Wisconsin Appeals Court says “Not So Fast” to Prior Notice Exclusion—Insurer Must Keep Defending
The Wisconsin Court of Appeals, applying Wisconsin law, reversed a circuit court’s order granting an insurer’s motion for declaratory and summary judgment that its policy’s prior notice exclusion barred coverage for certain counterclaims. Somerset Condo. Ass’n, Inc. v. RC Somerset, LLC, 2025 WL 2406469 (Wis. Ct. App. Aug. 20, 2025). The court held that the insured’s potential liability for tortious interference and slander of title did not arise out of related wrongful acts alleged in a prior lawsuit, and thus the insurer was required to continue defending the insured under its D&O policy.
The insured, a condominium association, purchased a D&O insurance policy from the insurer for the policy period from July 23, 2022 to July 23, 2023 (the “Second Policy”). Previously, the insurer had defended the insured under a prior policy (the “First Policy”) in a federal lawsuit brought by a putative purchaser of condominium units, the sale of which was allegedly thwarted by the association’s refusal to approve construction proposals on which the sale was contingent. Following final judgment in favor of the insured in the federal case, the insured exercised its right of first refusal and option to purchase the relevant units instead and recorded an Affidavit of Interest to provide notice of its impending purchase. However, the units subsequently were sold to a different purchaser. The insured then filed suit in state court against the seller, the buyer, and the prior putative buyer (which had assigned its rights, title, and interest in the units to the buyer). The insured sought declaratory judgment that it had properly exercised its first right and option to purchase the units and that the sale to the other purchaser was void. Defendants counterclaimed against the insured for declaratory judgment, tortious interference, intentional and strict liability misrepresentation, and slander of title.
The insurer agreed to defend the insured against the counterclaims under a reservation of rights, then intervened in the state suit seeking declaratory and summary judgment that there was no coverage under the Second Policy for any of the counterclaims because the “prior notice” exclusion applied. The circuit court agreed and granted summary judgment in favor of the insurer.
The Court of Appeals reversed. The court held that the prior notice exclusion—barring coverage for “any liability arising out of the facts alleged, or to the same or related ‘wrongful acts’ alleged or contained in any ‘claim’ which has been reported . . . under any policy of which this Coverage Form is a renewal or replacement”—did not apply.
The court reasoned that the insured’s potential liability for tortious interference and slander of title arose from conduct occurring after the prior lawsuit had concluded, and not from the same or related wrongful acts alleged in the earlier action. While the insurer argued that the relevant “acts are ‘related’ by a common goal”—the insured’s alleged attempt to keep the units vacant and undeveloped—the court deemed this connection insufficient. The court explained that “[t]he policy exclusion only applies where the potential liability in the underlying claim arises out of those prior wrongful acts.” The court distinguished cases where prior notice exclusions applied to claims arising from acts during a prior policy period, noting that the acts underlying the counterclaims occurred after the new policy period began and involved different parties and causes of action. Accordingly, the court concluded that the insurer may have an obligation to indemnify the insured if it is found liable for the counterclaims and, therefore, must continue to defend.
