Melissa Anderson v. Thomas Aul
862 N.W.2d 304, 361 Wis. 2d 63, 2015 WI 19 (2015)
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Rule of Law:
Wisconsin's notice-prejudice statutes, Wis. Stat. §§ 631.81(1) and 632.26(2), which prevent insurers from denying coverage due to late notice unless prejudiced, do not supersede or apply to the fundamental requirement in a claims-made-and-reported insurance policy that a claim must be both made against the insured and reported to the insurer within the specified policy period.
Facts:
- On December 23, 2009, Melissa and Kenneth Anderson's attorney notified Attorney Thomas Aul by letter that they were dissatisfied with the legal representation he had provided.
- The Andersons alleged that Attorney Aul had an unwaivable conflict of interest in their commercial property purchase, that he nonetheless represented them, that the transaction terms were unfair and unreasonable, and that his conduct violated rules of professional responsibility.
- The Andersons demanded that Attorney Aul pay them $117,125.
- Attorney Aul was insured under a claims-made-and-reported professional liability policy issued by Wisconsin Lawyers Mutual Insurance Company (WILMIC), with a policy period from April 1, 2009, to April 1, 2010.
- The letter from the Andersons' attorney constituted a “claim first made against the insured” during Attorney Aul’s policy period.
- Attorney Aul did not report this claim to WILMIC until March 2011, nearly a year after the policy period expired.
- It was undisputed that reporting the claim during the policy period (April 1, 2009, to April 1, 2010) was reasonably possible for Attorney Aul.
Procedural Posture:
- Melissa and Kenneth Anderson sued Attorney Thomas Aul in Waukesha County Circuit Court for legal malpractice.
- Wisconsin Lawyers Mutual Insurance Company (WILMIC), Attorney Aul's professional liability insurer, intervened in the lawsuit.
- WILMIC filed a motion for summary judgment in the circuit court, seeking a declaration that its insurance policy did not cover the Andersons' claim.
- The Waukesha County Circuit Court, Lee S. Dreyfus, Jr., Judge, granted WILMIC's motion for summary judgment, finding that Attorney Aul did not notify WILMIC in a timely fashion.
- The Andersons appealed the circuit court's decision to the Wisconsin Court of Appeals.
- The Wisconsin Court of Appeals reversed the summary judgment in WILMIC's favor, holding that the circuit court must determine whether untimely notice prejudiced an insurer, and concluded WILMIC had not been prejudiced.
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Issue:
Does Wisconsin's notice-prejudice statute supersede a claims-made-and-reported professional liability insurance policy's requirement that a claim be reported to the insurer within the policy period, even when timely reporting was reasonably possible for the insured?
Opinions:
Lead - Shirley S. Abrahamson, C.J.
No, Wisconsin's notice-prejudice statutes do not supersede the reporting requirement specific to claims-made-and-reported policies. The court reasoned that claims-made-and-reported policies fundamentally define the temporal boundaries of coverage by requiring a claim to be both made against the insured and reported to the insurer within the policy period to trigger an initial grant of coverage. The notice-prejudice statutes, enacted when occurrence policies were predominant, were intended to address 'notice' provisions that facilitate investigation, not the 'reporting' requirement that defines the scope of coverage itself. Extending coverage for a late-reported claim in a claims-made-and-reported policy would effectively convert it into a pure claims-made or occurrence policy, thereby frustrating its purpose and expanding coverage for which the insurer has not bargained. The court found no indication in the statutory text or history that the legislature intended to invalidate or rewrite these fundamental policy terms. Furthermore, persuasive authority from other jurisdictions supports that such reporting requirements are 'of the essence' and not subject to notice-prejudice rules. The opinion also stated that even if the statutes applied, requiring an insurer to provide coverage for a claim reported after the policy period in a claims-made-and-reported policy is per se prejudicial to the insurer, as it expands the coverage grant and undermines the premium structure.
Majority - Annette Kingsland Ziegler, J.
No, the notice-prejudice statutes, Wis. Stat. §§ 631.81 and 632.26, do not apply to the 'within the policy period' reporting requirement at issue. The majority clarified that this conclusion is based on a plain-meaning analysis of the statutes, which are unambiguous in this context. These statutes expressly prevent an insurer from 'invalidating' 'a claim' under certain conditions, but they do not create an initial grant of coverage. The 'within the policy period' reporting requirement in a claims-made-and-reported policy is a fundamental condition for the initial grant of coverage, defining its temporal limits. Applying the notice-prejudice statutes to this requirement would impermissibly create coverage that never existed, going beyond the statutory language intended to prevent the forfeiture of existing coverage. The majority also agreed that applying the statutes to rewrite the policy terms would produce an unreasonable result, further confirming the plain meaning.
Analysis:
This case establishes a critical distinction in Wisconsin insurance law between traditional 'notice' requirements (which may be subject to notice-prejudice statutes) and the 'reporting' requirement inherent to 'claims-made-and-reported' policies. It clarifies that the reporting deadline in claims-made-and-reported policies is a fundamental aspect of the coverage grant itself, rather than a mere condition subsequent. This decision provides significant certainty for insurers writing claims-made-and-reported policies, confirming their ability to define and limit their 'tail liability' and manage actuarial risks, which can influence premium costs. For insured professionals, the ruling underscores the strict necessity of adhering to policy reporting deadlines, emphasizing that even reasonable delays in reporting a claim that was 'made' during the policy period can lead to a complete denial of coverage if not 'reported' within that same period.
