When do you have to give notice to your underinsured motorist (UIM) carrier—right after the accident occurs, or only when it becomes clear that the tortfeasor’s policy limit will be insufficient to make you whole? That was the fundamental question at stake in Shugarts v. Mohr, 2018 WI 27, a case recently decided by the Wisconsin Supreme Court. Based upon the language of the UIM policy at issue and applicable Wisconsin statutes, the Court concluded, in a unanimous decision, that notice is required upon tender of the tortfeasor’s underlying policy limit, and no earlier. That meant, in this case, that the first notice to the UIM carrier, which came more than four years after the accident, was timely and that there was no need to look into whether the carrier was prejudiced by the delay.

The Facts

On Oct. 11, 2000, an Eau Claire County deputy sheriff, Shugarts, gave chase to a suspect, Mohr. Unfortunately, Mohr’s vehicle struck Shugarts’ squad car, severely injuring him. Shugarts hired counsel, who sent notice of retainer to Mohr’s auto insurance carrier, Progressive, in late 2011.

Progressive denied coverage, on the grounds that Mohr’s striking of the squad car was an intentional act. Years went by, settlement efforts did not succeed, and Shugarts ultimately filed suit against Progressive in mid-2013. Finally, in mid-October 2014, nearly four years to the day after the accident, Progressive offered to pay its policy limit of $50,000.

Several weeks later, Shugarts’ attorney sent notice of retainer to Allstate, Shugarts’ UIM insurer. Four months after that, the attorney followed it up with a more detailed notice, sharing Progressive’s limits offer and explaining that Shugarts’ claim was well in excess of that limit.

In short order thereafter, Shugarts added Allstate as a defendant in the lawsuit. Not surprisingly, Allstate raised untimeliness as a defense and moved for summary judgment. The Eau Claire County Circuit Court granted the motion and the court of appeals affirmed.

The Policy

The Court looked first at the applicable Allstate policy. That policy had seven separate coverage parts, with the two critical ones being “Automobile Liability Insurance” and “Underinsured Motorists Insurance.” The Automobile Liability Insurance section included a provision requiring the insured to notify Allstate “of all details” of an “auto accident” “as soon as reasonably possible.” The Underinsured Motorists Insurance section, however, said nothing about notice of an “accident.” Instead, it only required the insured to submit notice of “claim” “as soon as possible.” According to the Court, Shugarts did not have a UIM “claim” until Progressive tendered its underlying policy limit. Because that did not occur until mid-October 2014, and Shugarts’ attorney promptly communicated with Allstate thereafter, the notice was timely. In the Court’s view, the Allstate policy did not require notice of an accident, only notice of claim, and the notice of claim was timely.

The Court also addressed Allstate’s argument that Wis. Stat. § 631.81 required Shugarts to provide notice earlier. Rejecting Allstate’s contention, the Court noted that while section 631.81 requires “notice or proof of loss” to be furnished “as soon as reasonably possible and within one year after it was required by the policy,” that section did not apply because the policy at issue did not require “proof of loss” for UIM claims, only proof of “claim.” In other words, because the policy did not require proof of loss, the statute could not impose a requirement that was not in the policy itself.

The Upshot

The Court’s decision puts UIM carriers in a tough spot. The purpose of a notice provision is to allow insurers to investigate while the evidence is fresh. If a carrier does not even find out about an accident until four years after it happened, however, it will be rather difficult to explore the situation and preserve the key evidence. One can easily imagine situations where the delay will prejudice the insurer.

To the extent they wish, insurers can probably solve the problem by revising the language in their UIM policies. For example, insurance companies could take the notice of accident language from the liability sections of their policies and insert the essence of it into the UIM sections. Perhaps that would inundate carriers with too many unwanted notices in situations where the UIM coverage is never likely to come into play, but that seems like a small price to pay for the cases in which having early notice and an early opportunity to investigate will help to efficiently and effectively resolve the claim.