Link v. Link: Examining the Essential Duty of Cooperation with Coverage Counsel

Link v. Link: Examining the Essential Duty of Cooperation with Coverage Counsel
Andrew J. Lawton, Coyne, Schultz, Becker & Bauer, S.C.

It has long been recognized in Wisconsin that a person may invoke their rights under the Fifth Amendment granted by the U.S. Constitution to refuse to give testimony in a civil case in order to protect themselves from the use of such evidence against him in a real or possible subsequent criminal action.[i] Unlike in a criminal case, however, invoking the Fifth Amendment right against self-incrimination can be used against a defendant in a civil case. For this reason, it is often in the best interest of a defendant to move to stay civil proceedings until a parallel criminal case is resolved. Courts may exercise their discretion to stay civil proceedings in the face of a parallel criminal investigation, examining the circumstances and competing interests involved in the case.[ii]

But can a defendant similarly shield inculpatory information from his insurer because such would be harmful to the underlying civil case? Can the mere threat of future criminal charges be used as an excuse not to provide information to an insurance company? A recent decision by the Wisconsin Court of Appeals, Link v. Link[iii], emphatically states that the answer is “No.” Regardless of the consequences, a defendant cannot demand defense from their insurance company while shirking their own contractual obligations of cooperation and honesty.

I. A Restated Precedent: Link and Walker

In Link, eight plaintiffs brought suit against Jay Link alleging that he posted sexually suggestive photographs of them online.[iv] Mr. Link tendered his defense to Midwest Family Mutual Insurance (“Midwest”), seeking coverage under the personal injury endorsement to his homeowner's policy.[v] Midwest defended Mr. Link under a reservation of rights and moved to intervene, bifurcate, and stay further proceedings on the merits.[vi] Midwest then served various discovery requests on Mr. Link in the proceedings on coverage.[vii] Mr. Link refused to respond to the requests, instead invoking his Fifth Amendment privilege to avoid self-incrimination.[viii]

Mr. Link’s policy contained a concealment clause stating, “We do not provide coverage to an ‘insured’ who, whether before or after a loss, has . . . [c]oncealed or misrepresented any fact upon which we rely, if the concealment or misrepresentation is material and is made with intent to deceive.”[ix] The policy also contained a cooperation clause, requiring Mr. Link to “[c]ooperate with [Midwest] in the investigation, settlement or defense of any claim or suit,” and stating that Midwest had “no duty to provide coverage” if Mr. Link's failure to do so was prejudicial to Midwest.[x]

Midwest argued that Mr. Link breached the policy's concealment and cooperation clauses by not responding to Midwest's interrogatories, requests for admission, and requests for document production, all of which inquired into Mr. Link’s posting of photographs and commentary about the plaintiffs, and his intent for doing so.[xi]

Mr. Link’s central argument was that an insured's invocation of a Fifth Amendment privilege in a coverage dispute could not be grounds for coverage denial.[xii] The court of appeals noted it had considered and rejected a similar argument in State Farm Fire & Casualty Insurance Co. v. Walker,[xiii] and that the principles of that decision applied to the concealment and cooperation provisions of Mr. Link’s policy.[xiv]

In Walker, an insurer was investigating a claim under a fire insurance policy and sought to question one of its insureds under oath.[xv] The insured was facing unrelated homicide charges in Colorado, and invoked his Fifth Amendment privilege to not answer those questions from his insurer.[xvi] The insurer denied coverage and sought declaratory judgment on the grounds that the insured’s refusal to answer material questions violated the concealment clause of the policy.[xvii] The circuit court concluded that the insured had breached the concealment clause by refusing to answer questions material to his insurer’s coverage investigation.[xviii]

On appeal, the insured argued that an insurance company should not be allowed to interpret the failure to answer questions as concealment when the insured, following an attorney's advice, invokes a Fifth Amendment to avoid self-incrimination.[xix] The Walker court rejected this contention, and held that the Fifth Amendment protects a defendant only when it is the state that is the questioner, and that fear of self-incrimination does not exempt one from contractual duties.[xx] The Walker court also rejected the insured’s contention that the questions he failed to answer were not material to the insurance policy.[xxi] The court wrote that a material question “concerns a subject relevant and germane to the insurer's investigation as it was then proceeding.”[xxii] The insured refused to answer questions about his name change and financial position, which the court held were relevant in the insurance company’s arson investigation.[xxiii]

The court in Link noted that the Walker case broadly considered the contractual impact of an insured invoking a Fifth Amendment privilege.[xxiv] Relying on Walker, the Link court concluded that “[c]onstitutional immunity has no application to a private examination arising out of a contractual relationship,” and therefore did not depend on the language of the concealment clause, but on the scope of Fifth Amendment privilege.[xxv]

Mr. Link tried to argue that the Walker case did not control because that case involved a first-party claim, whereas his own claim was a third-party suit.[xxvi] The court found that the Walker case was in no way dependent on this distinction, and instead, Walker broadly considered whether collateral civil consequences may attach to the invocation of privilege in a coverage dispute.[xxvii] The insured’s contractual obligation to assist with an investigation remained the same regardless of the claim being made.[xxviii]

Mr. Link also argued that Walker should not apply because in Walker, the insurer’s questioning was prior to any civil lawsuit.[xxix] Mr. Link’s obligation to respond to Midwest’s requests were also based on discovery statutes, and therefore, Mr. Link argued, the remedies for non-compliance with discovery should be limited to those statutes, or perhaps an adverse inference instruction could be given to the jury because of his invocation of a Fifth Amendment privilege.[xxx]

The court was similarly not persuaded and wrote that Mr. Link provided no legal support for why the existence of other remedies for his non-compliance precluded Midwest from pursuing the remedy it chose, moving for declaratory judgment.[xxxi] The Link court therefore concluded that the Walker decision controlled, and that the threat or possibility of parallel criminal charges did not relieve Link of his contractual duties under the policy. [xxxii]

The court then considered whether Midwest successfully showed that Mr. Link breached the concealment and cooperation clauses of his policy. The concealment clause stated that Midwest “do[es] not provide coverage to an ‘insured’ who, whether before or after a loss, has . . . [c]oncealed or misrepresented any fact upon which we rely, if the concealment or misrepresentation is material and is made with intent to deceive.”[xxxiii] Mr. Link acknowledged that he intentionally concealed information, but implied that any concealed facts were not material to the policy.[xxxiv] Again, the court disagreed with Mr. Link and concluded that the basic information sought by Midwest was directly relevant to its investigation into whether Mr. Link posted photographs and commentary online about the respective plaintiffs.[xxxv]

Mr. Link’s personal injury endorsement excluded coverage for injury caused by the publication of material that the insured knew was false.[xxxvi] But Mr. Link, the court noted, refused to answer any questions pertaining to his knowledge or state of mind in posting any material.[xxxvii] Another exclusion denied coverage where the first publication occurred before the beginning of the policy period, but Mr. Link refused to provide information about when he made any of the posts.[xxxviii] Under the Walker precedent, the Link court stated that determining whether requested information met the “materiality” standard is not a high bar requirement, and the information Mr. Link refused to provide met this requirement.[xxxix]

The court also rejected Mr. Link’s argument that Midwest could not deny coverage because it did not establish his noncompliance was prejudicial, which is required to deny coverage based on noncooperation. [xl] Under Mr. Link’s policy's cooperation clause, his duty “[in] the event of a covered offense” was that he “[c]ooperate with [Midwest] in the investigation, settlement or defense of any claim or suit.”[xli] Midwest had “no duty to provide coverage under [the] policy if [Mr. Link's] failure to comply with [the duty to cooperate] is prejudicial to” Midwest.[xlii]

Mr. Link implied that he did not breach the policy because he cooperated with his merits counsel in the lawsuits brought against him, which the court labeled as a nonstarter argument.[xliii] Even if the court assumed that Mr. Link did cooperate with merits counsel, this was not his sole contractual duty:

[Mr. Link’s] policy requires his cooperation with “us,” i.e., Midwest, in the “investigation, settlement or defense of any claim or suit,” meaning Link was required to cooperate with Midwest in its coverage investigation. [Mr. Link] cannot reasonably argue that he fulfilled this duty by participating in his own defense.[xliv]

Mr. Link also argued that any admission of fault in the coverage dispute would have harmed his defense in the underlying lawsuit.[xlv] But the court noted that this argument ignored the fact that Mr. Link himself first demanded defense and performance by Midwest under his policy:

After invoking the policy, [Mr. Link] was required to abide by its terms, including that he cooperate with coverage counsel and truthfully represent all material facts in the coverage dispute. [Mr. Link] does not explain why fulfilling these duties in the coverage cross-claim would have interfered with his defense on the merits or breached his duty of cooperation with respect to merits/liability counsel. And, as Midwest notes, if [Mr. Link] believed that fulfilling these duties ultimately would have harmed his defense, he could have foregone a defense paid for by his insurer.[xlvi]

The court noted that Midwest followed a well-established course where insurers provide defense under a reservation of rights, and that a free exchange of information was necessary to ultimately determine coverage.[xlvii] Further, the court concluded that as a matter of law, the cooperation clause in Mr. Link’s contract put him on notice that he must respond to discovery requests, and that Midwest had no duty to enumerate all of the potential consequences for failing to respond to the same.[xlviii]

Mr. Link also invoked public policy and stated a ruling against him would cause harm to innocent third parties, but the court noted that public policy also favors the enforcement of contracts and the principle of fortuitousness, which courts can read into insurance policies to further public policy objectives, including (1) avoiding profit from wrongdoing; (2) deterring crime; (3) avoiding fraud against insurers; and (4) maintaining coverage of a scope consistent with the reasonable expectations of the contracting parties on matters as to which no intention or expectation was expressed.[xlix]

The Link court, in applying these concepts, stated:

[I]t makes little sense to require most insureds to cooperate in the typical coverage investigation while allowing those accused of more egregious, and potentially criminal, acts to invoke privilege and still receive coverage. As demonstrated by Walker, the decision to invoke the Fifth Amendment does not have to be—and sometimes should not be—consequence-free.[l]

Mr. Link’s position, the court concluded in agreeing with Midwest, would allow him to use his Fifth Amendment privilege “as both a sword and a shield,” in that coverage could never be determined so long as he continued to invoke privilege.[li]

II. The Consequences of Noncompliance

Staying a civil case for a defendant so that they may fully exercise their constitutional rights in a criminal proceeding threatening their liberty was not the direct issue presented in Link. The issue in Link was whether a defendant can assert those same privileges against their own insurance company exercising its reservation of rights and trying to determine whether coverage exists for the underlying suit. Mr. Link argued that cooperating with his insurance company’s coverage counsel’s requests would be detrimental to the same civil case that he had requested defense on. The court of appeals emphasized that even if Mr. Link was concerned about the effect of cooperating with his insurance company’s request for coverage related information on the underlying case, he could simply have chosen not to demand that a defense by his insurance company be provided. He could not escape complying with the contractual duties he agreed to by hiding facts which obfuscated whether exceptions to coverage existed.

Although it is not clear if Mr. Link ever asserted that he was directly fearful of criminal charges based on the allegations in the civil actions against him, the court made clear that even the threat or possibility of parallel criminal charges would not relieve Mr. Link from his contractual duties. This too must be a point well counseled to clients by their merits counsel. While it may seem like a Catch-22, as Mr. Link described, a defendant may have to decide whether to prioritize their freedom in a criminal proceeding, or their financial position in a civil case if they are relying on insurance-provided counsel. Indeed, hiring a non-insurance provided attorney would solve the issues outlined in Link and Walker, but without the benefit of insurance coverage in the event of an adverse judgment.

The Walker decision has also been noted to permit the result of loss of coverage for any party to an insurance contract, even if separately innocent of any concealment to an insurance company, so long as the policy explicitly provides for that result.[lii] This too should be a major consideration in multi-party cases for counsel.

Most insurance contracts include language regarding concealment and cooperation with an insurance company for those seeking indemnification, defense, or disbursement of funds. A defendant may indeed find it disconcerting to provide adverse information to insurance coverage counsel in discovery. It would likely lead to any such information being turned over to a plaintiff, and potentially lead to the defendant losing insurance paid assistance of counsel altogether, leaving him financially exposed and scrambling for a new attorney.

While Link and Walker are cases with allegations that were very likely exempted from coverage from the outset, these cases underscore the necessity of any merit counsel to fully comply with requests for information from coverage counsel. Many cases will not be so one sided against a defendant in a coverage situation, and the dangers of objecting to certain requests or providing discovery responses that fail to fully inform an insurance company risk the filing of dispositive motions that result in a court ruling that there is no coverage for a defendant.

This result should be fiercely guarded against. The risk of suddenly leaving a client with financial exposure and the sudden need to hire a new attorney on their own at personal expense is greater and more catastrophic in a situation where an attorney or their client simply fails to provide sufficient information. Far better to eagerly provide all non-privileged information possible to coverage counsel so that an appropriate decision on coverage can be fully determined or litigated at an earlier stage of proceedings instead of a drawn out and contentious discovery process that might resolve in an insurance company’s favor because of a poor discovery strategy, rather than any policy language-based reasons.

The result of fully disclosing facts that eventually lead to a defendant’s denial of coverage is one that would likely have been unavoidable to begin with, given clear and specific contract language and equally clear facts. But a result in which the stonewalling tactics of an attorney or client result in denial of coverage could, in the right circumstance, possibly form the basis of legal malpractice on the part of an attorney failing to adequately respond to coverage counsel’s requests, or an ill-advised client seeking to be unnecessarily adversarial to all interests opposed to their own. This could be equally detrimental to innocent co-defendants.

Author Biography:

Andrew J. Lawton is an associate at Coyne, Schultz, Becker & Bauer, S.C. He practices in civil litigation with a focus on insurance defense. He received his B.A. in 2015 from the University of Wisconsin-Eau Claire and his J.D. in 2018 from Marquette University Law School. Andrew is admitted to practice in Wisconsin.

[i] Grognet v. Fox Valley Trucking Serv., 45 Wis. 2d 235, 239, 172 N.W.2d 812, 815 (1969).

[ii] State v. Steenberg Homes, 204 Wis. 2d 113, 552 N.W.2d 900 (Ct. App. 1996).

[iii] Link v. Link, 2022 WI App 9, 401 Wis. 2d 73, 972 N.W.2d 630.

[iv] Id. at 632.

[v] Id. at 633.

[vi] Id.

[vii] Id.

[viii] Id.

[ix] Id. at 634.

[x] Id.

[xi] Id.

[xii] Id.

[xiii] State Farm Fire & Cas. Ins. Co. v. Walker, 157 Wis. 2d 459, 459 N.W.2d 605 (Ct. App. 1990).

[xiv] Link, 972 N.W.2d at 634.

[xv] Walker, 157 Wis. 2d at 463.

[xvi] Id. at 463-64.

[xvii] Id.

[xviii] Id. at 464.

[xix] Id. at 468.

[xx] Id.

[xxi] Id. at 469.

[xxii] Id. (citing Fine v. Bellefonte Underwriters Ins. Co., 725 F.2d 179, 183 (2d Cir.), cert. denied, 469 U.S. 874 (1984)); Claflin v. Commonwealth Ins. Co., 110 U.S. 81, 94-95 (1884).

[xxiii] Walker, 157 Wis. 2d at 468.

[xxiv] Link, 972 N.W.2d at 635.

[xxv] Id. at 635 (citing Walker, 157 Wis. 2d at 468).

[xxvi] Link, 972 N.W.2d at 635.

[xxvii] Id.

[xxviii] Id. at 636.

[xxix] Id.

[xxx] Id.

[xxxi] Id.

[xxxii] Id. at 637.

[xxxiii] Id.

[xxxiv] Id.