. Scipior & Amy F. Scholl, Coyne, Schultz, Becker & Bauer, S.C. ...............30
coming full circle?—the elimination of the subcontractor exception by: Mark D. Malloy, Meissner Tierney Fisher & Nichols, S.C. ........................................36
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President’s Message: Performance evaluation of Outside counsel and litigation Management Metricsby: Rollin E. Krafft, President, Wisconsin Defense Counsel
I have been hiring outside counsel and managing litigation for over a quarter of a century. During that time not one of my outside counsel has ever
asked me how his or her performance would be evaluated. I hire outside counsel whom I perceive to be knowledgeable and skillful trial lawyers. They consistently deliver expected or better than expected results at a reasonable cost. More recently, my company has required litigation managers to rate outside counsel based upon the following survey:
1. Reports were substantive and provided in a timely manner.
Strongly Disagree Indifferent Strongly Agree
1 2 3 4 5 ○ ○ ○ ○ ○
2. My questions/phone calls received a prompt response.
1 2 3 4 5 ○ ○ ○ ○ ○
3. The attorney’s recommendation on case settlement value was reasonable.
1 2 3 4 5 ○ ○ ○ ○ ○
4. Theattorneyaggressivelymovedthefiletowardresolution.
1 2 3 4 5 ○ ○ ○ ○ ○
5. Theexpensesincurredonthefilewerereasonable.
1 2 3 4 5 ○ ○ ○ ○ ○
6. Iamsatisfiedwiththefileoutcome.
1 2 3 4 5 ○ ○ ○ ○ ○
Evaluation of outside counsel according to inherently subjective criteria tends to be discounted by the accountants who have risen to prominence at many insurance companies. They currently demand objective, numerical, and quantifiable “metrics.” Accordingly, insurers have tended to focus on defense cost as a line item deserving of much scrutiny and cost control. Indemnity payments are much more difficult to scrutinize, since evaluation of a given settlement is inherently subjective. Indemnity payments are viewed as unavoidable and uncontrollable. Although different insurance companies employ different metrics, many insurance companies employ the following metrics to evaluate their litigation managers and outside counsel:
1) Cycle time;2) Average defense cost per closed file;3) Percentage reduction of invoiced defense
cost; and4) Defense cost to indemnity ratio.
1) Cycle time. Cycle time is the time in months that a lawsuit is pending. Insurance companies recognize that the longer a lawsuit is pending the more defense cost is incurred. Cycle time is a tricky metric. Outside counsel who regularly recommend early payment of the demand would have fabulous cycle time performance but would likely not be very useful as defense counsel.
2) Average defense cost per closed file. This metric measures the average cost of closed
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litigated files. This metric would appear to be useful to compare the average defense cost incurred by one firm or another on files which are relatively fungible. The metric becomes less useful as applied to matters which are not fungible. One could expect very different numbers for auto soft-tissue cases than fax-blasting class actions.
3) Percentage reduction of defense invoices. This metric assumes that all defense invoices have a percentage of “fluff” built into them which should be identified and reduced by the litigation manager. Many years ago a consultant suggested to me that 10% was a reasonable goal for a percentage reduction of defense invoices. I responded that such 10% reduction was only appropriate if I believed that every defense firm was cheating me by 10%, and I didn’t believe that to be the case.
4) Defense cost/indemnity ratio. This metric measures the ratio of defense cost to indemnity payments. I recently heard about a case from a very capable Indiana defense lawyer which illustrates the defense to indemnity ratio. He was hired to defend a rear-ender with a significant causation issue surrounding a multi-level fusion. The pre-suit demand was $200,000.00. He mounted an aggressive causation defense, deposing the treating physicians and retaining a defense medical expert on causation. In fact, he
spent $35,000.00 prior to mediation to develop the causation defense. At mediation, the demand ultimately plummeted to $35,000.00. Alas, the litigation manager told the defense lawyer he could not settle at such a low level, as his defense to indemnity ratio would be roughly one to one, an unacceptable ratio.
In conclusion, outside counsel should be aware of how insurers evaluate their performance. A significant part of that equation is understanding how insurance companies evaluate the performance of their own litigation managers. Although litigation management metrics are becoming increasingly important in these evaluations, the defense lawyer who consistently delivers expected or better than expected results at a reasonable cost is likely to be hired over and over again.
Rollin E. Krafft is a Senior Attorney with West Bend Mutual Insurance Company, where he manages complex litigation. He was in a civil defense practice in Racine from 1981 until 1985 and has been practicing with West Bend since 1986. In addition to serving as President of the WDC, Rollin is currently a member of the DRI and Washington County Bar Association. Rollin received a BA from Valparaiso University in 1978 and JD from Valparaiso University Law School in 1981.
Visit www.wdc-online.org for the latest information on the Wisconsin Defense Counsel including: meeting announcements,
journal archives, conference speaker outlines, and more!
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legislative update—legislation introduced Will Allow Juries to see evidence of collateral source Payments When determining Medical expenses in Personal injury casesby: Andrew Cook, Hamilton Consulting Group, LLC
The 2011-12 legislative session was a watershed when it came to the number of substantive civil liability reforms enacted
into law. One bill that did not advance last session, however, was legislation sought by WDC dealing with the collateral source rule. The purpose of the legislation was to allow the finder of fact in personal injury cases to see both the amounts billed and the amounts paid when determining the “reasonable value of medical services” provided to the plaintiff. After negotiating with the Wisconsin Hospital Association and the Wisconsin Medical Society on language that all parties could agree upon, Rep. André Jacque (R-DePere) and Sen. Paul Farrow (R-Pewaukee) have now introduced legislation that will remove the collateral source rule for purposes of determining the reasonable value of medical services in all personal injury cases.
Assembly Bill 29/Senate Bill 22—Allowing the Finder of Fact to See Evidence of Collateral Source Payments
Assembly Bill 291/Senate Bill 222 adds a new section in Chapter 901 and contains the following language:
901.057 Collateral source payments and rights of subrogation. In actions for damages caused by personal injury or wrongful death that are not subject to s. 893.55 (7) or 893.555 (8), or seeking payment based on uninsured or underinsured motorists coverage, evidence of any compensation
for bodily injury received from a source other than the defendant to compensate the claimant for the injury or to pay for medical expenses incurred by the claimant is admissible for the purpose of determining the reasonable value of the claim, including the reasonable value of the injured person’s medical expenses. Evidence of the claimant’s obligations of subrogation or reimbursement resulting from payments made by a source other than the defendant to compensate the claimant for injury is admissible. Evidence of amounts paid or incurred by the claimant in recovering a payment from a source other than the defendant is not admissible. Admission of evidence under this section does not limit the substantive or procedural rights of persons who have claims based upon subrogation or lien.
In addition to adding a new section to Chapter 901, AB 29/SB 22 amends Wis. Stat. § 908.03(6m)(bm) by striking out the word “not” in the second sentence:
908.03 (6m) (bm) Presumption. Billing statements or invoices that are patient health care records are presumed to state the reasonable value of the health care services provided and the health care
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services provided are presumed to be reasonable and necessary to the care of the patient. Any party attempting to rebut the presumption of the reasonable value of the health care services provided may not present evidence of payments made or benefits conferred by collateral sources.
WDC originally sought to remove the presumption under s. 908.03(6m)(bm) altogether, but ultimately had to settle with the compromise language. Although the bill does not go as far as WDC would have preferred, it will still go a long way in allowing the defense to offer evidence of the amounts paid by collateral sources to determine the “reasonable value of medical services.” This is much better than current law, which prohibits the finder of fact from seeing any evidence of the amount actually paid by collateral sources.
AB 29/SB 22 Seeks to Overturn Numerous Wisconsin Supreme Court Decisions Applying the Collateral Source Rule.
A. Ellsworth v. Schelbrock (2000)
The first of the cases allowing plaintiffs in Wisconsin to recover the full amount of medical expenses billed, including amounts written off (“phantom damages”) is Ellsworth v. Schelbrock.3 In Ellsworth, the plaintiff was injured in an automobile accident and was hospitalized for months. She sued the negligent driver and the driver’s insurer. At trial, the plaintiff introduced evidence of the amount billed by her medical providers, which totaled $597,448.27. The defendant objected to the amount, arguing that only the amount actually paid ($354,941) by Medical Assistance to the medical providers should have been introduced as evidence. The trial court ruled that the amount billed ($597,448.27)—the sticker price—rather than the amount actually paid ($354,941) was the proper measure of the amount of past medical expenses.
The case was appealed to the Wisconsin Supreme Court, which upheld the lower court (4-3). Finding
that the collateral source rule applies to medical assistance benefits, the defendant was not allowed to introduce evidence of the amount actually paid. Instead, the plaintiff could introduce the amount that was billed by the medical providers. The court reasoned that Wisconsin’s tort law “applies the collateral source rule as part of a policy seeking to ‘deter negligent conduct by placing the full cost of the wrongful conduct on the tortfeasor.’”4
Former Justice Diane Sykes—who now sits on the United States Court of Appeals for the Seventh Circuit—dissented. Justice Sykes cited to a California Supreme Court decision that reached the opposite conclusion:
In tort actions damages are normally awarded for the purpose of compensating the plaintiff for injury suffered, i.e., restoring him as nearly as possible to his former position, or giving him some pecuniary equivalent.... The primary object of an award of damages in a civil action, and the fundamental principle of which it is based, are just compensation or indemnity for the loss or injury sustained by the complainant, and no more....
Applying the above principles, it follows that an award of damages for past medical expenses in excess of what the medical care and services actually cost constitutes overcompensation.
Thus, when the evidence shows a sum certain to have been paid or incurred for past medical care and services, whether by the plaintiff or by an independent source, that sum certain is the most the plaintiff may recover for that care despite the fact it may have been less than the prevailing market rate.5
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B. Koffman v. Leichtfuss (2001)—contractual Write-offs Part i
Just a year later, the Wisconsin Supreme Court decided Koffman v. Leichtfuss,6 which held (5-2) that the collateral source rule applies to cases involving payments made by health insurers. Similar to Ellsworth, the plaintiff in Koffman was injured in an automobile accident and required medical treatment.
The total amount billed by the plaintiff’s health providers was $187,931.78. However, due to contractual relationships with the plaintiff’s health care providers, the insurance company received reduced rates and only paid $62,324 of the amount billed. Another $3,738.58 was paid by an insurance company and by the plaintiff personally, bringing the total amount of past medical expenses actually paid to $66,062.58.
During trial, the defendants moved to limit the evidence regarding medical expenses to the amounts actually paid ($66,062.58), rather than the amounts billed ($187,931.78). The trial court granted the defendant’s motion, and therefore ruled that the plaintiff was only entitled to the amount of medical expenses incurred ($66,062.58) rather than the full sticker price ($187,931.78).
The case was appealed to the Wisconsin Supreme Court, which reversed the trial court. Once again, the court held that the collateral source rule applied, even to “payments that have been reduced by contractual arrangements between insurers and health care providers.”7 The court reasoned that this “assures that the liability of similarly situated defendants is not dependent on the relative fortuity of the manner in which each plaintiff’s medical expenses are financed.”8 Justice Sykes again dissented, arguing that the “proper measure of medical damages is the amount reasonably and necessarily incurred for the care and treatment of the plaintiff’s injuries, not an artificial, higher amount based upon what the plaintiff might have incurred if he or she had a different sort of health plan or no health plan at all.”9
c. Leitinger v. DBart (2007)—contractual Write-offs Part ii
In 2007, the Wisconsin Supreme Court decided Leitinger v. DBart,10 in which the plaintiff suffered injuries while working on a construction site. At trial, the parties argued over the reasonable value of the plaintiff’s medical services. The trial court allowed both parties to proffer evidence of the amount billed by the medical provider ($154,818.51) and the amount paid ($111,394.73) by the plaintiff’s health insurance company to prove the reasonable value of medical services. The trial court awarded plaintiff the amount his health insurance company actually paid for the medical treatment, not the sticker price.
On appeal, the Wisconsin Supreme Court held (5-2) that the “collateral source rule prohibits parties in a personal injury action from introducing evidence of the amount actually paid by the injured person’s health insurance company, a collateral source, for medical treatment rendered to prove the reasonable value of the medical treatment.”11 Justice Patience Roggensack, along with Justice David Prosser, Jr., dissented, arguing that the majority had “create[d] a new category of damages ... by unnecessarily expanding the evidentiary component of the collateral source rule to prohibit the jury from hearing what was actually paid to cover all of [plaintiff’s] medical care bills while admitting evidence of what was billed, even though no one will ever pay that amount.”12
d. Orlowski v. State Farm Mutual Insurance Company (2012)—underinsured Motorist claims
The most recent decision on this issue is Orlowski v. State Farm Mutual Insurance Company,13 decided by the Wisconsin Supreme Court in 2012. The plaintiff (Linda Orlowski) was injured in an automobile accident caused by an underinsured driver. Orlowski recovered damages up to the limits of the underinsured driver’s insurance. Orlowski also had health insurance coverage which paid a portion of her medical expenses. In addition, Orlowski had an automobile insurance policy with
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State Farm Insurance, including underinsured motorist (UIM) coverage.
Orlowski submitted a claim to State Farm to recover under her UIM coverage. An arbitration panel awarded Orlowski $11,498.55 for the medical services provided to her as a result of the accident. This amount ($11,498.55) was the amount actually paid to the health care provider, rather than the full amount billed by the medical provider ($72,985.94).
The arbitration panel did not include in its award the amount of Orlowski’s medical expenses that had been written off by her medical provider as result of discounts through her health insurance coverage. The amount written off by the medical provider was $61,487.39. No one paid this amount. In his claim, the plaintiff was seeking the billed amount for the medical expenses, which included this written-off amount.
Orlowski appealed the arbitration panel’s decision to the circuit court, which modified the award. The judge awarded the plaintiff the full amount billed by the medical provider ($72,985.94), instead of the amount actually paid ($11,498.55). As a result, the plaintiff was awarded $61,487.39 in phantom damages.
Before the Wisconsin Supreme Court, the specific issue was whether the collateral source rule allowed the recovery of written-off medical expenses in a claim under an insured’s underinsured motorist coverage. The court reaffirmed its prior decisions that “an injured party is entitled to recover the reasonable value of medical services, which, under the operation of the collateral source rule, includes written-off medical expenses.”14 The court offered three public policy reasons for this holding: 1) to deter a tortfeasor’s negligence; 2) to fully compensate a plaintiff; and 3) to allow the insured to receive the benefit of the premiums for coverage that he or she purchased.15 Unlike the prior cases involving the same issue, none of the justices dissented.
AB 29/sB 22 does not Go As far As Many Other state laws or court decisions.
Assembly Bill 29/Senate Bill 22 does not go as far as numerous other state court decisions or statutes. For example, the California Supreme Court held in Howell v. Hamilton Meats and Provisions, Inc.,16 that the plaintiff was only entitled to the amount actually paid to the medical provider. According to the court, “an injured plaintiff whose medical expenses are paid through private insurance may recover as economic damages no more than the amounts paid by the plaintiff or his or her insurer for the medical services received or still owing at the time of the trial.”17 The court further explained that the “negotiated rate differential—the discount medical providers offer the insurer—is not a benefit provided to the plaintiff in compensation for his or her injuries and therefore does not come within the rule.”18 The Wisconsin bill instead is more analogous to a decision by the Ohio Supreme Court, which determined that the “jury may decide that the reasonable value of medical care is the amount originally billed, the amount the medical provider accepted as payment, or some amount in between.”19
conclusion
Wisconsin hopefully will soon join the many other states that have decided, either through the judicial system or the legislature, to prevent overcompensating plaintiffs in personal injury cases by allowing the jury to see all the evidence when determining the “reasonable value” of the plaintiff’s medical expenses.
Andrew C. Cook is a lobbyist and attorney with the Hamilton Consulting Group, LLC in Madi-son, which has represented the Wisconsin Defense Counsel (and the Civil Trial Counsel of Wisconsin as it was previously known) for over 20 years.
Andy joined the Hamilton Consulting Group after serving as In-house Legal Counsel for the Build-ing Industry Association of Washington, where he gained valuable experience in environmental, en-
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ergy, land use and open government policy matters. He also served as a staff attorney for the Pacific Legal Foundation in Seattle, WA, where he was in-strumental is litigating and successfully arguing an important land use case before the Washington Su-preme Court.
Andy’s political experience includes working for State Representative Rob Kreibich in the Wisconsin legislature where he was responsible for drafting legislative proposals and conducting policy analy-ses of bills. Furthering his writing and analytical skills, Andy has written and published several ar-ticles for The Federalist Society for Law & Public Policy Studies, including co-authoring an extensive review of the proper role of courts in our constitu-tional system [The Washington Supreme Court: A Special Issue Report, Prof. David K. DeWolf, An-drew C. Cook, & Seth Cooper, Sept. 2006]. Andy also co-authored an article discussing attempts by plaintiff attorneys throughout the country to strike down enacted tort reform laws [State Court Chal-lenges to Legislatively Enacted Tort Reforms, An-drew C. Cook and Emily Kelchen, Aug. 2011].
Andy received his law degree from The John Mar-shall Law School in Chicago, cum laude, where he co-founded and served as president of the Habitat
for Humanity Chapter. He received his Bachelor of Science degree from University of Wisconsin-Eau Claire, cum laude, and is a member of the Wash-ington State Bar (Inactive) and the State Bar of Wisconsin, where he recently was elected to serve on the Environmental Law Section. Andy is also the President of the Madison Federalist Society, Law-yers Chapter.
References1 https://docs.legis.wisconsin.gov/2013/proposals/ab29.2 https://docs.legis.wisconsin.gov/2013/proposals/sb22.3 2000 WI 63, 235 Wis. 2d 678, 611 N.W.2d 764.4 Id., ¶ 7 (citing Am. Standard Ins. Co. v. Cleveland, 124
Wis. 2d 258, 264, 369 N.W.2d 168 (Ct. App. 1985)).5 Id., ¶ 29 (quoting Hanif v. Hous. Auth. of Yolo County, 246
Cal. Rptr. 192, 195-96 (1988)).6 2001 WI 111, 246 Wis. 2d 31, 630 N.W.2d 201.7 Id., ¶ 31.8 Id.9 Id., ¶ 69.10 2007 WI 84, 302 Wis. 2d 110, 736 N.W.2d 1.11 Id., ¶ 7.12 Id., ¶ 96.13 2012 WI 21, ¶ 4, 339 Wis. 2d 1, 810 N.W.2d 775.14 Id., ¶ 4.15 Id., ¶ 18.16 257 P.3d 1130 (Cal. 2011).17 Id. 18 Id.19 Robinson v. Bates, 857 N.E.2d 1195 (Ohio 2006).
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I. Introduction
You finally finished culling through piles
of documents and conducting numerous meetings with your client in order to respond to interrogatories. You
obtain your client’s signature, place the responses in the mail, and breathe a sigh of relief that the onerous task is complete. Or is it? It is easy to forget that both Wisconsin and federal law impose a duty to supplement discovery responses under certain situations and the failure to do so can result in serious sanctions. This article provides a tutorial for both Wisconsin and federal practitioners on when the duty to supplement arises, possible sanctions for disregarding the duty, and practical tips to ensure compliance with the duty to supplement discovery.
II. Wisconsin Law
A. Wis. Stat. § 804.01(5)’s Duty to Supplement
Wisconsin’s duty to supplement discovery responses is governed by Wis. Stat. § 804.01(5), which states:
A party who has responded to a request for discovery with a response that was complete when made is under no duty to supplement the response to include information thereafter acquired, except as follows:
(a) A party is under a duty seasonably to supplement the party’s response with respect to any question directly addressed to all of the following:
1. The identity and location of persons having knowledge of discoverable matters.
2. The identity of each person expected to be called as an expert witness at trial.
(b) A party is under a duty seasonably to amend a prior response if the party obtains information upon the basis of which 1. the party knows that the response was incorrect when made, or 2. the party knows that the response though correct when made is no longer true and the circumstances are such that a failure to amend the response is in substance a knowing concealment.
(c) A duty to supplement responses may be imposed by order of the court, agreement of the parties, or at any time prior to trial through new requests for supplementation of prior responses.
1. When is the Duty Triggered?
As Wis. Stat. § 804.01(5) directs, there is no duty to supplement discovery responses with after-acquired information unless one of the specific
the duty to supplement discoveryby: Danielle N. Rousset & Christopher John Koppes,
Jeffrey Leavell S.C.
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situations addressed in the statute applies. Thus, a party’s duty to supplement arises when that party has information of additional persons having knowledge of discoverable matters or the identity of expert witnesses that will testify at trial.1 The duty to supplement the identity of expert witnesses exists even if the expert is acquired after the discovery response is served.2 The burden on parties to supplement the identity of lay and expert witnesses is minimal and the statute serves the purpose of eliminating the “need for repetitious demands.”3 It is good practice to ensure that any expert you intend to call at trial has been formally disclosed to the opposing parties.
A party’s duty to supplement also arises when the party learns its response was not correct to begin with or if the original response, although correct when made, is no longer true and failure to amend would constitute a knowing concealment.4 Notably, Wis. Stat. § 804.01(5) does not require supplementation of discovery responses when new information is subsequently acquired and does not conflict with prior discovery responses.5 Finally, the duty to supplement discovery responses may arise by agreement of the parties or through new requests for supplementation of prior responses.6
The duty to supplement discovery responses generally applies only to parties; however, if a non-party provides additional information to a party’s attorney, the attorney must determine whether the duty to supplement has been triggered.7 Although an expert witness is not a party, the duty to supplement under Wis. Stat. § 804.01(5)(b) nonetheless applies to expert witnesses because they are under a party’s control.8
If the duty to supplement arises, it is not fulfilled or satisfied when the information is revealed through other discovery methods. For example, the court of appeals in Michael A.P. v. Solsrud held that information later revealed through deposition testimony does not obviate the duty to supplement prior requests to admit.9 It is best practice to ensure your supplementations are formally and properly made.
2. “Seasonably” Supplement
The statute states a party is under a duty to “seasonably” amend its responses. The statute does not define “seasonably,” nor is there Wisconsin case law interpreting the term. “‘Seasonably’ can be interpreted as meaning within a reasonable time of discovering the names of additional experts or witnesses or the information needed to correct an earlier answer. This does not allow waiting until the significance of the new facts is realized.”10
B. Consequences of Failure to Supplement
Failure to supplement discovery can subject a party to sanctions. Pursuant to Wis. Stat. § 804.12(4), a violation of Wisconsin’s duty to supplement statute gives the trial court discretion to impose the sanctions11 listed in Wis. Stat. § 801.12(2)(a)1, 2 and 3. Wis. Stat. § 804.12 is “arguably the most important rule in the discovery chapter for it ‘supplies the sanctions necessary to deter parties from either unjustifiably evading full disclosure or simply refusing to respond to discovery at all.’”12
Wis. Stat. § 804.12(4) states, in part:
If a party…fails…seasonably to supplement or amend a response when obligated to do so under s. 804.01(5), the court in which the action is pending on motion may make such orders in regard to the failure as are just, and among others, it may take any action authorized under sub. (2)(a)1., 2. and 3. In lieu of any order or in addition thereto, the court shall require the party failing to act or the attorney advising the party or both to pay the reasonable expenses, including attorney fees, caused by the failure, unless the court finds that the failure was substantially justified or that other circumstances make an award of expenses unjust. The failure to act described in this subsection may not be excused on the ground that the discovery sought is objectionable unless the party failing to act has applied for a protective order as provided by s. 804.01(3).
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Wis. Stat. § 804.12(2)(a) states, in part:
The court in which the action is pending may make such orders in regard to the failure as are just, and among others the following:
1. An order that the matters regarding which the order was made or any other designated facts shall be taken to be established for the purpose of the action in accordance with the claim of the party obtaining the order;
2. An order refusing to allow the disobedient party to support or oppose designated claims or defenses, or prohibiting the disobedient party from introducing designated matters in evidence; or
3. An order striking out pleadings or parts thereof, or staying further proceedings until the order is obeyed, or dismissing the action or proceeding or any part thereof, or rendering a judgment by default against the disobedient party;
Read together, Wis. Stat. § 804.12(4) and Wis. Stat. § 804.12(2)(a)2 provide that if a party, or a certain person testifying on behalf of a party, fails to supplement a response which they were required to supplement, the court may impose sanctions. The purpose of these discovery sanctions is to ensure that “any party who seeks to evade or thwart full and candid discovery incurs the risk of serious consequences.”13
Wisconsin Stat. § 804.12 “does not require a violation of a discovery order to justify sanctions, [the] [f]ailure to comply with the statutory directive is sufficient.”14 Sanctions can be in the form of prohibiting the introduction of certain evidence, limiting witness’s testimony, preventing designated claims or defenses, striking pleadings,
holding certain facts established, dismissing the action or any part thereof, and the payment of reasonable expenses, including attorney’s fees, caused by the failure to supplement.15 The list of available sanctions in Wis. Stat. § 804.12(2)(a) is “illustrative, not exhaustive, and the circuit courts have broad power to fashion equitable remedies appropriate to the individual circumstances of each case.”16 Thus, a court may impose non-compensatory and monetary sanctions for the same offense.17 Courts also look at “the existence or absence of prejudice [as] a relevant consideration in deciding whether a sanction is ‘just’ as required by Wis. Stat. § 804.12(2)(a).”18 To protect yourself from the penalty of failing to supplement, disclose discoverable information as soon as you learn of the new information.
1. Prohibiting the Introduction of Evidence not Produced for Discovery
The failure to comply with the duty to supplement will not automatically result in exclusion of the new information. In Jenzake v. City of Brookfield, the defendant served interrogatories upon plaintiff requesting the identities of expert witnesses. The plaintiff responded “none to date” and never supplemented her responses, but nonetheless showed up at trial with an expert. The defendant moved for an order in limine precluding the testimony of plaintiff’s witness.19
The Jenzake court noted that even though prohibiting the introduction of expert evidence is one of the lesser sanctions allowed by Wis. Stat. § 804.012(2)(a)1. to 3., it is still a drastic remedy.20 Precluding expert testimony is only appropriate if the moving party can show how the concealment resulted in hardship or unfairly affected the party’s ability to try the case. The moving party must also request a continuance for more time to prepare, in light of the surprise, or show how a continuance is not an appropriate remedy.21 In Jenzake, the court denied the motion to exclude because the defendant failed to make a showing of hardship and did not request a continuance.22
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2. Dismissal
Dismissal is a severe sanction and is only appropriate for conduct that is egregious or in bad faith and without a clear and justifiable excuse.23 The court in Selmer Co. v. Timothy Rinn & Ganther Constr., Inc., held “[e]gregious misconduct is conduct that, though unintentional, is extreme, substantial, and persistent.”24 However, egregiousness is not synonymous with bad faith. A party can be guilty of egregiousness without acting in bad faith.25 On the other hand, a finding of bad faith automatically results in a finding that the conduct was intentional because bad faith, by its nature, cannot be unintentional.26 When a party’s conduct in failing to supplement is not intentional, even if it is egregious, the court must explore alternative and less severe remedies.27 However, if the disobedient party’s failure to supplement is intentional, dismissal is appropriate without exploring other alternatives.28
III. Federal Law
Like Wisconsin, the Federal Rules contain a duty to supplement or correct previous discovery responses. This duty is contained in Fed. R. Civ. P. 26(e). The intent of this requirement is to “increase[] the quality and fairness of the trial by narrowing the issues and eliminating surprise.”29
A. Rule 26(e)’s Duty to Supplement
Rule 26(e) creates a duty on all parties to supplement or correct a previous discovery disclosure after learning the disclosure was incorrect or incomplete.30 Fed. R. Civ. P. 26(e) provides:
(e) Supplementing Disclosures and Responses.
(1) In General. A party who has made a disclosure under Rule 26(a)—or who has responded to an interrogatory, request for production, or request for admission—must supplement or correct its disclosure or response:
(A) In a timely manner if the party learns that in some material respect the disclosure or response is incomplete or incorrect, and if the additional or corrective information has not otherwise been made known to the other parties during the discovery process or in writing; or
(B) as ordered by the court.
(2) Expert Witness. For an expert whose report must be disclosed under Rule 26(a)(2)(B), the party’s duty to supplement extends both to information included in the report and to information given during the expert’s deposition. Any additions or changes to this information must be disclosed by the time the party’s pretrial disclosures under Rule 26(a)(3) are due.
The duty to supplement or correct is broad, encompassing prior written responses to interrogatories, requests for production, requests for admission, and all other pretrial disclosures ordered by the court.31 In federal court, discovery does not need to be supplemented or corrected if the new information is provided at deposition.32
Gutierrez v. AT&T Broadband, LLC,33 provides an illustrative example of deposition testimony serving to correct otherwise deficient discovery. In Gutierrez, the Seventh Circuit was asked to review a district court decision refusing to strike certain affidavits the defendants offered in support of their successful summary judgment motion.34 One of the affidavits was from a witness not in any of the defendants’ discovery responses or offered in response to the plaintiff’s Rule 30(b)(6) deposition notice.35 However, this witness’s name and details
17
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of her job responsibilities had been discussed in detail at an earlier deposition.36
Finding the plaintiffs had notice of this witness prior to the close of discovery, the court allowed the affidavit to stand.37 The court held that while parties are obligated “to seasonably supplement their Rule 26(a) disclosures and interrogatory responses, such amendments are required only in certain circumstances, such as when the additional information ‘has not otherwise been made known to the other parties during the discovery process….’”38 The mention of a previously undisclosed person’s name, title, and responsibilities at deposition provided sufficient notice to other parties despite the failure to disclose the person’s name in discovery responses, permitting the person to offer evidence at trial.39
1. Expert Witnesses
Rule 26(e)(2) does not provide an unlimited opportunity for a party to extend expert designation and report deadlines. The Eastern District of Wisconsin addressed this very issue in Thermal Design, Inc. v. Guardian Building Products, Inc.40 In that case, the plaintiff disclosed a supplemental expert report on October 7, 2011.41 Plaintiff’s initial report was disclosed on May 27, 2011, and the rebuttal report was disclosed on August 15, 2011.42 The defendant moved to strike the supplemental report as untimely while the plaintiff claimed it was merely complying with its duty to supplement under Rule 26(e)(2).43 In discussing Rule 26(e)(2), the court stated:
The purpose of supplemental disclosures is just that—to supplement. Such disclosures are not intended to provide an extension of the expert designation and report production deadline. Supplemental expert opinions that threaten to belatedly send the case on a wholly different tack should be excluded.44
The court ultimately determined the supplemental report was merely a refinement of the expert’s prior
opinions on damages and the new opinions “relate to the same issues on which a battle of the experts has been ongoing since the outset of the litigation and on which both experts will have an opportunity to elaborate in their trial testimony.”45 As outlined in Thermal Design, experts pose their own set of challenges under Rule 26(e), and counselors should be particularly alert when meeting expert witness discovery obligations.
2. Timeliness
The Federal Rules require parties who have responded to earlier discovery to supplement or correct responses in a timely manner if the party learns that the response is incorrect or incomplete in some material respect.46 Like the duty to “seasonably” supplement under Wisconsin Law, the duty to “timely” supplement or correct previous discovery responses is not explicitly defined by statute or case law. Broadly, the closer a party waits until the start of a court proceeding to supplement or correct, the more likely it is that the supplementation or correction is not “timely.”
Courts have found supplementation untimely where a request was made in February 2010 and the responses were still not provided by May 2010.47 Courts have also found supplementation untimely when a March 1975 interrogatory response was not supplemented until four days before a June 1976 trial date.48 Without bright lines to provide guidance, the best practice is to supplement or correct as soon as you learn a previous response is incomplete or incorrect.
3. Duty After Close of Discovery
The duty to supplement or correct under Rule 26(e) does not automatically create an ongoing duty to supplement earlier discovery responses following the close of the discovery period.49 In Thompson v. Retirement Plan for Employees of S.C. Johnson & Sons, Inc., plaintiffs argued the defendants had an ongoing duty to supplement their earlier discovery responses by producing documents generated following the close of discovery nine months earlier.50 The Eastern District disagreed, finding
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the language of Rule 26(e) did not support such a “broad and continuous” duty to supplement or correct after the close of discovery, but rather the duty to supplement or correct following the close of discovery is only triggered under particular circumstances where the opposing party stands to be unfairly disadvantaged or surprised if discovery is not supplemented.51 While the duty to supplement is somewhat lifted at the close of discovery, it may be difficult to judge whether a court will find the opposing party was unfairly disadvantaged or surprised. When in doubt, the best practice is to supplement.
B. Consequences of Rule 26(e) Violation
The failure to comply with the requirements of Rule 26(e) is governed by Rule 37(c)(1), which states:
If a party fails to provide information or identify a witness as required by Rule 26(a) or (e), the party is not allowed to use that information or witness to supply evidence on a motion, at a hearing, or at a trial, unless the failure was substantially justified or is harmless. In addition to or instead of this sanction, the court, on motion and after giving an opportunity to be heard:
(A) may order payment of the reasonable expenses, including attorney’s fees, caused by the failure;
(B) may inform the jury of the party’s failure; and
(C) may impose other appropriate sanctions, including any of the orders listed in Rule 37(b)(2)(A)(i)–(vi).
Additional sanctions are provided in Rule 37(b)(2)(A)(i)–(vi):
(i) directing that the matters embraced in the order or other designated facts be taken as established for purposes of the action, as the prevailing party claims;
(ii) prohibiting the disobedient party from supporting or opposing designated claims or defenses, or from introducing designated matters in evidence;
(iii) striking pleadings in whole or in part;
(iv) staying further proceedings until the order is obeyed;
(v) dismissing the action or proceeding in whole or in part;
(vi) rendering a default judgment against the disobedient party.
For failing to make a required supplemental disclosure under Rule 26(e), the sanction of exclusion is automatic and mandatory unless justification or harmlessness is shown.52 The district court has broad discretion to determine whether a failure to disclose is harmless or substantially justified, and will consider such factors as: “(1) the prejudice or surprise to the party against whom the evidence is offered; (2) the ability of the party to cure the prejudice; (3) the likelihood of disruption to the trial; and (4) the bad faith or willfulness involved in not disclosing the evidence at an earlier date.”53
David. v. Caterpillar, Inc.,54 provides a useful general discussion of the factors Seventh Circuit courts will weigh to determine whether a failure to supplement or correct discovery is harmless or substantially justified. In David, the Seventh Circuit was asked to review a district court decision allowing a witness to testify at trial despite plaintiff’s
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failure to supplement her Rule 26(a)(1) disclosures to identify a witness as having knowledge related to her claims.55 The Seventh Circuit examined the record and found the witness had been listed as a potential witness nearly a year and a half before trial, defendant had interviewed the witness and learned the subject of his testimony prior to trial, did not seek a continuance, and was able to rebut directly the witness’s testimony at trial.56 On these facts, the Seventh Circuit upheld the district court’s determination that the defendant had not been prejudiced by the witness’s testimony at trial.57 In sum, to protect yourself from the consequences of failing to supplement, you should periodically review discovery requests and supplement quickly as new information is received.
IV. Conclusion
Satisfying your duty to supplement in Wisconsin or the federal system can be challenging, but the alternative carries a far higher cost. The duty to supplement can quickly overwhelm when time is limited. Do not wait until the eve of trial to start looking over what discovery must be provided to your opponent. It is best practice to periodically review discovery requests served on you throughout the discovery process with these rules in mind to ensure compliance. Another reason to ensure compliance with the duty to supplement is to prevent impeachment at trial of your witnesses if the information they previously provided is no longer accurate. Remember, ambush by trial, although compelling and dramatic, is only popular on television and in the movies.
Danielle N. Rousset is an associate attorney with Jeffrey Leavell, S.C. She was admitted to the Bar in 2008, having graduated from Chicago-Kent Col-lege of Law cum laude. Ms. Rousset practices gen-eral civil litigation with a focus on insurance de-fense, both merits and coverage. She is admitted to the United States Federal District Courts for the Eastern and Western Districts of Wisconsin and the Seventh Circuit Court of Appeals and is a member of the American Bar Association, the Wisconsin Bar Association, the Wisconsin Young Lawyers Divi-sion, and the Wisconsin Defense Counsel.
Christopher John Koppes is an associate attorney with Jeffrey Leavell, S.C. He has been practic-ing with this firm since his admission to the Bar in 2011. Mr. Koppes received an Honors B.A. from Marquette University in 2008 and received his J.D. from Marquette University Law School in 2011. He practices in the area of general civil litigation, with a focus on personal injury and insurance defense.
References1 Wis. Stat. § 804.01(5)(a).2 Jenzake v. City of Brookfield, 108 Wis. 2d 537, 541, 322
N.W.2d 516 (Ct. App. 1982). 3 Id. (citing Graczyk, The New Wisconsin Rules of Civil Pro-
cedure Chapter 804, 59 Marq. L. Rev. 463, 476-77 (1976)). 4 Wis. Stat. § 804.01(5)(b).5 Robert B. Corris, et al., Wisconsin Discovery Law and
Practice, § 1.36 (4th ed. 2011). 6 Wis. Stat. § 804.01(5)(c).7 In re Estate of Glass, 85 Wis. 2d 126, 146, 270 N.W.2d
386 (1978). 8 State v. Pletz, 2000 WI App 221, ¶ 24, 239 Wis. 2d 49, 619
N.W.2d 97. 9 Michael A.P. v. Solsrud, 178 Wis. 2d 137, 153, 502 N.W.2d
918 (Ct. App. 1993).10 Robert B. Corris, et al., Wisconsin Discovery Law and
Practice, § 4.42 (4th ed. 2011). 11 In re Estate of Glass, 85 Wis. 2d at 146-47 (The imposition
of sanctions rests with the discretion of the court.).12 Jenzake, 108 Wis. 2d at 542 (quoting Graczyk, The New
Wisconsin Rules of Civil Procedure Chapter 804, 59 Marq. L. Rev. 463, 523 (1976)).
13 Wis. Stat. Ann. § 804.12(4), Judicial Council Committee’s Note, 1974.
14 In re Estate of Glass, 85 Wis. 2d at 146. 15 Wis. Stat. §§ 804.12(4), 804.12(2)(a). 16 Hur v. Holler, 206 Wis. 2d 335, 343, 557 N.W.2d 429 (Ct.
App. 1996).17 Id. at 343-44 (“The use of one remedy available under §
804.12 does not preclude the use of any other § 804.12 remedy.”).
18 Zarnstorff v. Neenah Creek Custom Trucking, 2010 WI App 147, ¶ 52, 330 Wis. 2d 174, 792 N.W.2d 594 (citing Rupert v. Home Mut. Ins. Co., 138 Wis. 2d 1, 15, 405 N.W.2d 661 (Ct. App. 1987)).
19 Jenzake, 108 Wis. 2d at 539.20 Id. at 542 (citing Fredrickson v. Louisville Ladder Co., 52
Wis. 2d 776, 784, 191 N.W.2d 193 (1971)). 21 Id. at 545.22 Id. at 544.23 Selmer Co. v. Timothy Rinn & Ganther Constr., Inc., 2010
WI App 106, ¶ 35, 328 Wis. 2d 263, 789 N.W.2d 621 (cit-ing Sentry Ins. v. Davis, 2001 WI App 203, ¶ 20, 247 Wis. 2d 501, 634 N.W.2d 553); see also Johnson v. Allis Chalm-ers Corp., 162 Wis. 2d 261, 273, 470 N.W.2d 859 (1991).
21
22
24 Selmer Co., 328 Wis. 2d 263, ¶ 36 (citing Teff v. Unity Health Plans Ins. Corp., 2003 WI App 115, ¶ 14, 265 Wis. 2d 703, 666 N.W.3d 38).
25 Sentry Ins. v. Davis, 2001 WI App 203, ¶ 21, 247 Wis. 2d 501, 634 N.W.2d 553.
26 Anderson v. Continental Ins. Co., 85 Wis. 2d 675, 691, 271 N.W.2d 368 (1978).
27 Hudson Diesel, Inc., v. Kenall, 194 Wis. 2d 531, 545, 535 N.W.2d 65 (Ct. App. 1995).
28 Id. at 542-43. 29 Colon-Millin v. Sears Roebuck, 455 F.3d 30, 37 (1st Cir.
2006).30 Fed. R. Civ. P. 26(e) (2012); see also generally 6-26
Moore’s Federal Practice, Civil, § 26.131. 31 Id. 32 6-26 Moore’s Federal Practice, Civil, § 26.131 (citing
Farmland Indus., Inc. v. Morrison-Quirk Grain Corp., 54 F.3d 478, 482 (8th Cir. 1995) (Although the fact that expert witness was expected to testify on causation was not iden-tified in Rule 26(e) disclosure, court permitted disclosure because scope of testimony had been addressed at expert witness’s deposition.)); see also Gutierrez v. AT&T Broad-band, LLC, 382 F.3d 725, 731 (7th Cir. 2004).
33 382 F.3d 725.34 Id. at 731.35 Id. at 732.36 Id. 37 Id.
38 Id. at 733 (citing Fed. R. Civ. P. 26(e)(1), (2)); see also Da-vid v. Caterpillar, Inc., 324 F.3d 851, 856 (7th Cir. 2003).
39 Gutierrez, 382 F.3d at 733. 40 2011 U.S. Dist. LEXIS 124435 (E.D. Wis. Oct. 25, 2011)
(unpublished decision).41 Id. at *2. 42 Id. 43 Id. 44 Id. at *3 (internal citations and quotations omitted). 45 Id. (quoting Mintel Int’l Group, Ltd. v. Neergheen, 636 F.
Supp. 2d 677, 685 (N.D. Ill. 2009)).46 Fed. R. Civ. P. 26(e)(1)(A); see also Ridings v. Riverside
Med. Ctr., 537 F.3d 755, 769 (7th Cir. 2008).47 Hicks v. Avery Drei, LLC, 654 F.3d 739, 741, 744-745 (7th
Cir. 2011). 48 Holiday Inns, Inc. v. Robertshaw Controls Co., 560 F.2d
856, 857-58 (7th Cir. 1977).49 See Thompson v. Retirement Plan for Employees of S.C.
Johnson & Sons, Inc., 2010 U.S. Dist. LEXIS 78865 (E.D. Wis. July 13, 2010) (unpublished decision).
50 Id. at **2-3.51 Id. at **3, 4-6.52 Salgado v. GMC, 150 F.3d 735, 742 (7th Cir. 1998).53 David, 324 F.3d at 857.54 324 F.3d 851.55 Id. at 856.56 Id. at 857-858.57 Id. at 858.
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enhanced injury claims: the Basicsby: Quentin F. Shafer, Peterson, Johnson & Murray, S.C.
I. Introduction
The doctrine of enhanced injury claims originated in Larsen v. General Motors, a decision from the Eighth Circuit Court of
Appeals in 1968,1 and has spread to the majority of jurisdictions, including Wisconsin.2 The Larsen decision was adopted by the Wisconsin Supreme Court in 1975,3 but despite the fact that the doctrine has been alive and well in Wisconsin for several decades, there are surprisingly few published Wisconsin cases addressing its application.
Enhanced injury claims are utilized when a plaintiff is involved in an accident and his or her injuries sustained in the accident are made worse than they otherwise would have been because of a defective product or the negligence of the enhanced injury defendant.4 An enhanced injury defendant is not alleged to have caused the underlying injury-producing event. Instead, an enhanced injury defendant’s liability stems from his or her negligence or arises from a defective product which caused the plaintiff to sustain enhanced injuries.5 An enhanced injury defendant is only liable for the damages relating to the enhanced injuries.6 In 1994, the Wisconsin Jury Instruction Committee created Wisconsin Jury Instruction Wis. JI-CIVIL 1723, which sets forth the framework of an enhanced injury verdict form.
As reflected by the body of case law on the subject, enhanced injury cases predominantly involve product liability claims, and in particular, vehicle “second collision” or “crashworthiness” events. A crashworthiness case involves the general complaint
that the vehicle was unsafe for a foreseeable collision, while a second collision case involves a collision between the plaintiff driver and some part of the vehicle that is alleged to be defective.7 The enhanced injury doctrine can also be applied in the medical malpractice context8 or in common law negligence cases.
II. Wisconsin Cases on Enhanced Injuries
The following are fact scenarios of Wisconsin cases involving enhanced injury claims:
In Sumnicht v. Toyota Motor Sales, U.S.A., the plaintiff was a passenger in a vehicle that left the roadway and collided with a tree rendering him a quadriplegic.9 The plaintiff had been lying in the back seat with his head behind the driver’s seat. He was not wearing a seatbelt. According to the plaintiff experts, when the vehicle impacted the tree, the plaintiff’s body was propelled forward. The plaintiff’s head became entrapped in a cut-out portion of the back of the driver’s seat while his lower torso impacted the rear of the front passenger seat, breaking it, and allowing his torso to wrap around the seat. The plaintiff brought suit against the driver, the driver’s father, and their insurers based on a negligence theory. He also sued three sellers and distributors of the vehicle under a strict product liability theory alleging the driver’s seat was defective because it did not have any energy-absorbing material beneath the vinyl seat cover. The lack of such energy-absorbing material, which would have served as a shock absorber, allowed the plaintiff’s head to be caught in the cut-out. The plaintiff reached a settlement with the driver under
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a Pierringer release, and proceeded to trial against the seat manufacturer. The jury apportioned liability between the driver and manufacturer at 50% each.
The decision in Maskrey v. Vokswagenwerk, A.G., is a more traditional example of an enhanced injury claim involving a two-vehicle collision.10 The plaintiff was struck head-on by the defendant driver, who admitted at trial that he was intoxicated at the time of the accident. The plaintiff was not wearing a seatbelt, and his vehicle had a rear engine so that when the defendant’s vehicle passed over the plaintiff’s front bumper, it crushed the sheet metal protecting the plaintiff’s legs. The plaintiff sustained a myriad of injuries, and subsequently brought suit against the defendant driver and the manufacturer of the plaintiff’s vehicle. The jury was asked to apportion liability for the damages between the defendant driver, the plaintiff, and the vehicle manufacturer. The jury found that 57% of the plaintiff’s injuries were enhanced injuries caused by the manufacturer, 28% would have been caused anyway had there been no defect in the vehicle and were therefore attributable to the defendant driver, and 15% were caused by plaintiff’s own failure to wear a seat belt.
In Farrell v. John Deere Co., the plaintiff was injured by a corn head and husker (“the picker”) powered by a tractor.11 While the plaintiff was picking corn, the picker stopped working. The plaintiff left the tractor running while he investigating the problem, but did not remember if he shut off the tractor’s power take-off, which powered the picker. The owner of the equipment had wired the cover of the husking rolls of the picker open, and when the plaintiff put his hands into the area of the rolls, the picker suddenly started up, pulling the plaintiff’s hands into the picker and causing him to sustain severe injuries. A neighbor found the plaintiff and disengaged the tractor’s power take-off to free him. The plaintiff filed suit against the seller and manufacturers of the picker and tractor, and as against the manufacturer of the picker, he alleged that the lack of an emergency stop mechanism “enhanced” his injuries. The court split causation on the jury instructions and special verdict form into two parts: entanglement
and enhancement. The jury found the plaintiff responsible for the entanglement, but found that the defective product enhanced his injuries. Ultimately, the jury concluded that the plaintiff was responsible for 35% of his damages with the manufacturer of the picker liable for the remaining 65%. The court of appeals noted:
[Plaintiff’s] contributory negligence in legally causing the accident and [manufacturer’s] separate conduct in failing to design and provide an accessible emergency shut-off device to one already entangled in the machine constituted distinct factors and events contributing to [plaintiff’s] total injuries. It was [manufacturer’s] design and manufacture of a defective product and its negligence in failing to install an emergency stop device alone that caused the subsequent and enhanced injuries.12
Hansen v. Crown Controls Corp. involved a plaintiff who was operating a stand up forklift when a dockboard supporting it collapsed. 13 After the dockboard collapsed, the forklift tumbled and the plaintiff’s left leg was crushed by the falling forklift. The plaintiff claimed that the forklift manufacturer was at fault because the forklift cab did not have a door, which plaintiff argued would have protected his leg from injury. The trial court accepted the plaintiff’s argument that the damage to his leg should be treated as an “enhanced injury” that was distinct from the injuries that he received from the fall alone.
III. Application of the Enhanced Injury Doctrine
There are a variety of ways the enhanced injury doctrine can be used to the advantage of a litigant. The doctrine can be used to seek recovery of damages for injuries sustained in an accident where the underlying tortfeasor may not have the insurance coverage or other financial means to pay any judgment the plaintiff may obtain against
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him or her. It also can be used to remove the plaintiff from the comparative negligence analysis (assuming the plaintiff’s negligence was not a cause of the enhanced injuries) while still allowing the plaintiff to recover damages for injuries he or she has sustained in an accident involving an enhancing event. Defendants also can use the doctrine as a basis for seeking contribution from other parties alleged to have caused the plaintiff’s injuries to be enhanced.
A. Shifting the Burden of Proof
Enhanced injury cases involve a unique shifting of the burden of proof from the plaintiff to the enhanced injury defendant. The Wisconsin Supreme Court in Maskrey stated that “[t]he requirement…that the plaintiff prove the extent of enhancement of injuries would, in some cases, require the plaintiff to isolate that portion of injuries caused solely by the manufacturer. This may be an impossible task and is not required by the law of this state.”14 As with any typical personal injury case, the plaintiff bears the burden of proving liability on the part of the enhanced injury defendant. Once the plaintiff establishes that the enhanced injury defendant was negligent or the product at issue was defective, and such negligence or defective product was a cause of his or her injuries, the burden of apportioning the injuries and damages between the underlying accident and enhancing event shifts to the enhanced injury defendant.15 This burden shift results in the enhanced injury defendant having to prove a negative—i.e., which injuries and damages were not related to the enhancing event, as well as offer affirmative evidence that the plaintiff sustained enhanced injuries.16
Relieving the plaintiff from affirmatively proving the allocation of damages provides the plaintiff’s counsel with an opportunity to selectively exclude harmful evidence relating to the cause of the accident.17 This tactic is particularly effective in two types of factual scenarios: 1) cases involving serious injury or death where the plaintiff has substantial contributory negligence; and 2) accidents where the defendant-driver is uninsured or insolvent, but the
enhanced injury defendant has a deep pocket.18 The shifting burden also serves to penalize an enhanced injury defendant who fails to try and apportion the injuries between the underlying and enhancing events by making them jointly and severally liable for all of the damages.
B. The Doctrine as a Defense
The enhanced injury doctrine implicitly assumes that another is responsible for the injuries received above and beyond those that naturally occurred from the original accident.19 Although there is no Wisconsin precedent explicitly recognizing the enhanced injury doctrine as a viable defense, there is nothing in the existing body of case law that implies the doctrine cannot be employed defensively to prevent an inequitable allocation of damages.20 An original tortfeasor could theoretically seek to use the doctrine as a means of obtaining contribution from a party that allegedly caused enhancement of the plaintiff’s injuries. The original tortfeasor would, presumably, have the same burden as the plaintiff in proving the enhanced injury claim. That is to say, the original tortfeasor would bear the burden of establishing that the enhanced injury defendant’s negligence or defective product was a cause of the injuries and damages sustained by the plaintiff, thereby shifting the burden of apportionment of the injuries and damages to the enhanced injury defendant.
IV. Uncertainty in the Interplay with Comparative Negligence
The tricky aspect of the enhanced injury doctrine is the interaction between comparative negligence principles and the shifting burden of allocation of damages between the underlying and enhancing events. When the injuries sustained by the plaintiff are truly indivisible and there is an apportionment of liability between the original defendant, the plaintiff, and the enhanced injury defendant for the underlying accident, the question of how to rationally apply the plaintiff’s comparative negligence is not clear. Typically, unless there is a basis to argue the plaintiff contributed to causing
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the enhanced injuries, the plaintiff’s percentage of contributory negligence in causing the underlying accident, if any, is not applied to the damages attributable to the enhanced injuries.21 So, how is comparative negligence applied when the plaintiff is dead, he or she was contributorily negligent in causing the underlying accident that resulted in his or her death, and the original tortfeasor and enhanced injury defendant are both found liable? Does this mean the plaintiff may collect 100% of the damages against the enhanced injury defendant without application of comparative negligence principles? This would seem to produce an absurd result, and the rational conclusion is that the original tortfeasor and enhanced injury defendant should be jointly and severally liable for the damages after the total damages award is reduced by the plaintiff’s percentage of fault.
What if the plaintiff was not killed by the accident, but sustained divisible injuries and the enhanced injury defendant, for whatever reason, fails to allocate the damages between the underlying and enhancing events, in effect making the injuries “indivisible”? Does the enhanced injury defendant now enjoy the benefit of comparative negligence by applying the plaintiff’s percentage of fault, leaving the enhanced injury defendant jointly and severally liable for the remaining balance of the damages? Or is the enhanced injury defendant jointly and severally liable for the full damages? The answers to these questions remain unclear.
An approach that could possibly address these uncertainties would be to place the initial burden of proving liability on the plaintiff, and if both the original tortfeasor and enhanced injury defendant are found liable, they would become jointly and severally liable for all damages. The plaintiff’s comparative negligence, if any, would serve to reduce the recoverable damages or otherwise bar any recovery if the plaintiff’s percentage of fault exceeds 50%. The party with the most to gain by apportioning the injuries and damages between the underlying and enhancing events could then present evidence to establish such an apportionment. The plaintiff may opt to apportion the injuries and
damages so as to avoid application of his or her comparative negligence to the damages attributed to the enhanced injuries. An enhanced injury defendant might seek to apportion the damages because he or she feels damages attributable to the enhancing event are minimal in comparison to the total damages. The original tortfeasor might seek to apportion the injuries for the purpose of obtaining contribution from the enhanced injury defendant. There are a variety of possibilities.
V. Conclusion
The slow development of the law on the enhanced injury doctrine in Wisconsin is likely due to several factors. Such claims are typically expensive as they often require multiple experts, attorneys likely shy away from pursuing such claims because of their complexity, and there are simply not many situations that lend themselves to pursuing an enhanced injury claim and even fewer where the potential financial reward outweighs the cost of litigating the claim. With time, the courts will be forced to clarify the workings of the enhanced injury doctrine and its interplay with various other legal concepts, including comparative negligence principles.
Quentin F. Shafer is an attorney in the Madison office of Peter-son, Johnson & Murray, S.C. where he focuses his practice on the area of civil litigation. He received his bachelor’s degree from Marquette University, and his juris doctor degree from the Hamline University School of Law in St. Paul, Minnesota in 1998. Quentin began his practice of law in a small firm in Walworth County, which included serving as a municipal prosecutor. He then joined Zurich North America before join-ing Peterson, Johnson & Murray in early 2012. Quentin has successfully litigated hundreds of cases throughout Wisconsin in both state and federal court, and also has experience de-fending numerous worker’s compensation matters. He is ad-mitted to the State Bar of Wisconsin, the United States District Courts for the Eastern and Western Districts of Wisconsin, the United Stated Court of Appeals for the Seventh Circuit, and United States Supreme Court. Quentin has been selected as a Rising Star by Law & Politics (2006, 2007 and 2009), and his appellate experience includes oral argument before the United Stated Court of Appeals for the Seventh Circuit and opposing a petition for a writ of certiorari to the United States Supreme Court.
continued on page 38
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Eighteen months after filing suit, plaintiff
suddenly wanted to take the depositions of twelve witnesses. It was a medical negligence case and our client would incur significant costs and legal expenses in the process. Since
filing suit, plaintiff had moved from Wisconsin to Illinois and had limited disposable income. Until that point, she had done little to prosecute her claims. In order to test plaintiff’s confidence in her case, we moved the court for an order requiring plaintiff to file security for costs in the amount of $8,000.00. The court granted the motion and upheld its order on reconsideration. Unable or unwilling to post the security, plaintiff voluntarily dismissed her case against our client.
Given the high cost of defense in many types of cases, an order for security for costs can be a useful and aggressive tool. But it is not always available. This article explores the process, requirements, and restrictions for obtaining an order for security for costs under Wisconsin law.
I. What is “Security for Costs?”
An order for security for costs requires the plaintiff to deposit with the clerk of court a payment in the form of cash, property, or bond equal in amount to the costs which will be taxable in the matter if the defendant prevails.2 The purpose of security for costs is to prevent a plaintiff from prosecuting
meritless claims and to ensure payment of costs that may be awarded against a plaintiff from whom it may be difficult to collect.3 In Wisconsin, the right to security for costs is governed by sections 814.27 to 814.34 of the Statutes.
II. Right to Security for Costs
When certain criteria are met (e.g., the plaintiffs are all nonresidents and/or foreign corporations), the defendant is entitled to an order for security for costs in an amount determined reasonable by the court, but not less than $250.4 Wisconsin Stat. § 814.28 provides as follows:
(1) Defendant may require. Except as otherwise provided by s. 814.29, the defendant may require the plaintiffs to file security for costs if the plaintiffs are all nonresidents; or are foreign corporations, nonresident personal representatives, guardians, trustees, or receivers; or are trustees or assignees of any debtor; or are imprisoned for crime for terms less than life; or shall take issue upon the answer of the garnishee.
(2) Order for security. Upon proof by affidavit entitling the defendant to security for costs, the court shall order the plaintiffs to file security for costs in a sum mentioned in the affidavit, not less than $250, within 20 days after the service upon the plaintiffs of a copy of the order requiring the security for costs ….5
security for costs: the Best security is a reserve of Knowledge, experience, and Ability1
by: Vincent J. Scipior & Amy F. Scholl, Coyne, Schultz, Becker & Bauer, S.C.
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Wisconsin courts interpreting the language of section 814.28 have held that it imposes a positive duty on trial courts to grant requests for security for costs made under the section and vests no discretion in the court except as to the amount of security to be furnished.6
When the defendant is not entitled to an order for security for costs as a matter of law, however, the court may still require the plaintiff to file security for costs under Wis. Stat. § 814.27 “in all cases where it shall appear reasonable and proper.” Unlike an application made under section 814.28, section 814.27 is addressed to the sound discretion of the trial court.7 Section 814.27 applies where section 814.28 does not apply, for example, where only two of three plaintiffs are nonresidents.8
III. Security for Costs Procedure
In order to obtain an order for security for costs, a defendant must file a notice of motion and motion with the court with supporting affidavit.9 The affidavit must demonstrate either: (1) that the defendant is entitled to an order for security for costs under Wis. Stat. § 814.28; or (2) that the circumstances are such that it would be “reasonable and proper” for the court to enter an order for security for costs under Wis. Stat. § 814.27. The affidavit must also mention the desired amount of the security for costs, not less than $250.10
When the court orders security for costs, the plaintiff has twenty days after service of the order to file the security.11 All proceedings on the part of the plaintiff are stayed until security is filed.12 If the plaintiff fails to timely file security for costs when required, the court may, upon motion of the defendant, dismiss the action.13 The Wisconsin Supreme Court has noted that “failure to give or furnish the required security for costs has been uniformly held to be a ground for dismissal of the action.”14
IV. Security for Costs and Subrogated Plaintiffs
Should the existence of a non-participating, non-appearing subrogated plaintiff who resides in Wisconsin defeat a motion for security for costs under Wis. Stat. § 814.28? Some courts may think so. After all, section 814.28(1) provides that “the defendant may require the plaintiffs to file security for costs if the plaintiffs are all nonresidents….” Thus, a trial court certainly has discretion to deny a motion for security for costs under Wis. Stat. § 814.28 if just one of many plaintiffs is a resident of Wisconsin.
While there is no published appellate case addressing this issue, it was raised in the medical negligence case described in the introduction section of this Article. In that case, the plaintiff had named the Secretary of the U.S. Department of Health and Human Services (who had a mailing address in Milwaukee) as an involuntary plaintiff to the action. Plaintiff argued that the Department was technically a resident of Wisconsin and, therefore, section 814.28(a) did not apply. In response, we argued that the purpose of the statute would be defeated if plaintiff’s logic prevailed. The Wisconsin Supreme Court has stated that the statutes governing security for costs are remedial in nature and should be liberally construed to effectuate their purpose.15 Furthermore, the Department had already stated that it “would not appear or actively participate in the lawsuit” and had not asserted any claims against our client. Ultimately, the court agreed with our position and held that the existence of a non-participating, non-appearing involuntary plaintiff cannot defeat a motion for security for costs based on residency. Of course, even if the court had been unwilling to grant our request for security under section 814.28, it could have ordered plaintiff to pay security under section 814.27 as being the “reasonable and proper” thing to do.
V. Security for Costs and Poverty
The plaintiff in our medical negligence case also argued that she was not required to provide security for costs because of poverty. Section
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814.29(1) of the Wisconsin Statutes provides that an impoverished person cannot be required to give security for costs:
[A]ny person may commence, prosecute or defend any action or special proceeding in any court, or any writ of error or appeal therein, without being required to give security for costs ... upon order of the court based on a finding that because of poverty the person is unable to … give security for those costs.
While the plaintiff in our case argued that she qualified for a poverty waiver under Wis. Stat. § 814.29, she failed to follow the proper statutory procedure for establishing the same. The Wisconsin legislature stated, without ambiguity, that security for costs may be waived because of poverty only if the conditions of section 814.29(1)(b) are met.16 Accordingly, any person seeking a poverty waiver must produce an affidavit demonstrating that he or she is, in fact, impoverished.17 Rather than follow the proper statutory procedure, the plaintiff in our medical negligence case attached unauthenticated exhibits to a brief without a supporting affidavit. The court refused to accept the exhibits as sufficient proof of indigency.18
Even if plaintiff had submitted the proper affidavit, however, the trial court in our case indicated that it would have denied plaintiff’s request for relief because she did not meet the statutory definition of impoverished. When determining whether a plaintiff is impoverished under Wis. Stat. § 814.29, Wisconsin courts must consider the following factors:
1. Whether the plaintiff is a recipient of means-tested public assistance (including welfare, supplemental security income, food stamps, veterans benefits, etc.);
2. Whether the plaintiff is represented by an attorney through a legal services program for indigent persons; and
3. Whether the plaintiff is otherwise unable, because of poverty, to give security for costs.19
Additionally, the court must consider the person’s household size, income, expenses, assets, and debts, and the federal poverty guidelines.20 Pursuant to Wis. Stat. § 814.29(2), the court may rescind a poverty waiver and enter an order for security for costs if the plaintiff no longer meets the statutory requirements described above. Additionally, the court may dismiss the action if it determines that a plaintiff’s allegation of poverty is untrue.21
The following table sets forth the 2012-13 Federal Poverty Guidelines for persons living in the 48 contiguous states and the District of Columbia:
Persons in household
Federal Poverty Guideline22
(gross annual income)1 $11,1702 $15,1303 $19,0904 $23,0505 $27,0106 $30,9707 $34,9308 $38,890
9+For households with more than 8 persons, add $3,960 for each
additional person.
In our case, the trial court gave great weight to the Federal Poverty Guidelines. According to the Federal Guidelines, the poverty threshold for plaintiff was a gross annual income of $11,170 based on her household size. By comparison, plaintiff’s actual annual income was approximately $14,400. In addition, plaintiff had nearly $9,000.00 in her checking account. Given the facts presented, the trial court could not find that plaintiff was exempt from having to file security for costs in the requested amount. On motion for reconsideration,
34
plaintiff attempted to submit to the trial court the affidavit that should have been filed in the first place. Her motion was denied.23
VI. How to Calculate Security for Costs
When calculating the desired amount of the security for costs, counsel should include all amounts, past and future, which will be taxable in the matter if the defendant prevails, but not less than $250.00.24 Section 814.04 of the Wisconsin Statutes enumerates the items of costs taxable in civil actions:
• Statutory attorney fees25;• Referee fees;• Service fees (not to exceed the
authorized sheriff fee for the same service);
• Amounts actually paid out for certified and other copies of papers and records in any public office;
• The cost of telephone and e-mail communications, faxes, postage, photocopying, and express or overnight delivery;
• Deposition expenses, including transcript copies;
• Plats and photographs (not exceeding $100 for each item);
• Expert witness fee not exceeding $300 for each expert who testifies;
• Standard witness and mileage fees; and
• In actions relating to or affecting the title to land, the cost of procuring an abstract.
Other items of costs include, for example:
• Court costs and fees26;• Interpreters’ fees27; and• Costs for pathological slides and copies of
medical treatises.28
But the following items of costs are not taxable:
• Mediation fees29;• Guardian ad litem fees30;• The cost of transcribing materials from CD-
ROM31;• The cost of reproducing documents into an
electronic format32; and• Travel expenses.33
It is recommended that counsel include an affidavit attesting to items of costs already incurred, with paid invoices attached as exhibits, and explaining how the defense calculated anticipated future costs (e.g., the number of depositions requested by plaintiff multiplied by the average cost of earlier depositions).
VII. Conclusion
Security for costs is an important defense tool. Although it cannot be used in every case, it can and should be used where appropriate. In a case where the taxable defense costs will be significant, an order for security for costs will test the plaintiff’s confidence in his or her claims. While each court may approach the requirements of Wis. Stat. §§ 814.27 to 814.34 differently, knowledge of the proper statutory procedure and the experience and ability to use that procedure to your advantage is the best security.
Amy F. Scholl is a shareholder with Coyne, Schultz, Becker & Bauer, S.C. Her practice focuses on personal injury, insurance coverage, and defending health care providers and other providers of professional services. She is certified as a Civil Trial Advocate and Civil Pretrial Practice Advocate by The National Board of Trial Advocacy. Ms. Scholl has tried cases throughout Wisconsin including Adams, Dane, Green, Iowa, La Crosse, Marquette, Richland, Rock and Sauk Counties. Ms. Scholl received her undergraduate degree from Miami University in Oxford, Ohio in 1994. She received her law degree, cum laude, from The John Marshall Law School, Chicago, Illinois in 1997 where she was an Executive Editor of the John Marshall Law Review.
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Vincent J. Scipior is an associate with Coyne, Schultz, Becker & Bauer, S.C. His practice focuses on personal injury, commercial liability, intellectual property, contested bankruptcy matters, employment law, and insurance coverage issues. Mr. Scipior is admitted to practice in Wisconsin state and federal courts. Mr. Scipior is a 2011 graduate of the University of Wisconsin Law School. While in law school, he was a member of the Wisconsin Law Review and participated in the Community Supervision Legal Assistance Project. Mr. Scipior obtained his undergraduate degree from the University of Wisconsin in 2007, majoring in Legal Studies
References1 “If money is your hope for independence, you will nev-
er have it. The only real security that a man can have in this world is a reserve of knowledge, experience and ability.” —Henry Ford. See http://www.goodreads.com/quotes/191722-if-money-is-your-hope-for-independence-you-will-never (last visited February 26, 2013).
2 Wis. Stat. § 814.28; Black’s Law Dictionary 945 (6th ed. 1991).
3 See In re Westinghouse Securities Litigation, 832 F. Supp. 989, 1002 (W.D. Pa. 1993); Maniccia v. Johnson & Gibbs, P.C., 876 S.W.2d 398, 401 (Tex. Ct. App. 1994); Midwest Broadcasting Co. v. Dolero Hotel Co., 273 Wis. 508, 515, 78 N.W. 898 (1956) (holding that it is reasonable to award security for costs where party has no assets, address, or of-fice in Wisconsin).
4 Wis. Stat. § 814.28.5 (Emphasis added).6 State v. Hoppmann, 207 Wis. 481, 240 N.W. 884, 885
(1932).7 Joint School-District No. 7 v. Kemen, 72 Wis. 179, 39 N.W.
131, 132 (1888); Fulton v. Vogt, 1998 WL 313409, at *5 (Wis. Ct. App. 1998) (unpublished opinion).
8 Colbeth v. Colbeth, 117 Wis. 90, 93 N.W. 829, 829-30 (1903)
9 Wis. Stat. § 814.28(2).10 Id.11 Id.12 Id.13 Wis. Stat. § 814.28(3). 14 Sheldon v. Nick & Sons, 253 Wis. 162, 165, 33 N.W.2d 260
(1948) (citing Colbeth, 117 Wis. at 91 and Joint School-District, 39 N.W. at 132 (1888)); see also Felton v. Hop-kins, 89 Wis. 143, 61 N.W. 77, 78 (1894).
15 Smith v. Lockwood, 34 Wis. 72, 1874 WL 6260, at *3 (1874).
16 See State ex rel. Girouard v. Circuit Court for Jackson County, 155 Wis. 2d 148, 159, 454 N.W.2d 792 (1990).
17 Wis. Stat. § 814.29(1)(b).18 A trial court may refuse to waive entry of an order for se-
curity for costs because of poverty if the proper affidavit is not filed. See State ex rel. Amek bin Rilla v. Circuit Court for Dodge County, 76 Wis. 2d 429, 433, 251 N.W.2d 476 (1977); Girouard, 155 Wis. 2d at 159.
19 Wis. Stat. § 814.29(1)(d).20 Wis. Stat. § 814.29(1)(d)3.21 Wis. Stat. § 814.29(2).22 http://aspe.hhs.gov/poverty/12poverty.shtml/12fedreg.sht-
ml (citing Federal Register, Vol. 77, No. 17, January 26, 2012, pp. 4034-35). As of the date this Article was pub-lished, the 2013 Federal Poverty Guidelines had not been made available.
23 “[A] motion for reconsideration is not a vehicle for making new arguments or submitting new evidentiary materials af-ter the court has decided a motion.” Lynch v. Crossroads Counseling Ctr., Inc., 2004 WI App 114, ¶ 23, 275 Wis. 2d 171, 684 N.W.2d 141. “A party may not use a motion for reconsideration to introduce new evidence that could have been presented earlier.” Koepsell’s Olde Popcorn Wagons, Inc. v. Koepsell’s Festival Popcorn Wagons, Ltd., 2004 WI App 129, ¶ 46, 275 Wis. 2d 397, 685 N.W.2d 853 (quot-ing Oto v. Metro. Life Ins. Co., 224 F.3d 601, 606 (7th Cir. 2000)).
24 Wis. Stat. § 814.28.25 See Wis. Stat. § 814.04(1) for the schedule for taxing at-
torney fees.26 Cedarburg L. & W. Comm. v. Glens Falls Ins. Co., 42 Wis.
2d 120, 124-25, 166 N.W.2d 165 (1969).27 Meyer v. Foster, 16 Wis. 294, 1862 WL 1071, at *2 (1862).28 Zintek v. Perchik, 163 Wis. 2d 439, 475, 471 N.W.2d 522
(Ct. App. 1991).29 Kleinke v. Farmers Coop. Supply & Shipping, 202 Wis. 2d
138, 146-48, 549 N.W.2d 714 (1996).30 Wis. Stat. § 814.04(2).31 Alswager v. Roundy’s Inc., 2005 WI App 3, ¶ 2, 278 Wis.
2d 598, 692 N.W.2d 333.32 Zurich Am. Ins. Co. v. Wisconsin Phys. Servs. Ins. Corp.,
2007 WI App 259, ¶ 43, 306 Wis. 2d 617, 743 N.W.2d 710.33 Allied Processors, Inc. v. Western Nat. Mut. Ins. Co., 2001
WI App 129, ¶ 48, 246 Wis. 2d 579, 629 N.W.2d 329.
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coming full circle?—the elimination of the subcontractor exceptionby: Mark D. Malloy, Meissner Tierney Fisher & Nichols,
S.C.
Introduction
It is not often in the ever-evolving world of insurance coverage litigation that concepts come “full circle.” However, that appears to
be exactly what is happening with regard to one of the most litigated exclusions in CGL policies. Nearly every CGL policy contains a “your work” exclusion which precludes coverage for property damage to “your work” or arising out of “your work” and included in the “products-completed operations hazard.” For several decades, however, that standard “your work” exclusion contained an exception precluding use of the exclusion when the faulty work was performed by a subcontractor. The subcontractor exception to the “your work” exclusion increased completed operations coverage for contractors, particularly for general contractors who relied on subcontractors to perform the majority of their work. In the last ten years, however, insurers have significantly limited that coverage, taking the industry back to where it stood almost forty years ago. The effects of those changes are now starting to be seen in litigation circles.
Generally, there are two distinct risks at play in construction litigation: (1) the risk of faulty workmanship and associated repair of that faulty workmanship; and (2) the risk of accidental injuries or property damage caused by faulty workmanship. Under normal circumstances, the former is a loss borne by the insured and not covered under a CGL policy, while the latter is a risk for which there is coverage under the CGL policy.1
I. The History of the Subcontractor Exception
In the 1970s and early 1980s, standard CGL policies excluded coverage for “property damage to work performed by or on behalf of the Named Insured arising out of any of the work or any portion thereof.” Insurers offered broad form endorsements that removed the “on or behalf of” language from the exclusion, arguably extending completed operations coverage to faulty work of persons not under the contractor’s direct control. Still, there was significant question for courts interpreting that endorsement as to whether it covered faulty work of the subcontractor.2 The increased litigation reflected a change that was occurring at the time in the construction industry—general contractors were becoming larger and delegating more work to subcontractors. As such, general contractors were seeking through insurance to control risks that they could not directly control—i.e., work being performed by non-employee subcontractors. Those general contractors, seeing increased exposure, lobbied insurers to increase completed operations coverage so as to cover property damage caused by faulty subcontractor work. Soon, insurers began to offer products that eliminated the question almost entirely. In 1986, Insurance Services Office, Inc. (ISO), changed its forms to specifically address the subcontractor dilemma. As such, the “your work” exclusion, as most current practitioners now know it, was born. The exclusion reads as follows:
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This coverage does not apply to:1. “Property damage” to “your work”
arising out of it or any part of it and included in the “products-completed operations hazard.”
This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.
With the advent of the “your work” exclusion that included the subcontractor exception, completed operations coverage extended, and litigation accordingly increased. In Wisconsin, a number of decisions addressed the effect of the subcontractor exception. These decisions culminated in American Family Mutual Ins. Co. v. American Girl, Inc.,3 where the Supreme Court upheld the plain language of the “your work” exclusion, noting that the subcontractor exception, while not creating new coverage, operated to restore coverage (i.e., poor workmanship, so long as the work was performed by a subcontractor) that was otherwise excluded by policy.4
II. The Movement Toward Removal of the Exception
In recent years, faced with increasing construction claims, the insurance industry is, at least on some level, seeking a return to the pre-1986 days. In 2001, ISO offered two new endorsements to the contractor’s CGL policy. Both eliminated the subcontractor exception in exclusion (l)—one on a blanket basis and another on a project basis.5 Other insurers simply removed the subcontractor exception from exclusion (l) entirely. In recent years, courts have addressed the changes to the subcontractor exception. In Builders Mut. Ins. Co. v. Kalman,6 the United States District Court of South Carolina was faced with application of the new ISO endorsement removing the subcontractor exception from the “your work” exclusion. In that case, Kalman was a general contractor on the construction of a multi-million dollar home. After occupancy, the
homeowner noticed significant areas of faulty workmanship and resulting water damage. The court held that the endorsement eviscerated coverage entirely for the general contractor:
This court is the first court in South Carolina and appears to be the first court nationwide to analyze [the] CG 22 94 10 01 endorsement and its application to a particular claim. In this case, the Court finds that the property damage claimed by the Kimmers clearly falls into the “your work” exclusion. As noted above, the endorsement CG 22 94 10 01 removes the subcontractor’s exception from the “your work” exclusion. Without the subcontractor’s exception … the property damage claimed by the Kimmers in the Underlying Complaint falls within the “your work” exclusion. The faulty workmanship and defective construction of the Kimmer Residence and resulting water damage is “property damage” to work that was performed by Kalman and by subcontractors on Kalman’s behalf. Because Kalman was the general contractor, for purposes of the “your work” exclusion, the entire Kimmer Residence was either Kalman’s work or work performed on Kalman’s behalf as defined by the policy, and the Kimmers only claim property damage to their Residence …. Therefore, while the “property damage” in this case is caused by an “occurrence” and fits within the initial grant of coverage …, the removal of the subcontractor exception to the “your work” exclusion bars coverage in this case.7
The Kalman decision highlights the problem that the “new” ISO endorsements, and policies which eliminate the subcontractor exception altogether, cause for general contractors in particular. Unlike
38
contractors who supply component parts of the project, a general contractor’s “work” is arguably the entire construction project. Thus, the elimination of the subcontractor exception, either specifically or by endorsement, effectively eliminates any potential completed operations coverage for the general contractor. Despite this harsh result, insurers seem intent on limiting that coverage unless it is specifically contracted for by the general contractor.
ConclusionThe impact of the ISO endorsements removing the subcontractor exception and policies which do not include the exception in the “your work” exclusion are only starting to be felt in construction claims across the country. The limitations do not only have the obvious effect of precluding coverage in the specific instance, but also strengthen the insurer’s general assertion that business risks are not covered at all under the CGL policy. While it remains to be seen how Wisconsin courts will deal with this limitation, practitioners representing insurers in construction disputes should pay close attention to the specific language of their “your work” exclusion and any endorsements that may limit the exclusion.
Mark D. Malloy is a shareholder with Meissner Tierney Fisher & Nichols in Milwaukee. He is a trial lawyer licensed to practice in Wisconsin, Illinois and Minnesota representing companies in all types of civil litigation, with an emphasis in insurance coverage and professional liability.
References1 Glendenning’s Limestone & Ready-Mix Company, Inc. v.
Reimer, 2006 WI App 161, 295 Wis. 2d 556, 721 N.W.2d 704.
2 Fireguard Sprinkler Systems, Inc. v. Scottsdale Insurance Co., 864 F.2d 648 (9th Cir. 1988) (holding that broad form endorsement created coverage for faulty subcontractor work); Knutson Const. Co. v. St. Paul Fire & Marine Ins. Co., 396 N.W.2d 229 (Minn. 1986) (finding no coverage for work done by subcontractor despite endorsement).
3 2004 WI 2, 268 Wis. 2d 16, 673 N.W.2d 65.4 Id., ¶ 74.5 ISO Endorsement CG 22 94 (blanket) and ISO Endorse-
ment CG 22 95 (project specific).6 2009 WL 4807003 (D.S.C. 2009) (unpublished decision).7 Kalman, 2009 WL 4807003, at *6; see also Grinnell Mu-
tual Reins. Co. v. Wollak Const. Inc., 2010 WL 4121906 (D. Minn. 2010) (unpublished decision); Builders Mut. Ins. Co. v. Wingard Properties, Inc., 2010 WL 3069544 (D.S.C. 2010) (unpublished decision).
References1 Larsen v. General Motors, 391 F.2d 495 (8th Cir. 1968).2 James Niquet, Evidentiary Problems of Apportionment
under Wisconsin Second Collision Law, 72 Marq. L. Rev. 539, 540 (1989); Huff v. White Motor Corp., 565 F.2d 104 (7th Cir. 1977); Grundmanis v. British Motor Corp., 305 F. Supp. 303 (1969).
3 Arbet v. Gussarson, 66 Wis. 2d 551, 225 N.W.2d 431 (1975).
4 Farrell v. John Deere Co., 151 Wis. 2d 45, 443 N.W.2d 50 (1989).
5 Id. at 61-62.6 Id.7 Foland, Enhanced Injury: Proof in “Second Collision”
and “Crashworthy” Cases, 16 Washburn L.J. 600, 606-07 (1977).
8 Butzow v. Wausau Memorial Hospital, 51 Wis. 2d 281, 288-89, 187 N.W.2d 349 (1971) (finding both accident causing tortfeasors and negligent medical practitioners lia-ble for the injuries aggravated by the medical malpractice).
9 Sumnicht v. Toyota Motor Sales, U.S.A., Inc., 121 Wis. 2d 338, 360 N.W.2d 2 (1984).
10 Maskrey v. Vokswagenwerk, A.G., 125 Wis. 2d 145, 370 N.W.2d 815 (Ct. App. 1985).
11 Farrell, 151 Wis. 2d at 61-62.12 Id.13 Hansen v. Crown Controls Corp., 181 Wis. 2d 673, 512
N.W.2d 509 (Ct. App. 1993).14 Sumnicht, 121 Wis. 2d at 358. 15 Maskrey, 125 Wis. 2d at 158-59.16 James D. Ghiardi, Second Collision Law—Wisconsin, 69
Marq. L. Rev. 1 (1985).17 Niquet, Evidentiary Issues, supra note 2, at 545.18 Id.19 Monte Weiss, The Enhanced Injury Doctrine as Defense,
Wis. Lawyer (Nov. 1996), at 3.20 Id.21 Niquet, Evidentiary Issues, supra note 2, at 551-55.
continued from page 28
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* American Bar Association Standing Committee on Lawyers’ Professional Liability. (2008). Profile of Legal Malpractice Claims, 2004-2007. Chicago, IL: Haskins, Paul and Ewins, Kathleen Marie.
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