Today, the Wisconsin Supreme Court issued a significant decision (Casper v. American Int. South Ins., 2011 WI 81) dealing with the liability of corporate officers for non-intentional torts and default judgments. The Wisconsin Civil Justice Council and the Wisconsin Insurance Alliance filed an amicus curiae brief in support of the employer and insurance company sued in the case.
The opinion was mostly positive. In particular, the court held that the corporate officer was not personally liable for approving the driving route of his employee who injured the plaintiffs. In addition, the court ruled that the trial court properly allowed the insurance company more time to answer the plaintiffs’ complaint based on the insurance company’s “excusable neglect” in failing to meet the 45-day timeline required by law.
The only negative portion of the decision was the court’s determination that a liability insurance policy need not be delivered, or issued for delivery, in Wisconsin in order to subject the insurer to direct action under Wisconsin law.
Facts and Legal Issues
Members of the Casper family and a friend were injured when their vehicle was rear-ended by a vehicle driven by Mark Wearing. At the time of the accident, Wearing was co-employed by Transport Leasing/Contract, Inc. (TLC) and Bestway Systems, Inc. (Bestway). The truck he was driving had been leased to Bestway by Ryder. Litigation ensued and three separate appeals were filed, two of which went before the Supreme Court.
The first issue presented to the court was wholly procedural and involved the question of what constitutes “excusable neglect” when failing to respond to a complaint within the 45-day requirement. The Caspers filed suit against a number of parties, including, as relevant here, National Union, as an insurer of one of the driver’s co-employers, TLC.
The Caspers served National Union with a copy of the amended complaint, on May 5, 2006. National Union failed to timely answer the amended complaint. The Caspers promptly moved for default judgment. Shortly thereafter, National Union filed an answer that was six days late and also moved to enlarge time for filing their answer.
The circuit court found that National Union’s failure to file its answer in a timely manner was “excusable neglect” under Wisconsin’s law. Accordingly, the court granted National Union’s motion to enlarge time and denied the Caspers’ motion for default judgment.
The second legal issue involves a novel question about the personal liability of a corporate officer, Jeffrey Wenham, the CEO of Bestway, one of the employers of the driver. The Caspers alleged that Wenham was personally liable in negligence for approving the route that Wearing (his employee) was driving the day of the accident, knowing that the route could not be safely completed pursuant to federal regulations. Initially, the circuit court dismissed all of the Caspers’ claims against Wenham as an individual. On reconsideration, however, the circuit court reinstated the negligence claim against Wenham, agreeing with the Caspers that it had erred in finding that there was no evidence or testimony that Wenham personally approved the route. Wenham appealed and the court of appeals affirmed.
The third legal issue is whether under Wisconsin law a direct action claim against an insurer can be maintained where the insurance policy was not delivered or issued for delivery in Wisconsin, but the insurance policy covers the insured “business operations” conducted in this state.
Supreme Court Decision
In a 5-2 decision by Justice David Prosser (joined by Justices Patrick Crooks, Patience Roggensack, Annette Ziegler, and Michael Gableman; Chief Justice Shirley Abrahamson and Justice Ann Walsh Bradley dissenting in part and concurring in part), the Supreme Court both affirmed and reversed the lower court.
Default Judgment — Excusable Neglect: The court held that the trial court did not erroneously exercise its discretion in finding excusable neglect and granting National Union’s motion to enlarge time by seven days to answer the amended complaint. The court found that National Union provided sufficient affidavits explaining its failure to respond to the complaint within the 45 days required by Wisconsin law.
Corporate Officer Liability for Non-Intentional Tort Liability: A corporate officer can be held personally liable for a non-intentional tort liability that occurs while he or she is performing his or her job and which is within the scope of his or her employment. However, the court ruled that in this case Wenham’s (the CEO) actions were too remote to provide a basis for liability. According to the court, “any negligence on Wenham’s part in approving a route, from his office in Ohio, to be driven entirely in other states, is simply too far removed from the injury the Caspers suffered in Wisconsin.”
In reaching its decision, the court cited WCJC’s and WIA’s brief discussing the “business judgment rule,” which “limits judicial review of corporate decision-making when corporate directors make business decisions on an informed basis, in good faith, and in the honest belief that the action taken is in the best interest of the company.” According to the court, “the very existence of a business judgment rule reflects public policy that corporate officers are allowed some latitude to make wrong decisions without subjecting themselves to personal liability.”
Direct Action: The court ruled that a liability insurance policy need not be delivered or issued for delivery in Wisconsin in order to subject the insurer to a direct action under Wisconsin law. In reaching this decision, the Supreme Court overruled a previous court of appeals decision – Kenison v. Wellington Insurance Co. – which reached a different conclusion.