Failure To Amend Insurance Coverage Disclosures Found Sanctionable

On Friday, the U.S. District Court for the Eastern District of Wisconsin granted a motion for sanctions against attorneys representing the manufacturer of a catwalk from which an egg farm worker fell and was seriously injured.  At the beginning of the case, the attorneys made the following initial disclosure about available insurance coverage from the company’s German insurer: “Liability coverage is provided by [ ].  This coverage is adequate to cover the damages apparently at issue in this case.”

Approximately one year later, however, the insurer informed the company’s attorneys that its initial coverage position was incorrect and that the policy provided coverage for defense costs but not liability for accidents occurring in the United States.  The attorneys supplemented their initial disclosures with the statement that “insurance coverage is provided [ ] according to the terms of the insurance policy attached hereto as Exhibit 1” and then attached the policy (which previously had not been accessible) in German.  Another year passed and after a mediation was unsuccessful, the company’s counsel indicated that there was no coverage available for liability.

The plaintiffs brought a motion for sanctions.  The court did not agree with plaintiffs that the company’s counsel should be sanctioned for misrepresenting the amount of insurance coverage at the outset of the case in the initial disclosures because  they were simply relaying misinformation obtained from the insurer.  The court, however found the later actions “clearly sanctionable,” particularly the failure to ever correct the representation about the adequacy of coverage.  The court determined that the sanctions should be in an amount to compensate plaintiffs for their reasonable expenses, including attorneys’ fees, caused by the failure to correct the insurance coverage disclosures pursuant to Rules 37(c)(1)(A) and 26(g)(3).  Rather than set that number, the court asked the parties to attempt to work out the amount on their own.

The case is before Judge Randa and is No. 2:12-cv-1227.

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