CTCW Helps the Supreme Court Get It Right

WDC Journal Edition: Spring 2006
By: Michael P. Crooks - CTCW President

Taking a step in the right direction, the Wisconsin Supreme Court recently denied a proposal of the Wisconsin Ethics 2000 Committee to remove the “insurance defense exception” from SCR 20:1.8(f). The proposed amendment would have disrupted the careful balance of rights and relationships in the tripartite system of insurance defense, spawned unnecessary litigation, and furthered recent damage to Wisconsin’s business-friendly reputation.

The current rule honors the insurance contract where, by the clear terms of the policy, an insured has consented to the insurer choosing defense counsel. The insurer has contractual rights and obligations to defend the insured against third party claims, and it is the insured’s expectation that it will do so. Thus, the common sense rule is that the insurer may select and hire defense counsel without the “informed consent” of the insured. Because Wisconsin is a direct action state, insurance companies are routinely named in lawsuits and liable for indemnity up to the policy limits. The insured and the insurer share the interest of minimizing liability. Thus, this is not a relationship in which conflict inherently arises.

The Supreme Court should be commended for giving meaning to the terms contracted for in an insurance policy, and for refraining from the temptation to “fix a rule that was not broken.” The decision also recognizes that insureds are adequately protected under the existing rules if conflict between the parties were to arise (i.e. SCR 20:1.6 Confidentiality, SCR 20:1.7 Conflicts of Interest, SCR 20:5.4 Independence of Counsel).

It should not be forgotten, however, that this decision comes in the wake of several anti-business rulings by the Supreme Court. Specific examples include Wischer v. Mitsubishi Heavy Industries1 (negating a statute that would have made recovery of punitive damages more difficult for plaintiffs), Ferdon ex. rel. Petrucelli v. Wisconsin Patients Compensation Fund2 (striking down non-economic damages caps in medical malpractice cases), and Thomas v. Mallett3 (allowing a claim against a group of companies that produced a pigment used in lead paint despite a lack of proof specific to each company; seen by many as an extreme expansion of the 1984 DES market share theory of liability). Recently, Governor Doyle had an opportunity to sign bills to correct Ferdon and Thomas, but vetoed them instead.

There is clearly much to be done to repair and bolster the litigation business climate in Wisconsin. However, the decision to maintain SCR 20:1.8(f) serves as an example of how the hard work of the CTCW and its members can positively influence rules and policy in Wisconsin. There are several individuals whose efforts were of particular note. Former CTCW Presidents Jim Naugler and Bernie McCartan as well as President-Elect John Slein drafted position papers opposing the proposed amendment and prepared testimony for presentation at the hearing. CTCW lobbyist Jim Hough worked to emphasize the rationale behind the “insurance defense exception,” and Insurance Alliance President Eric Englund provided hearing testimony as well. Additionally, numerous CTCW board members and former board members successfully lobbied the Board of Governors for the State Bar, which voted unanimously against the proposed amendment.

Bernie McCartan also was instrumental as an advocate for an alternative proposal that would better address the Wisconsin Ethics 2000 Committee’s concerns. This alternative was ultimately adopted by the Supreme Court. For insurance defense attorneys, compliance with the ethical rules requires only a simple letter to the insured explaining the terms and scope of representation under the policy. The letter should describe why the attorney has been retained and explain that the attorney’s bills will be paid by the insurance company. The need for the letter (a good practice anyway) officially starts in July of 2006. This alternative will increase the clarity of the attorney-client relationship without upsetting the tripartite system which has been carefully contracted for through insurance policies and elaborated on through Wisconsin case law. Again, highest praise to those whose efforts helped to convince the Court that the proposed amendment to SCR 20:1.8 should be rejected. I urge CTCW members to continue speaking as the voice of reason with respect to issues important to the defense bar.

12005 WI 26, 279 Wis. 2d 4, 694 N.W.2d 320

22005 WI 125, 701 N.W.2d 440

32005 WI 129, 701 N.W.2d 523