Using a Section 805.06 Referee To Resolve Coverage Disputes

By: Monte E. Weiss, Weiss Law Office, S.C.

The existence and extent of insurance coverage can be the single most determinative factor of whether a case can be resolved. When coverage is contested, the plaintiff, the insured and all others who have an interest in the existence or non-existence of coverage allocate significant resources to resolve the question of coverage.[1] Insurance coverage disputes can be complex, fact intensive, and difficult to resolve. These disputes occupy a fair amount of the court’s time and effort.

An option available to the court and litigants is the use of a referee. A circuit court has the authority under Wis. Stat. § 805.06 to issue an Order of Reference to appoint a qualified individual to serve as a referee (often referred to as a special master in the federal court system)[2] to assist, but not decide, the insurance coverage dispute. 

This article explores the benefits and drawbacks of using a referee to help the circuit court to resolve insurance coverage disputes. First, however, an introduction to what a referee is, and the scope of the referee’s power is necessary to understand how a referee can assist in a coverage dispute.[3]

I.              What Is a Referee? 

Under Wis. Stat. § 805.06, a referee is an individual who has “such qualifications as the court deems appropriate” for the task at hand.[4] The use of referees is not an unusual occurrence in Wisconsin, but according to the statute, it is to be “the exception and not the rule.”[5]

Referees can provide a significant benefit to the court and the litigants. “Used properly, a circuit court’s power to appoint and assign functions to a referee is not unconstitutional and allows circuit courts to provide more efficient dispute resolution to litigants.”[6]

Referees are used in the attorney disciplinary process. According to the Wisconsin Court System website: “A court-appointed attorney or reserve judge hears the discipline cases and makes disciplinary recommendations to the Supreme Court, approves the issuance of certain private and public reprimands, and conducts hearings on petitions for reinstatement of a license to practice law.”[7] In a disciplinary proceeding, “the function of the referee is that of a special master appointed to conduct a hearing under the jurisdiction of this court.”[8] 

Referees have been used to value a corporation’s assets and liabilities[9] as well as the amounts due to partners of a law firm that left the partnership.[10] Referees have been used in a dispute between a successor corporation and the former corporation’s salesman regarding commissions due.[11] Referees have been used in divorce matters regarding the issue of property division[12] and placement.[13] In cases where the Wisconsin Supreme Court has taken original jurisdiction, the court “may refer issues of fact or damages to a circuit court or referee for determination.”[14] 

Perhaps the most prevalent use of a referee, however, is the resolution of discovery disputes in complicated matters. The use of referees in discovery-related matters can be helpful: “In cases involving protracted actions, complex issues, or multiple parties, the utility of the appointment by the court of a referee under s. 805.06” is beneficial.[15] The use of a referee to resolve discovery[16] and other disputes “allows circuit courts to provide more efficient dispute resolution to litigants.”[17]

II.            Legal Authority for the Use of a Referee 

The use of a referee is governed by Wis. Stat. § 805.06. The statute sets forth how and when a referee can be used.

a.     The Appointment of the Referee 

The court can choose to appoint a referee. The referee must have the qualifications as is appropriate for the subject matter of the task that the referee is to handle. The circuit court makes the decision as to whether the individual has the requisite qualifications. The decision to grant or refuse to grant an order of reference is committed to the sound discretion of the circuit court.[18] 

In general, the referral to a referee should be done sparingly.[19]An order of reference can only be issued where issues are complicated (for jury actions)[20] and excluding “matters of account and of difficult computation of damages”) where there is “some exceptional condition” (for non-jury actions).[21] The issuance of an order for reference in the absence of a complicated issue or some exceptional condition will be reversed as the circuit court will have exceeded its authority.[22]

The services of the referee are charged to the parties or, if appropriate, out of the subject matter of the action.[23] While the referee is to be paid, the referee cannot use the report that is generated as security for compensation. The referee must provide the report regardless of payment. If payment is not forthcoming, the referee is entitled to a writ of execution against the “delinquent party.” The entitlement to the writ of execution is conditioned upon the court ordering that the fee be paid within a certain time period and notice being provided of the amount and the date due.[24]

b.    The Order of Reference

To have a referee appointed, the court must issue an “Order of Reference.”[25] The Order of Reference specifically details the scope of the work and the power that a referee is able to exercise to accomplish that which the circuit court has ordered. Once the Order of Reference is issued, the clerk is to “forthwith” provide a copy of the Order of Reference to the referee. Parties have the opportunity to object to the Order of Reference and if an objection is made, it must be in the form of a motion to revoke the reference.[26]

If no objection is made, then under statute, the referee is to set a time and place for the parties or their counsel to meet within twenty days of the issuance of the Order of Reference.[27] However, if the Order of Reference provides for a different time period within which a meeting between the parties (or their counsel) and the referee is to take place, then the Order of Reference controls.

As noted, the Order of Reference is the controlling document. The Order of Reference sets forth the scope of the work that the referee is to perform. This order can be broad or narrow. It can provide for the referee’s scope of work to a certain issue or certain task or to address a multitude of issues or tasks.[28] The referee can only perform the work specified in the Order of Reference.[29] If the referee exceeds the scope of the Order of Reference, that portion of the Order of Reference that has been exceeded is to be disregarded.[30] If the parties stipulate, however, that the referee may exceed the scope of the Order of Reference, then that referee’s determination will be binding on the parties. 

The statute sets forth additional procedures available to the referee if the subject matter of the Order of Reference relates to “matters of accounting.”[31] In such matters, the referee is authorized “to prescribe the form in which the accounts shall be submitted” and in some cases, “require or receive in evidence a statement by a certified public accountant who is called as a witness.”[32] Parties are permitted to object to the CPA’s statement as well as any other items that are submitted to the referee. In response, the referee can require the CPA statement in a different form, or obtain information through alternative methods, including oral testimony or responses to written interrogatories.

In order to perform the work as directed by the circuit court, the referee is entitled to hold a hearing and place people under oath to obtain sworn testimony which includes the referee’s ability to examine witnesses and parties.[33] The referee can receive other forms of evidence, including requiring the production of “books, papers, vouchers, documents, and writings”[34] applicable to the scope of work set forth in the Order of Reference. The referee need not make a record of the evidence received or excluded unless a party requests that the referee do so.[35] If requested, then the referee will make the record in a manner as “a court sitting without a jury.”[36]

c.     The Referee’s Report

Once the referee’s work is completed, a report must be generated. That report must be submitted to the court.[37] If the Order of Reference requires that the referee make findings of fact and conclusions of law, the report must contain those findings and conclusions. If the matter for which the Order of Reference is one that is to be tried without a jury, then the transcript of any of the proceedings held before the referee and all original exhibits must be provided to the court as well. The clerk must then mail a notice of the filing of the report and its constituent parts to the parties.

However, given the mandatory electronic filing system, it would seem that the referee can simply efile the report, the exhibits and the transcript(s) which would obviate the need for the clerk to “mail” or otherwise provide a notice to the parties of the filing. The electronic filing system will generate a notice advising the parties of the filings.

Once the report is filed, the parties have ten days after service of the notice of the filing of the report to file any written objections to the report. The objections must be served on all parties. Again, filing through the court’s electronic filing system will result in service of the objections on all parties. The circuit court must then compare the evidence considered by the referee to the factual findings.[38] If the parties stipulate to the referee’s findings of fact, then those facts will be deemed final and will not be reviewed. Rather, only questions of law will be addressed by the court.[39] If the parties do not stipulate to the referee’s findings of fact, then those facts will be reviewed under a “clearly erroneous” standard.[40] 

In order to have the court take any action on the referee’s report, including any timely filed objections to the report, a motion must be filed.[41] After a hearing, the court will have decisions to make. The court can accept the report in total as well as reject the report in total.[42] The court can accept parts of the report and reject other parts.[43] Generally, once the report is issued, it is not contemplated that additional evidence will be received.[44] However, if the court feels that additional evidence is needed, it can receive the evidence directly without involving the referee or it can “recommit” the issue or issues to the referee with additional instructions of what tasks or issues the referee is to address. 

Once the report and findings of the referee have been accepted by the court, then in an action tried with a jury, the referee’s findings of fact on the issues decided by the referee are deemed admissible.[45] The referee cannot be directed to report upon the evidence considered in order for the referee to have reached the findings of fact.[46] This makes sense given that the findings are deemed admissible. The referee’s findings will be read to the jury subject to any ruling by the court on any objections interposed to the legal conclusions as expressed in the report.[47]

III.          Issues Associated With the Use of a Referee

Perhaps the most significant issue with the use of a referee is to ensure that the scope of work of the referee is not to supplant the role of the court. That is, the court may not delegate to a referee any issue that is properly within the constitutional obligations of the circuit court. 

For example, if the Order of Reference delegates to the referee to decide dispositive motions it will impermissibly delegate the circuit court’s constitutional judicial power to a referee.[48] Likewise, a referee cannot conduct a trial or determine fundamental rights.[49] As noted by the Wisconsin Supreme Court, while the referee may “share in judicial labor and lighten it”[50] the referee cannot assume the place of a judge. Thus, to the extent that the Order of Reference seeks to have the referee decide a dispositive motion or otherwise replace the circuit court, that Order of Reference may contravene the circuit court’s constitutional duties by impermissibly delegating judicial power to a referee. 

Another significant issue with the use of a referee is the expense to the parties. This issue was also addressed in State ex rel. Universal Processing Servs. of Wisconsin, LLC v. Cir. Ct. of Milwaukee Cnty.[51] The Wisconsin Supreme Court noted that Article I, Section 9 of the Wisconsin Constitution provides that, “Every person is entitled to a certain remedy… without being obligated to purchase it… .”[52] There is a cost to the use of a referee. Often that cost is determined by the referee but must be approved by the court that issued the Order of Reference.[53] The court can issue an Order of Reference regardless of whether the parties consent to the reference.[54] Thus, the use of a referee will have an added expense to the litigation.

IV.          Opposing the Order of Reference 

If a court issues an Order of Reference and your client does not want a referee, then an objection should be made immediately. A motion must be filed to revoke the reference.[55] Three potentially fruitful areas for an objection involved the basis for the reference, its scope, and the cost. 

As noted supra, an Order of Reference is to be exception and not the rule. As such, the first issue that should be examined is the basis for the reference. The statute requires a sufficient basis in order to comply with the “exception” requirement. If the issues are not complicated (for actions to be tried before a jury)[56] or there is a lack of some exceptional condition (for actions to be tried without a jury),[57] then parties should focus on the basis for the reference. If there is an insufficient basis for the reference, then the reference should be vacated. 

The language of the Order of Reference should also be scrutinized. If the Order of Reference seeks to substitute the referee for the circuit court, then the reference may be vacated or modified. Careful attention should be paid to the scope of the referee’s tasks in order to ensure that there is no impermissible delegation of the judicial role of the circuit court.[58]

The cost of the Order of Reference is an appropriate basis for an objection. As noted supra, the judicial system should not devolve into a “pay for justice” model. “The Wisconsin Constitution embodies the principle that courts are an essential and integral part of Wisconsin’s government, open to the people, and the cost thereof is borne as a public expense.”[59] An Order of Reference requires that certain litigants pay for the court system twice – once with tax dollars and the other for direct payment to the referee. While the reference is an available option, courts should be mindful of issuing such orders. The statute creates requirements that must be met in order for the issuance of a valid order of reference.

V.            The Benefit of an Order of Reference in a Coverage Case

While there is a cost, an Order of Reference may, in the right case, be a good mechanism to address a significant insurance coverage issue. The selected referee would be someone with an extensive background in insurance coverage. The parties will benefit from the referee’s knowledge and experience with complex insurance coverage issues. Furthermore, the referee’s calendar may be more flexible than the circuit court’s calendar in order to provide a faster resolution of the insurance coverage issue than that which the circuit court could provide.

a.     The Right To Object Remains 

The referee’s report and recommendation will be subject to objections by the parties and review by the circuit court. The circuit court would have the ability to accept the report and recommendation in whole or in part or reject the report entirely. If the court accepts the report and recommendation, then the court will, upon motion of a party, issue an order concerning the subject of the report. 

Unlike an arbitration, where the ability to object to the arbitrator’s ruling is extremely narrow, the referee’s report, including any factual findings and legal conclusions, are subject to objection by the parties. Those objections may result in the circuit court rejecting the report’s recommendations in total or in part. Those objections may compel the circuit court to “recommit” the matter with specific instructions, or the circuit court may decide to address the matter in its entirety.[60] 

Thus, it is important to review the Order of Reference when it is first issued in order to ensure that the scope of the referee’s tasks set forth is what is needed by the parties. The parties themselves can file a motion for an Order of Reference and can provide the circuit court with a proposed order setting for the scope of the referee’s tasks. Such an agreement will help to avoid issues with the referee’s report and recommendations later one.

b.    The Right To Appeal Remains Intact

Once the referee’s report and recommendation are filed, the parties will be provided with their statutory time frame to object to the factual findings, if any, as well as the legal conclusions. The party that has “won” will be required to bring a motion before the circuit court to accept the report and recommendations. 

As noted, the report and recommendations should include a detailed analysis of the facts and the law. The report can become an order of the court. Wis. Stat. § 805.06 provides that the circuit court can adopt the referee’s report in whole.[61] While the referee’s conclusion on the legal issues are recommendations, the referee’s findings of fact are to be accepted unless “clearly erroneous.”[62] “A factual finding is clearly erroneous if it is against the great weight and clear preponderance of the evidence.”[63] 

Assuming that the circuit court accepts the report and recommendations, then the circuit court will issue an order. That order will be part of the court record and if it is a final order, it would be subject to appellate review. This point is perhaps the most significant benefit of the use of a referee as opposed to an arbitrator – the right of appeal. The circuit court’s order, if a final order, allows for an appeal as a matter of right.[64] Even if not a final order, depending upon the issue raised, a permissive appeal may be possible.[65]

While the referee process will add a layer of expense in a complicated/complex insurance coverage dispute, the parties will have the benefit of an experienced insurance coverage counsel reviewing the motion record and providing a detailed report and recommendation. The parties will receive what is expected to be a well-reasoned analysis of the coverage issues. It is possible that the analysis may even militate against an appeal by the “losing” party. That is, even though a party may have “lost” the issue, the analysis may be sufficient for the “losing” to accept the result as the odds of prevailing on appeal may be small.

Generally, the referee will be in a better position to address the coverage issue in a more expeditious manner than the circuit court simply due to the vast and varied workload that exists with the circuit courts. Most importantly, the parties will not lose their appellate rights. If the parties were to select arbitration of the coverage dispute, then their review rights are greatly circumscribed.[66] That is not the case with a section 805.06 referee. Since the entire process is court ordered and court reviewed, the parties’ appellate rights remain intact.

c.     The Downsides of a Referee

As noted, one significant downside to the use of a referee is the cost. If the coverage issue is resolved exclusively by the circuit court without the assistance of a referee, then there is no extra cost to the parties. An Order of Reference, however, will force the parties to incur the cost of the referee. However, depending on the complexity of the issues and the case value, it may be worth the extra expense. 

Another downside to the use of a referee is where the parties do not agree to use one. While the circuit court has the authority in the right case to issue an Order of Reference without the consent of the parties, the party that does not consent will have options to vacate or limit the scope of the reference, adding further cost and delay to the resolution of the coverage dispute. 

Furthermore, while the order might still be issued in spite of the objections, the propriety of the reference’s issuance will likely be subject to post report and recommendation challenges at both the circuit court and appellate levels. Thus, it would be best for the parties to agree to the reference, the scope of the reference and the referee.

Finally, the selection of the referee is a potential issue. While the referee must be fair and objective, a referee who generally represents one side of coverage disputes may be perceived as disadvantageous to one or more of the parties. Thus, again, it would be best if the parties could agree on the referee and submit a joint motion before the circuit court that sets forth the content of the order of reference as well as the referee who is agreeable to the parties. It is likely that the circuit court will approve the joint motion.

d.    The Importance of Maintaining the Proper Roles of the Referee and the Circuit Court

A key to the benefit of the use of the referee is to ensure that the referee does not supplant the work of the circuit court. Rather, the referee is to assist the circuit court. Thus, the referee will not decide certain issues as that is the constitutional responsibility of the circuit court. 

For example, assume that the parties seek a referee with regard to a motion for summary judgment. The referee will review the factual submissions and make a recommendation as to whether the motion should be granted in whole or in part or denied. The circuit court will then make the decision on whether to grant the motion for summary judgment in whole or in part or to deny the motion, based on the submissions of the parties[67] and aided by the referee’s review. 

Assume a different scenario: perhaps there is a complicated issue involving the known loss doctrine for a number of insurers over several decades. A referee could be appointed to receive testimony and other evidence and provide a report with factual findings as to when the insured knew of the loss and a recommendation as to which policies were triggered based on those facts and for which policies the known loss doctrine would apply to preclude coverage based on the common law doctrine as well as the individual insurer’s policy language. The report’s factual findings would be subject to a clearly erroneous standard.[68] If, after submission of the report, the parties stipulate to the factual findings, then those findings would be final and only the report’s legal conclusions would be addressed by reviewing courts.[69]

VI.          Conclusion

The use of a section 805.06 referee can be helpful to expediting the resolution of an insurance coverage issue. An appropriately qualified referee will have the knowledge base to understand the complex and complicated coverage issues and can provide the court and the parties with a well-reasoned report with appropriate recommendations. 

Importantly, since the entire process is part of the circuit court action, the report and recommendations, as accepted by the circuit court, can become an order of the circuit court which is subject to appellate review. However, in order for the parties to reap the benefit of the use of section 805.06 referee, care must be taken in preparing the content of the Order of Reference to properly set for its scope so as to avoid costly challenges to the referee’s work. 

Author Biography:

Monte E. Weiss, Case Western Reserve Univ., 1991, of Weiss Law Office, S.C., Mequon, practices primarily in the defense of bodily injury, property damage, and professional negligence claims for insurance companies and self-insured companies. In conjunction with this area of practice, he has drafted several personal lines insurance policies, including homeowner and automobile policies. He routinely represents insurance companies on insurance contract interpretation issues and is a frequent lecturer and author on insurance topics. He also represents policyholders dealing with coverage denials from their carriers. He is a former President of the Wisconsin Defense Counsel. Attorney Weiss can be reached at via his firm’s website at www.mweisslaw.net.