Wisconsin Notice-Prejudice Statutes Do Not Apply to Claims-Made-And-Reported Policies

The Supreme Court of Wisconsin has held that Wisconsin’s late notice-prejudice statutes do not override the reporting requirements in claims-made-and-reported liability policies.  Anderson v. Aul, No. 2013AP500, 2015 WL 733904 (Wis. Feb. 25, 2014).

On December 23, 2009, the insured attorney received a letter from two former clients expressing their dissatisfaction with his representation.  At the time, the attorney was insured under a professional liability policy issued for the policy period of April 1, 2009 to April 1, 2010, which afforded coverage for claims both first made and first reported during that policy period.  The attorney did not inform his insurer of the letter until March 9, 2011, nearly a year after the expiration of the 2009-2010 policy.  In March 2012, the former clients filed suit against the attorney.  The insurer intervened in the suit and moved for summary judgment, contending, among other things, that the policy did not afford coverage for the clients’ claim because that claim was not reported during the policy period in which it was first made.  The trial court entered summary judgment for the insurer based on the insured’s untimely notice.  On appeal, the Court of Appeals reversed based on Wisconsin’s notice-prejudice statutes, which provide that an insured’s failure to provide notice of a claim as required by the terms of a policy will not bar coverage unless timely notice was “reasonably possible” and the insurer was “prejudiced” by the delay.  The Court of Appeals held that these statutes apply even where the liability policy is written on a claims-made-and-reported basis.

The Wisconsin Supreme Court reversed.  After examining the history of claims-made-and-reported policies and how such policies differ from occurrence policies and pure claims-made policies, the court turned to the text of the policy at issue and the statutory language of Wis. Stat. §§ 631.81 and 632.26(2).  The court observed that, on their face, the two statutes could be read literally to prohibit a liability insurer from denying coverage based on an insured’s failure to report a claim within the policy period, absent a showing of prejudice.  After closely analyzing the legislative history, however, the court ruled that the statutes were not intended to supersede the reporting requirements that are specific to claims-made-and-reported policies.

The court went on to hold that, even if the notice-prejudice statutes did apply to claims-made-and-reported policies, the insurer in this case would still prevail.  According to the court, requiring an insurer to provide coverage for a claim reported after the end of a claims-made-and-reported policy period is per se prejudicial because it improperly expands the policy’s coverage grant.

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