Notice Of Claim Lapse Absolves Insurance Company

The Wisconsin Supreme Court has held that an insurance company is not obligated to defend a legal malpractice suit where the attorney fails to (as required by the insurance contract) to notify the carrier during the coverage period.

The basic facts

Melissa and Kenneth Anderson sued their former attorney, Thomas Aul, for legal malpractice.  Wisconsin Lawyers Mutual Insurance Company (WILMIC), Attorney Aul’s professional liability insurer, intervened in the lawsuit.  WILMIC sought summary judgment declaring that the insurance policy it issued to Attorney Aul did not cover the Andersons’ claim.

The WILMIC insurance policy provides coverage for those “claims that are first made against the insured and reported to the [insurance company] during the policy period” (emphasis added).  This type of policy is commonly known as a claims-made-and-reported policy.

Wisconsin’s notice-prejudice statutes, Wis. Stat. §§ 631.81(1) and 632.26(2) (2011-12), provide that an insured’s failure to furnish timely notice of a claim as required by the terms of a liability policy will not bar coverage unless timely notice was “reasonably possible” and the insurance company was “prejudiced” by the delay…

The parties agree that the Andersons’ claim against Attorney Aul was first made during the policy period, that Attorney Aul did not report the claim during the policy period, and that reporting the claim during the policy period was reasonably possible.  They dispute whether the WILMIC policy’s requirement that claims be reported during the policy period is governed by the notice-prejudice statutes and also whether WILMIC was prejudiced by Attorney Aul’s failure to report the claim during the policy period.

Chief Justice Abrahamson held

the benefits to insurance companies and insureds of claims-made-and-reported policies, the statutory history underlying Wisconsin’s notice-prejudice statutes, the persuasive authority of other courts that have decided the question presented by this case, and the unreasonable results a contrary holding would produce persuade us that Wisconsin’s notice-prejudice statutes permit an insurance company to deny coverage without a showing of prejudice when an insured fails to report a claim within a claims-made-and-reported policy period.

The clients who sued lose out

from the Andersons’ vantage point, they have been victimized twice: first by Attorney Aul’s malpractice and now by his failure to comply with his malpractice insurance policy’s reporting requirement.  We reach a harsh result, but one we have determined the law requires.  We conclude that the legislature did not intend to rewrite the fundamental terms of the WILMIC insurance policy or to make the strict reporting requirement underlying claims-made-and-reported policies unenforceable in this state.

Justice Ziegler, joined by three colleagues, concurred

Although I reject the lead opinion’s consideration of “consequences of alternative interpretations,” I agree with the lead opinion’s conclusion that the notice-prejudice statutes, by their plain meaning, do not apply to the reporting requirement at issue.  I also agree with the lead opinion’s conclusion, consistent with that plain meaning, that applying these statutes to the reporting requirement at issue would produce unreasonable results.  I join that conclusion only to the extent that it can be construed as engaging in a plain-meaning analysis of these unambiguous statutes.  This writing is intended make clear the majority opinion of the court.

For the foregoing reasons, I respectfully concur.

(Mike Frisch)