Vol. 85, No. 3, March 2012
Can an insurer that does not issue or deliver a policy in Wisconsin still be directly sued in this state? The answer is now yes.1 In a unanimous decision, the Wisconsin Supreme Court overruled existing Wisconsin law that limited suits against insurance carriers for the negligence of their insureds to only those suits arising out of policies that were issued in or delivered in Wisconsin. Now, provided that the loss occurred in Wisconsin, out-of-state insurers can be sued directly.
In addition, the supreme court clarified the factors courts should consider in deciding default judgments and the corresponding motions to extend time. In a 5-2 holding, the court then confirmed that corporate officers can be held personally liable for their negligent acts even if the acts were committed in the course of employment for a solvent and insured corporation.
On May 14, 2003, the Casper family and a family friend (Sara Janey) were in a catastrophic motor vehicle accident. The minivan the plaintiffs were traveling in was struck by a truck operated by Mark Wearing. As a result of the accident, Michael Casper became a quadriplegic.2 Sara Janey suffered a traumatic brain injury, multiple leg fractures, and a pelvic fracture and lost the function of one of her kidneys.3 The other occupants in the Casper minivan sustained lesser, but still serious, injuries.4
The Casper and Janey families commenced a lawsuit against, inter alia, Mark Wearing, Jeff Wenham (the president of Bestway Systems), and Mark Wearing’s coemployers, TLC and Bestway Systems, along with their respective insurers. During the course of discovery, it was learned that one of the parties, TLC, had an excess insurer, National Union Fire Insurance Company of Pittsburgh PA, headquartered in New York City. The plaintiffs amended their complaint to add National Union as a defendant. That carrier failed to answer the complaint before the deadline for doing so. The plaintiffs brought a motion for default judgment. In response, National Union filed a motion to enlarge the time to file an answer. The plaintiffs then moved to strike National Union’s answer. The circuit court found excusable neglect and, therefore, extended the time for National Union to answer.5
National Union then filed a motion for summary judgment seeking dismissal of the plaintiffs’ direct-action claims. National Union contended that the direct-action statute could not be used to permit the assertion of personal jurisdiction over National Union because it neither issued nor delivered its policy to TLC in Wisconsin.6 Despite the absence of personal jurisdiction, National Union conceded that it would still remain a party under Wis. Stat. section 803.04(2).
In construing existing Wisconsin law and in particular, Kenison v. Wellington Insurance Co.,7 the circuit court held that Kenison controlled, and so the court dismissed the plaintiffs’ direct-action claims against National Union. On appeal, the court of appeals, in a 2-1 decision, affirmed the circuit court’s rulings.8
Bestway’s president, Jeff Wenham, also brought a motion for summary judgment. He claimed that he could not be held personally liable as a corporate officer for performing corporate duties, even if he was negligent.9 He argued that this status was especially important given that his company had liability insurance for the loss.
On appeal, Wenham reasserted that summary judgment was still appropriate because corporate officers traditionally are personally liable only for intentional acts. Here, the only allegation was that he had been negligent. Wenham also reasserted that his company was solvent and insured and, therefore, there was no justification for him to be held personally liable. The court of appeals rejected Wenham’s arguments.
The supreme court affirmed in part and reversed in part the court of appeals’ decision. In its review, the supreme court addressed three issues:10
1) Whether the circuit court properly exercised its discretion when it granted additional time to National Union to answer the fifth amended complaint;
2) Whether the plaintiffs can maintain a direct action against National Union even though its policy was neither issued nor delivered in Wisconsin; and
3) Whether a corporate officer can be held personally liable for nonintentional torts committed in the course of employment.
In analyzing the issue of excusable neglect, the supreme court noted that a review of a circuit court’s decision to grant or deny a motion to enlarge the time to answer “rests in the sound discretion of the circuit court.”11 Reviewing courts may not substitute their decision for that of the circuit court.12 Provided that the circuit court’s decision was “based on a reasonable inquiry and examination of the facts,” the decision should not be reversed at the appellate level.13 Thus, the test is not whether the reviewing court thought that the circuit court made the right or the wrong decision but whether the circuit court applied the right law and reached a decision that a reasonable judge could reach.14 Unless “it can be said that no reasonable judge acting on the same facts and underlying law, could reach the same conclusion,” the circuit court’s decision cannot be reversed on appeal.15
In support of its motion to extend the time for the filing of its answer, National Union contended that it had a procedure in place to handle litigation.16 When National Union was served, one of its claims specialists received and reviewed the fifth amended complaint in her New Jersey office. Her assistant then mailed the complaint to a claims specialist in Atlanta who handled trucking claims.17 The complaint never reached the Atlanta-based claims specialist. As a result, counsel was never assigned to answer the complaint. It was the plaintiffs’ motion for default that alerted National Union that it had failed to answer on time.
While cautioning litigants against asserting “glib claims that attribute fault to the United States Postal Service,” the supreme court also noted that courts cannot “reject out-of-hand the possibility that a packet was actually lost in the mail.”18 Significant to the court’s ruling was its conclusion that the National Union employees followed an established protocol that had worked in the past “to provide timely answers.”19 The court acknowledged that when a company is served with thousands of complaints, “a few inadvertent mishaps are bound to occur.”20 As a result, the court instructed courts to “carefully scrutinize what steps an organization has taken to avoid such mishaps [in the first instance], how quickly the organization responds when it discovers its delinquency, and whether its delay has caused prejudice to the plaintiffs.”21
Following the circuit court’s denial of the plaintiffs’ motion for default judgment (and corresponding motion to strike National Union’s answer after the answer was filed), National Union then filed a motion for summary judgment. National Union argued that the plaintiffs could not file a lawsuit directly against it under Wisconsin’s direct-action statute, Wis. Stat. section 632.24. National Union argued that although Wisconsin’s direct-action statute permits lawsuits to be filed directly against insurers for the negligence of their insureds, the statute is limited in scope to only a certain class of policies.
National Union contended that Wis. Stat. section 632.24 is limited by the first section of chapter 631, namely Wis. Stat. section 631.01(1), which provides as follows:
“Application of statutes. (1) General. This chapter and ch. 632 apply to all insurance policies and group certificates delivered or issued for delivery in this state, on property ordinarily located in this state, on persons residing in this state when the policy or group certificate is issued, or on business operations in this state, except: …”22
According to National Union, this statute requires that the policy be delivered or issued for delivery in Wisconsin and that it be issued for property located in the state, on persons residing in the state, or on business operations in the state. Here, National Union (a Delaware company) issued a policy to TLC (a Minnesota company). The subject policy was neither issued nor delivered in Wisconsin. Consequently, National Union argued, it could not be directly liable to the plaintiffs.
In further support of its position, National Union relied on Kenison v. Wellington Insurance Co.23 In Kenison, the court of appeals concluded that because the policy was neither issued nor delivered in Wisconsin, the Canadian insurer was not subject to Wisconsin’s direct-action statute. The Kenison court stated that “the unambiguous language of § 631.01, Stats, limits the application of § 632.24, Stats., to insurance policies delivered or issued for delivery in this state.”24
The plaintiffs argued that Kenison was wrongly decided. Instead of reading the statute to require that the policy be issued or delivered in this state, the plaintiffs contended that the issuance of the policy was only one of four possible bases for the direct-action statute’s applicability. The plaintiffs contended that the statute provides that if the policy 1) was issued or delivered in Wisconsin, 2) insured property in Wisconsin, 3) insured people residing in Wisconsin, or 4) insured business operations in Wisconsin (provided that those operations were not incidental or subordinate to operations outside of the state), then Wisconsin’s direct-action statute applied. In other words, any one of the four situations would result in the imposition of direct liability on the insurer.
The Casper circuit court relied on Kenison and granted National Union’s summary judgment motion. The court of appeals affirmed that decision. According to the court of appeals, “[e] ven if we agreed with the Caspers, we are without the authority to modify, withdraw, or otherwise change our prior case law.”25
In reaching its decision on this issue, the supreme court traced the history of the direct-action statute and noted that its presence in Wisconsin statutes began in 1925 and that subsequent modifications and amendments expanded its scope. The court realized that although a more complete analysis of Wis. Stat. section 631.01(1) is necessary, it was “not prepared to evaluate all the ramifications of such a determination.”26
Nevertheless, the court was comfortable in concluding that so long as the accident or injury occurred in Wisconsin, the direct-action statute permits a direct claim against the carrier regardless of whether the policy was issued or delivered in Wisconsin. Accordingly, the court explicitly overruled Kenison and reversed the court of appeals’ decision on this point.27 The plaintiffs were thus permitted to maintain their direct-action claims against National Union for the negligence of its insured because the accident occurred in Wisconsin.
Personal Liability of Corporate Officers
The final issue that the supreme court addressed was whether a corporate officer may be held liable for his or her alleged negligence in causing injuries to others while in the course of his or her employment. Bestway’s president argued that Wisconsin law does not support the imposition of personal liability on corporate officers for nonintentional torts in situations in which the corporate officer was acting in the scope of his or her duties for a solvent and insured corporation. The supreme court rejected this contention. Accordingly, the court stated that it “declines to hold that corporate officers may never be held personally liable for negligent acts committed in the scope of their corporate duties.”28 However, because of the unique facts of the case, public policy considerations precluded liability.
Justice Ann Walsh Bradley and Chief Justice Shirley Abrahamson dissented in part. Both justices agreed with the majority that the circuit court properly exercised its discretion in extending the time for National Union to answer the fifth amended complaint. They also joined in the majority’s opinion that National Union could be directly sued for the negligence of its insured. However, both justices disagreed with the majority’s opinion regarding the personal liability of Bestway’s president. The dissenting justices said that they believed that the record was not sufficiently clear to permit the court to reach the public policy decision and believed that the better approach would be to let the facts be developed at trial. In their view, the facts were not sufficiently “unusual or extreme” so as to invoke the public policy exception analysis before trial.29
Lessons from the Casper Case
Motions to Extend Time Are More Likely to Be Granted. Among the ramifications of the court’s decision is that it will be more difficult to obtain a default judgment against corporate entities. The supreme court held that when a corporation has a process in place that has generally worked in the past, then the fact a few deadlines to answer have been missed will not necessarily result in a denial of a motion to extend time. Wisconsin courts are encouraged to examine the corporation’s procedure of handling legal process as well as the speed with which the untimely response was provided. Finally, the courts are to examine the prejudice that a plaintiff suffers because of the delay caused by the untimely answer.
In light of the supreme court’s decision, litigants should examine and analyze the protocol used by the defaulting company.30 Is the protocol appropriate? Has the company been the subject of other default judgment motions? Has the protocol changed in response to those other motions? If not, there may be some basis to assert that the failure to respond to the complaint was the result of the company’s failure to correct deficiencies in the protocol.
Litigants hoping to assert that the untimely response was the product of excusable neglect should direct attention to the procedures in place with an emphasis on the volume of complaints received. Typically, it should not be difficult for an insurer to establish that it receives a huge number of complaints from around the country every month. Correspondingly, the insurer should argue, as the supreme court held in Casper, that given the volume of legal documents received, “a few inadvertent mishaps are bound to occur.”31
Presuming that a timely response is made to the motion for a default judgment, the party threatened with default judgment should draw attention to the Achilles heel of most such motions: the absence of any true prejudice to the plaintiff. Although the occurrence of delay typically calls forth a claim of prejudice to the legal system, there is seldom any actual prejudice to the plaintiff if the answer is filed shortly after the statutory deadline expires.32 The inability to show prejudice, combined with the law’s general disfavor of default judgments, should make the granting of motions for extensions of time the norm as opposed to the exception.33 Given that decisions to grant or deny these motions are vested in the circuit court’s discretion, whatever decision is made, it is more likely to be affirmed, rather than reversed, on appeal.34 Thus, the real key to these motions is to prevail before the circuit court.
More Out-of-State Insurers Will Be Subject to Lawsuits by Injured Plaintiffs. The Casper case is also important because it provides a more readily available source of recovery from out-of-state drivers: their insurance companies. Before Casper was decided, unless the insurance policy was issued in or delivered in Wisconsin, people injured by out-of-state individuals or corporations could only seek to invoke the court’s jurisdiction over the out-of-state actor and only if proper service of process was effectuated.35
Now, as long as the accident or incident occurred in Wisconsin, personal jurisdiction over the tortfeasor’s liability insurer is permissible. Injured plaintiffs will be able to directly sue the tortfeasor’s insurer, obtain a judgment, and execute on that judgment. Thus, carriers that issue or deliver policies outside of Wisconsin but that insure business operations, people, or property within Wisconsin will now find themselves subject to direct liability for the alleged negligence of their insureds. This is significant given that no states other than Wisconsin and Louisiana have “direct-action” statutes. As such, service of a complaint and the concomitant defense obligation may come as a surprise to insurers that are not regularly involved in litigation in Wisconsin.36
Personal Liability of Corporate Officers Will Likely Be an Often Litigated Issue. Finally, the supreme court clarified that corporate officers who commit negligent acts in the course of employment can be subject to personal liability.37 Corporate officers should consult with their risk management departments and insurance agents to ensure that appropriate insurance coverage exists for both the corporation and the individual corporate officers, including perhaps, acquiring directors and officer policies.
Monte Weiss, Case Western Reserve 1991, of Deutch & Weiss LLC, Fox Point, practices primarily in the defense of bodily injury, property damage, and professional negligence claims for insurance companies and self-insured companies. He routinely represents insurance companies on insurance contract interpretation issues and is a frequent lecturer on insurance topics. He is one of the attorneys for the plaintiffs in Casper v. American International South Insurance Co. He can be reached at firstname.lastname@example.org.
Wisconsin law and courts generally disfavor default judgments. Case law is replete with directives that circuit courts, whenever possible, permit parties to have their day in court. Thus, a few days’ delay in answering complaints will not likely be met with the harsh sanction of a default judgment provided the defaulting party can show it took reasonable steps before and after suit to avoid untimely answers.
Likewise, permitting individuals injured in Wisconsin to seek relief against out-of-state insurers makes sense in light of Wisconsin’s direct-action statute. Provided that the accident or the injury occurs in Wisconsin, it would seem reasonable to provide an avenue of potential recovery for the injured. This direct access to an insurer is important because often the individual tortfeasor will not have sufficient independent financial resources to provide full compensation for the cost of today’s injury claims.
Finally, holding individuals liable for their negligence is not an uncommon concept in Wisconsin jurisprudence.38 Provided that the corporate officer has the opportunity to argue public policy considerations, the court seems to have struck a balance between avoiding substantial disruption to corporate governance and still providing for personal responsibility for tortious conduct.
1 Casper v. American Int’l S. Ins. Co., 2011 WI 81, 336 Wis. 2d 267, 800 N.W.2d 880. The liability issues in the case have yet to be tried.
2 Id. ¶ 13.
5 Id. ¶ 22.
6 Id. ¶ 23; Wis. Stat. § 631.01.
7 Kenison v. Wellington Ins. Co., 218 Wis. 2d 700, 582 N.W.2d 69 (Ct. App. 1998).
8 Casper v. American Int’l S. Ins. Co., 2010 WI App 2, 323 Wis. 2d 80, 779 N.W.2d 444.
9 Casper, 2011 WI 81, ¶ 27, 336 Wis. 2d 267.
10 Id. ¶¶ 30-32.
11 Id. ¶ 30.
13 Id. ¶ 36 (citing Howard v. Duersten, 81 Wis. 2d 301, 305, 260 N.W.2d 274 (1977)); see also Wis. Stat. § 801.15(2).
14 Sentry Ins. Co. v. Royal Ins. Co., 196 Wis. 2d 906, 914, 539 N.W.2d 911 (Ct. App. 1995).
15 Olivarez v. Unitrin Prop. & Cas. Ins. Co., 2006 WI App 189, ¶ 16, 296 Wis. 2d 337, 723 N.W.2d 131.
16 Casper, 2011 WI 81, ¶ 44, 336 Wis. 2d 267.
17 Id. ¶ 21.
18 Id. ¶ 46.
19 Id. ¶ 47.
22 Id. ¶ 54.
23 Kenison, 218 Wis. 2d 700, 582 NW.2d 69 (Ct. App. 1998).
24 Id. at 710.
25 Casper v. Am. Int’l S. Ins. Co., 2010 WI App 2, ¶ 28, 323 Wis. 2d 80, 779 N.W.2d 444, aff’d in part, rev’d in part, 2011 WI 81, 336 Wis. 2d 267.
26 Casper, 2011 WI 81, ¶ 79, 336 Wis. 2d 267.
27 Id. ¶ 80.
28 Id. ¶ 90.
29 Id. ¶ 124.
30Under Wisconsin law, the existence of an effective protocol to protect against untimely answers is one factor a court must consider when determining whether the defaulting party’s neglect is excusable. Fireman’s Fund Ins. Co. of Wis. v. Pitco Frialator Co., 145 Wis. 2d 526, 534, 427 N.W.2d 417 (Ct. App. 1988), superseded by statute on other grounds as stated in Wisconsin Ins. Sec. Fund v. Labor & Indus. Review Comm’n, 2005 WI App 242, ¶ 32, 288 Wis. 2d 206, 707 N.W.2d 293.
32 Hedtcke v. Sentry Ins. Co., 109 Wis.2d 461, 469, 326 N.W.2d 727 (1982) (stating that parties and society have an “interest in prompt adjudication …”).
33 Meier v. Champ’s Sport Bar & Grill Inc., 2001 WI 20, ¶ 43, 241 Wis. 2d 605, 623 N.W.2d 94.
34 Howard, 81 Wis. 2d at 305.
35 Kenison, 218 Wis. 2d at 710.
36Other than Wisconsin, Louisiana is the only state that permits a suit against an insurer for the alleged negligence of its insured. La. Rev. Stat. Ann. 22:655.
37 Casper, 2011 WI 81, ¶ 90, 336 Wis. 2d 267.
38 A.E. Investment Corp. v. Link Builders Inc., 62 Wis. 2d 479, 483, 214 N.W.2d 764 (1974) (“The duty of any person is the obligation of due care to refrain from any act which will cause foreseeable harm to others even though the nature of that harm and the identity of the harmed person or harmed interest is unknown at the time.”).