Wisconsin Supreme Court Determines Notice-Prejudice Rule Does Not Apply To Claims-Made-and-Reported Requirement

In Anderson v. Aul, 2015 WI 19 (2015), the Wisconsin Supreme Court reversed the decision of the court of appeals and held that Wisconsin’s notice-prejudice statutes did not apply to the reporting requirements in claims-made-and-reported policies.

The underlying case involved a malpractice lawsuit filed by Melissa and Kenneth Anderson against their former attorney, Thomas Aul, alleging that Mr. Aul continued to represent the Andersons in a purchase of commercial property transaction, although he had an unwaivable conflict of interest. On December 23, 2009, Mr. Aul received a letter from an attorney hired by the Andersons that clearly constituted a claim. Mr. Aul, who was insured under a claims-made-and-report policy issued by Wisconsin Lawyers Mutual Insurance Company (WILMIC), however, did not report the claim until March 2011, well after the April 1, 2009 to April 1, 2010 policy period. Later, in March 2012, the Andersons filed suit against Mr. Aul and several companies owned by Mr. Aul, alleging among other things, legal malpractice. In May 2012, WILMIC moved to intervene and undertook Mr. Aul’s defense under a reservation of rights.

The suit was then bifurcated to address the coverage issues first. WILMIC moved for summary judgment, arguing that its policy did not provide coverage to Mr. Aul. The circuit court granted WILMIC’s motion, but the court of appeals reversed on the basis of Wisconsin’s notice-prejudice statutes, Wis. Stat. §§ 631.81(1) and 632.26(2). The circuit court reasoned that since there was no prejudice to WILMIC, it could not disclaim coverage.

On appeal, the Wisconsin Supreme Court, after a rigorous statutory interpretation and historical overview of the notice-prejudice statutes, held that the statutes were not intended to supersede the reporting requirements of claims-made-and-reported policies. The Supreme Court found several facts important in making their decision. For example, the Supreme Court noted that both of the statutes were enacted in the 1970’s, a time when occurrence liability policies were dominant. Further, the Supreme Court observed that the comments made by the Insurance Laws Revision Committee of the Wisconsin Legislative Council suggested that the notice-prejudice statutes were not meant to apply to claims-made-and-reported policies. In addition, the Supreme Court was wary to apply the notice-prejudice statutes to claims-made-and-reported policies because that would essentially entail rewriting the terms of the policies by expanding the initial grant of coverage. To support its ruling, the Supreme Court pointed to courts in other jurisdictions that have likewise reasoned that the reporting requirements of claims-made-and-reported policies were valid, notwithstanding statutory or common law notice-prejudice rules.