Opinion ID: 2636865
Heading Depth: 2
Heading Rank: 1

Heading: The Wisconsin Products Liability Litigation

Text: In June 1987, 35-year-old Michael Hubert jumped headfirst onto his Wisconsin neighbor's backyard water slide toy known as a Slip `N Slide and broke his neck, rendering him a partial quadriplegic. [1] Hubert brought a personal injury action in Wisconsin against Kransco, the California corporation that manufactured the Slip `N Slide toy (the Hubert action). Kransco tendered defense of the action to its Ohio-based primary liability carrier, American Empire Surplus Lines Insurance Company (AES), which had agreed to defend Kransco against personal injury actions in any state and indemnify it for all sums it became legally obligated to pay as damages up to $1 million, less Kransco's $100,000 self-insured retention. Kransco also had three layers of excess insurance above its AES primary insurance coverage: International Insurance Company (International) provided $2 million in excess of the $1 million primary coverage, Agricultural Excess and Surplus Insurance Company (Agricultural) provided the next layer of $1 million in excess of the $3 million, and Transco Syndicate No. 1 Ltd. (Transco) provided the last layer of excess insurance: $1 million in excess of the $4 million. In all, Kransco had $5 million in available liability coverage over and above its $100,000 self-insured retention. During the discovery phase of the Hubert action, in response to an interrogatory by Hubert, Kransco denied knowledge of prior Slip `N Slide accidents that had resulted in cervical injuries to adults. Kransco later amended its response to admit knowledge of two such accidents. One accident had resulted in the user's death, the other had left the user a quadriplegic and resulted in a $1.5 million settlement against the corporation from which Kransco had purchased the rights to manufacture the Slip `N Slide. Kransco's amended response itself contained inaccurate information about the date of one of these accidents. Hubert's action against Kransco was tried to a Wisconsin jury in April 1991. During the trial, Hubert offered to settle the action for $750,000, almost a million dollars less than his pretrial demand. Kransco approved settlement at that amount and tendered its $100,000 self-insured retention. Primary insurer AES, however, would contribute only $250,000 toward a settlement. AES rejected Hubert's $750,000 settlement offer and, given Kransco's willingness to contribute $100,000, and excess insurer International's willingness to contribute another $100,000, made a counteroffer of $450,000, which Hubert rejected. The jury ultimately returned verdicts awarding Hubert roughly $2.3 million in compensatory damages and $10 million in punitive damages. In June 1991, while postverdict motions were pending in the Wisconsin trial court to reduce the unprecedented punitive damages award, [2] Kransco settled with Hubert. Kransco and its insurers paid Hubert $7.5 million. Of this amount, AES contributed its policy limits of $900,000 while objecting to the settlement as unreasonable because it thought the verdict likely would have been judicially reduced or set aside. Excess insurers International and Agricultural contributed their policy limits of $2 million and $1 million, respectively, and excess insurer Transco contributed $500,000, half its policy limit. [3] Kransco paid the remaining $3.1 million from its own funds. At Hubert's insistence, Kransco stipulated to entry of judgment against it in the full amount of the jury verdict plus interest (approximately $12.5 million) but Hubert agreed not to execute on the judgment. Additionally, under the terms of the settlement Kransco agreed to prosecute a bad faith action against AES and to split equally with Hubert any net proceeds from the litigation (after deduction of litigation expenses and reimbursement of the subrogated excess insurers' cash settlement payments).