Jessica M. Karmasek Apr. 5, 2013, 2:00pm

MADISON, Wis. (Legal Newsline) -- The Wisconsin Supreme Court ruled Friday that an insurance company is not entitled to full discovery under a section of state law designed specifically for arbitration.

Plaintiffs Mary E. and Leslie R. Marlowe filed a claim with their insurer, and defendant, IDS Property Casualty Insurance Company for underinsured motorist benefits following a car accident.

The parties were unable to agree on a settlement and, pursuant to a provision of the insurance policy, submitted the dispute to an arbitration panel.

Prior to the anticipated arbitration hearing a conflict over discovery arose, in which IDS sought broad discovery under Wis. Stat. ch. 804, the general civil procedure chapter.

The Marlowes refused to comply with such discovery on the grounds that Wis. Stat. section 788.07, the discovery provision designed specifically for arbitration, controlled and permitted only the taking of certain depositions.

Interpreting the policy's arbitration provision in light of the state Supreme Court's 2006 decision in Borst v. Allstate Ins. Co., the arbitration panel decided that IDS was entitled to ch. 804 discovery.

Unsatisfied, the Marlowes successfully filed for declaratory judgment in Brown County Circuit Court, obtaining an order reversing the arbitration panel's determination and directing that arbitration discovery would proceed within the narrow parameters set by section 788.07.

The state Court of Appeals reversed, concluding that the Marlowes were not permitted to pursue relief from the circuit court before the panel rendered a final decision on the award, and that full ch. 804 discovery was available to IDS.

On review, the state's high court reviewed two issues:

- Whether the Marlowes were permitted to seek a declaratory judgment concerning the discovery dispute before the arbitration panel ruled on whether an award was appropriate and, if so, its amount; and

- Whether the panel properly established discovery procedures outside those outlined in section 788.07.

"Because no unusual circumstances justified an interlocutory appeal," the court held in its 50-page majority opinion that the Marlowes' action in circuit court was premature.

"As to the second question, the legislature has set forth, in the form of § 788.07, a narrow scope of discovery for arbitration proceedings in the absence of an explicit, specific and clearly drafted arbitration clause to the contrary," Justice Michael Gableman wrote for the majority.

"IDS failed to include any such language in its policy and we therefore instruct the panel to limit discovery to that provided for in § 788.07."

Accordingly, the court affirmed the appeals court's decision insofar as it declined to allow the Marlowes an interlocutory appeal.

However, the court modified the appeals court's decision and directed the panel to cabin discovery to the depositions contemplated in section 788.07 -- "depositions to be used as evidence before the arbitrators."

Chief Justice Shirley Abrahamson and Justice Ann Walsh Bradley concurred with the majority opinion. Justice David Prosser concurred in part and dissented in part.

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