On Jan. 27, 2011, Wisconsin's governor, Scott Walker, signed into law 2011 Wisconsin Act 2, a tort reform law that became effective on Feb. 1, 2011. It amounts to a comprehensive rewrite of the state's product liability law. While the measure will undoubtedly be welcomed by the liability claims community, the changes in Wisconsin tort law will also have some ancillary consequences for subrogation professionals looking to maximize recoveries.
The following changes in Wisconsin law will have an effect on the insurance company when it goes to subrogate.
Reasonable Alternative Design
The new law requires for the first time that plaintiffs (including subrogating carriers) who want to hold a manufacturer responsible for a defective design must show that a "reasonable alternative design" could have been feasibly adopted by the manufacturer to reduce the harm claimed in the lawsuit. Most carriers utilize experts to investigate product defect cases from a small harem of reasonably priced experts who write reports and testify for a living. These forensic professionals are called on to testify that a defect existed which rendered the product unreasonably dangerous. They have not, however, been required to redesign the product and show that a better, safer design was cost-effective, was feasible, and would have prevented the injury. That has now changed.
The new law requires that all plaintiffs—including carriers seeking subrogation—must rethink whom they use as experts and what they engage them to do. The expert must now actually redesign the product, meaning that he or she must have product safety design experience and must be able to testify to the details of a safer design. Qualified consultants will probably be more expensive because product design experience is more difficult to come by. To contain expenses, carriers might share a product design expert with the injured victim's own attorney, opening up opportunities for stipulations and cooperative agreements which will benefit both.
Product liability cases involving manufacturing defects will not require a safer alternative design.
Insurers should immediately inquire about the age of any product involved in a loss because the new Wisconsin act includes a Statute of Repose that applies to all manufacturers, sellers or distributors of products. Under the act, a defendant cannot be found liable to a claimant under a theory of strict liability if the product alleged to have caused the damage was manufactured 15 years or more before the injury or damage occurs unless a manufacturer makes a specific representation that the product will last for a period beyond 15 years or the action is based on a claim for damages caused by a latent defect.
Insurance companies often must wear two hats—that of a defendant looking to limit liability whenever a liability claim is brought against one of its insureds, and that of a plaintiff when looking to enforce liability in a subrogation action filed against a negligent tortfeasor. Tort reform helps the former but hurts the latter.
New Standards for Expert Testimony
The new tort reform act also brings Wisconsin into line with a growing number of states combating "junk science." Wisconsin has now adopted the Daubert "reliability" rule for the admission of expert testimony in all cases. No longer will courts in Wisconsin rely upon the "relevancy rule"; instead, Wisconsin judges will now take a more active gatekeeper's role in determining whether expert witnesses will be allowed to testify at the time of trial.
Previously, if a witness had scientific, technical or other specialized knowledge that would assist the judge or jury to understand the evidence or to determine a fact at issue, a witness—qualified as an expert by knowledge, skill, expertise, training or education—would be able to testify regarding that knowledge in the form of an opinion or otherwise. No longer.
Under the Daubert rule, Wisconsin trial judges must now review all expert testimony as to both relevancy and reliability absent a stipulation by the parties. In doing so, the judges must conduct a hearing outside the presence of the jury to determine if the expert testimony will or will not be admitted. In the hearing, the trial judge will be guided by several factors, prescribed by the Daubert standard, including the following:
 | Testing, peer review and/or publication of the experts' technique or theory |
| General acceptance of the technique or theory in the scientific community |
| The known or potential rate of error |
| The existence and maintenance of standards and controls |
| If experts are proposing to testify about matters flowing naturally and directly out of research they have conducted independently of the litigation or if they have developed it for the purpose of testifying |
| If there is unjustifiable extrapolation from an accepted premise to an unfounded conclusion |
| Adequate accounting for obvious alternative explanations |
| The expert's due diligence |
| The applicability of the expert's field of expertise to the claim. |
After reviewing these factors, an expert will be allowed to testify at trial only if all of the following are true:
- The testimony is based upon sufficient facts or data.
- The testimony is the product of reliable principles and methods.
- The witnesses applied the principles and methods reliably to the facts of the case.
The new requirements mean that insurance companies engaging experts on subrogation claims—including those other than product liability cases—must be very careful in their selection of experts. This may require a reevaluation of expert witness lists and even standing contracts with specialty witness providers. Subrogation counsel should meet with the relevant carrier participants to iron all this out posthaste.
The Daubert Standard
The Daubert standard sets rules of evidence for the admissibility of expert testimony in U.S. federal legal proceedings. It emanates from Daubert v. Merrell Dow Pharmaceuticals, a 1993 case that dealt with serious birth defects suffered by two children allegedly as a result of the mothers' ingestion of the morning-sickness prescription remedy Benedictin. The parents (plaintiffs) submitted evidence based on in vitro and in vivo animal studies and other research that indicated Benedictin could cause birth defects. Because the studies and methodologies were not generally accepted by the general scientific community at that time, trial and appellate judges found in favor of the defendant, Merrell Dow.
The case went to the Supreme Court, which weighed applicable rules of evidence and found that Rule 702 of the Federal Rules of Evidence provided a basis for a decision. While it didn't find that "general acceptance" should govern admissibility of evidence in federal trials, it did set forth juridical standards for expert testimony, which can be broadly categorized as (1) a grounding in scientific knowledge, (2) assistance to the trier in fact (the judge or jury or, sometimes, others), and (3) a "valid scientific connection to the pertinent inquiry." The Supreme Court also decided that the judge would make the determination on the second point—assistance to the trier.
Frivolous Claims Mandates
Act 2 doubles down on the risk-benefit assessment a carrier must make before pursuing subrogation. It provides that a party or their attorney may be liable for costs and fees for actions that are pursued without a reasonable basis of law. If any party withdraws or corrects the improper conduct within 21 days of receiving the other party's motion for fees, the court can decide whether to award actual costs, taking into consideration the offending party's mitigating conduct. Under the new law, if the offending party does not make a timely withdrawal or correction of conduct, actual costs must be awarded by the court. If the decision is appealed and the appellate court affirms the award of costs, the offending party must also pay the actual fees incurred in the appeal. A carrier pursuing a $15,000 property loss does not want to become responsible for the payment of the defendant's attorney's fees and/or costs. Picking and choosing quality subrogation cases to pursue just became a joint venture between the carrier and its subrogation counsel.
Gary L. Wickert (
gwickert@mwl-law.com) is a partner with
Matthiesen, Wickert & Lehrer, S.C., and assisted state representatives in drafting portions of Wisconsin's tort reform legislation.
Douglas W. Lehrer (
dlehrer@mwl-law.com) is a partner with
Matthiesen, Wickert & Lehrer, S.C.