Liability Reform Summary 2005-2006

WDC Journal Edition: Spring 2006
By: Jim Hough - CTCW Legislative Director

There has been a concerted effort in Wisconsin for over 20 years to establish a civil justice system in Wisconsin which is based on common sense and fairness. (In addition to CTCW, this effort has been led by the Wisconsin Coalition for Civil Justice (WCCJ), which was formed in 1985, and has included numerous statewide business, economic development and professional associations.) Increasingly, states’ civil justice systems constitute a critical component in creating jobs and enhancing economic development.

Ten years ago Wisconsin made significant strides in advancing those goals by enacting landmark reforms to our joint and several liability laws, limiting punitive damages and capping noneconomic damages in medical malpractice claims. As a result, our national ranking for litigation atmosphere rose to among the 10 best in the nation.

In March, 2005, our national ranking slipped from among the top 10 in the country to # 17 as we failed to adopt products liability law reforms as well as standards regarding the admissibility of expert opinion evidence. In both areas, Wisconsin law is out of sync with the vast majority of states in the country.

More recently, the Wisconsin Supreme Court overturned the caps on noneconomic damages in medical malpractice cases, weakened the standards for the assessment of punitive damages, and advanced the “risk contribution theory” making Wisconsin the only state in the nation to completely eliminate the traditional legal requirement to prove direct liability to allow recovery in a products liability claim.

These developments opened the door to a flood of litigation, and reversed recent public policy successes in projecting Wisconsin as business friendly. The Court also upset the delicate balance between two branches of government by acting as a “Super Legislature.”Wisconsin’s civil justice system was, indeed, in a state of crisis.

The Wisconsin Legislature responded expeditiously by passing legislation which not only reversed the Supreme Court decisions, but also attempted to move Wisconsin into the mainstream in the areas of product liability law and the admission of expert opinion evidence. Unfortunately, the Governor has vetoed most of these extremely important liability reform measures and Wisconsin’s civil justice system remains in a state of crisis.

[Due in large measure to the above referenced Supreme Court decisions and gubernatorial vetoes, our national ranking for “litigation atmosphere” plummeted in March, 2006 to number 23 in the country, an amazing drop of 13 places in two short years.]

Wisconsin Supreme Court Decisions Have Thrown Wisconsin into a Litigation Crisis

The 1995-96 Legislative Session – Meaningful Civil Justice Reform. In 1995 Wisconsin witnessed a change in the balance of power in the Legislature. This significant event, coupled with the Coalition’s education and awareness campaign and intensified lobbying and grassroots efforts, produced landmark civil justice reform.

Joint and Several Liability. Prior to 1995, Wisconsin law provided that a co-defendant whose liability was as small as one percent could be required to pay 100 percent of damages if the other co-defendant or defendants did not have the ability to pay. This was a clear “deep pocket” theory that amounted to no less than legal extortion in many cases. Legislation was adopted and signed into law that required proportional payment unless the co-defendant’s liability exceeded 50 percent.

Punitive Damages. Punishment and deterrence are the only legitimate reasons for the assessment of punitive damages in civil cases. Even though providing more money to the injured party, an award of punitive damages does nothing to make a plaintiff whole – that is accomplished through the award of special/economic damages and, in appropriate cases, noneconomic damages. (Plaintiff’s lawyers share in the amount of the award.)
Since the civil justice system (in lieu of the criminal justice system) is being used for the above referenced purposes, the bar for assessment of punitive damages must be set high and used in only the most egregious cases. WCCJ and the Legislature agreed that the standard had eroded over the years to mirror merely a heightened degree of negligence. The Legislature adopted a strict standard for the award of punitive damages, which was, at the time, believed to be among the most stringent in the country.

Medical Malpractice—Noneconomic Damages Cap. Recognizing a crisis regarding medical malpractice insurance premiums, health care costs, and the availability of medical services, legislation was passed establishing a limit on the amount of noneconomic damages, such as pain and suffering, mental distress, and loss of enjoyment, to be awarded in medical malpractice cases. These caps did not apply to special/economic damages such as medical costs, lost wages, and lost earning capacity.

Supreme Court’s Holding in Punitive Damages Cases Resulted in a Standard Weaker Than the Standard that Preceded Reforms.

On March 18, 2005, the Wisconsin Supreme Court handed down two opinions relating to Wisconsin law on punitive damages. The Court issued its interpretation of the Wisconsin statute [s. 895.85 (3)] adopted in the 1995 legislative session. The recent rulings were in a drunken driving case and the high profile Mitsubishi case.
While the Court recognized that the Legislature created a “heightened standard” in its adoption of s. 895.85 (3), it rejected the stricter interpretation of the Appeals Court in the Mitsubishi case, reversed that decision, and held that the punitive question was appropriate to be presented to the jury. Despite its recognition of legislative intent to adopt a heightened standard, the majority on the Supreme Court actually used the opportunity to craft a standard, based on the Court’s interpretation, that is weaker than that which existed prior to the Legislature’s action in the 1995 session. In fact, the punitive damage legislation had the result intended by the Legislature, which is to limit punitive damages to the most egregious cases where punishment (outside of the criminal justice system) and deterrence are appropriate under common law – until the Court issued its opinion in these two cases.
In both cases the Court failed, or refused to address, the constitutional issue as to whether the award was excessive.1

Supreme Court Found That the Legislature Acted “Irrationally” as the Court Rejected Medical Malpractice Caps on Noneconomic Damage Awards.

On July 14, 2005, the Wisconsin Supreme Court held (4-3) that the statutory limitation for an award of noneconomic damages in malpractice cases is unconstitutional and violates the equal protection clause of the Wisconsin Constitution. The majority reiterated the theory of “judicial deference to the legislature and the presumption of constitutionality of statutes,” but stated that a statute will be held unconstitutional if shown to be “patently arbitrary” with “no rational relationship to a legitimate government interest.”2

“Noneconomic damages” include pain and suffering, mental distress and loss of enjoyment of normal activity. The caps in question apply only to these damages and no limit is placed on economic damages such as medical and other care-related expenses and lost wages.

The majority does point out that statutory limitations are not per se unconstitutional and noted that the Court recently(July 2004) upheld the cap on noneconomic damages for wrongful death medical malpractice actions. In his concurring opinion, Justice Crooks “emphasizes” that statutory caps in medical malpractice cases can be constitutional.

Justice Prosser (joined by Justices Wilcox and Roggensack) and Justice Roggensack (joined by Justices Wilcox and Prosser) wrote strong dissents challenging the majority’s conclusion that the legislatively adopted cap is not rationally related to the Legislature’s objective.

Both Justices challenge the selective use of studies, many outside Wisconsin, and the conduct of a “mini trial” to justify its conclusions under the rational basis theory. Justice Prosser states that “This court is not meant to function as a ‘super legislature,’ constantly second-guessing the policy choices made by the legislature and governor.” Prosser points out the deliberative nature of the legislative process, the input that may be provided from parties on both or all sides of an issue, and the voters’ remedy to retire those who supported laws that the voters disfavor.

Supreme Court Found Lead Paint Manufacturers Liable Without Proof of Fault because They can Better Absorb or Pass the Costs to Insurers and Consumers.

On July 15, the day after overruling caps on noneconomic damage awards, the Wisconsin Supreme Court held that Article I, Section 9 of the Wisconsin Constitution does not insulate wrongdoers from liability simply because recovery has been obtained from an altogether different wrongdoer for an altogether different wrong. The Court, most significantly, concluded that the lead paint claims warrant extension of the “risk contribution” theory.3

Justice Butler wrote: “…we again conclude ‘that as between the plaintiff, who probably is not at fault, and the defendants, who may have provided the product which caused the injury, the interest of justice and fundamental fairness demand that the latter should bear the cost of injury.’”

The manufacturers are in a better position to absorb the cost of the injury, said Butler. “They can insure themselves against liability, absorb the damage award, or pass the cost along to the consuming public as a cost of doing business.” The court concluded that it is better to have the manufacturers or consumers share in the cost of the injury rather than place the burden on the innocent plaintiff.

In his dissent, Justice Wilcox said the end result of the majority decision was “manufacturers can be held liable for a product they may or may not have produced, which may or may not have caused the plaintiff’s injuries, based on conduct that may have occurred over 100 years ago when some of the defendants were not even part of the relevant market.” He added, “Simply put, the majority opinion amounts to little more than this court dictating social policy to achieve a desired result.”

Recent Decisions Upset Delicate Balance of Government Branches

Beyond reversing the pro-jobs, pro-growth perceptions painstakingly nurtured in recent years, with several strokes of their pens the court has reversed significant policies carefully crafted by our elected officials. Major components of Wisconsin’s 1995 litigation reforms were tossed aside by the court, arguably because the majority simply disagreed with the underlying policies. The court also upset the delicate balance between the branches of government by acting as a “super legislature.”

Court’s Decisions Reversed Earlier Successes that Enhanced Wisconsin’s Business Climate.

These cases raise concern beyond the examination of methods and rationale of the state’s highest court. The perception that Wisconsin‘s business climate is improving has received a serious set back, and the potential impact on economic development is very troublesome. Sweeping decisions by the Wisconsin Supreme Court that promote lawsuit abuse have seriously undercut efforts to portray Wisconsin as “business friendly.”
Crafting balanced, no-tax-increase state budgets in the face of huge deficits, enacting major regulatory reforms without compromising environment protection, along with many other pro-jobs policies sent a vital economic development message from our elected officials to current and prospective Wisconsin businesses. There is little doubt this message was heard as Wisconsin emerged from its serious economic downturn to outpace the nation in jobs creation.
But the Supreme Court decisions that struck down reasonable limits on medical malpractice noneconomic awards, expanded a novel product liability theory, and misconstrued statutory directives on punitive damages are sending an entirely different message to businesses within and beyond our borders. For example, it was disheartening but accurate when the U.S. Chamber of Commerce recently broadcast to its members and the nation that these decisions make Wisconsin “ripe for lawsuit abuse, the effects of which can be devastating to a state’s economy.”
The U.S. Chamber study previously cited as to Wisconsin’s ranking in comparison to other states is not simply an exercise in number gathering; it is a resource for businesses considering expansion and relocation decisions. Prior to the successes in the 1995 legislative session, tort reform was always at the top of the list of legislative issues in survey questions asked of Wisconsin’s economic development professionals. Why? Because the litigation atmosphere is a huge factor (among the top four considerations) when businesses are deciding location decisions.
Wisconsin’s efforts to control tort costs and to have a litigation atmosphere that is fair, based on common sense and not frightening to existing and prospective businesses has indeed taken a big hit.

2005-06 Scorecard of Legislative Activity

Product Liability
• SB 58 (AB 101 companion) passed both Houses of the Wisconsin Legislature and was VETOED by the Governor.
Expert Opinion Evidence
• SB 70 (AB 203 companion) passed both Houses of the Wisconsin Legislature and was VETOED by the Governor.
Medical Malpractice Caps on Noneconomic Damages
• AB 766 (with caps of $450,000 & $550,000) passed both Houses of the Wisconsin Legislature and was VETOED by the Governor.
• AB 1073 (with a cap of $750,000) passed both Houses and was signed by the Governor as ACT 183.
Seller Manufacturer Liability/Risk Contribution (The Jobs Protection Act)
• SB 402 (AB 778 companion) passed both Houses of the Wisconsin legislature and was VETOED by the Governor.
Punitive damages
• SB 447 passed both Houses of the Wisconsin Legislature and was VETOED by the Governor.
Liability Exemption related to Weight Gain/Obesity
• SB 161 passed both Houses and was signed by the Governor as ACT 325.
Curbing the AG’s power Regarding Nuisance Theory Lawsuits
• SB 425 passed the Senate. Was not acted upon by the Assembly.

Jim Hough of The Hamilton Consulting Group, LLC serves as the Legislative Director for the Wisconsin Coalition for Civil Justice (WCCJ), the Civil Trial Counsel of Wisconsin(CTCW) and the Wisconsin Economic Development Association (WEDA), all of whom have been active in civil justice reform issues Wisconsin for over 20 years.

1 Strenke v. Hogner, 2005 WI 25, 279 Wis. 2d 52, 694 N.W.2d 296; and Wischer v. Mitsubishi Heavy Indus. Am., Inc., 2005 WI 26, 279 Wis. 2d 4, 694 N.W.2d 320.

2 Ferdon v. Wisconsin Patient’s Compensation Fund, 2005 WI 125, 284 Wis. 2d 573, 701 N.W.2d 440.

3 Thomas v. Mallett, 2005 WI 129, 285 Wis. 2d 236, 701 N.W.2d 523.