Under statutes that have been on the books since 1979, liability insurers in Wisconsin have been required to prove that they were prejudiced by a policyholder’s late notice before they could deny that policyholder’s claim based on late notice. These statues, Wis. Stat. §§ 631.18 and 632.26, are generally referred to as the notice/prejudice statutes. On February 25, 2015, the Wisconsin Supreme Court issued a decision in Anderson v. Aul, 2015 WI 19 that dramatically changes the legal landscape for policyholders that fail to provide timely notice of a claim.  Under Anderson, liability policies issued on a “claims made and reported” basis are not subject to the notice/prejudice statutes. As a result, a policyholder that provides late notice on a “claims made and reported” liability policy can be denied coverage even if the insurer is not prejudiced by the late notice. Anderson is likely to impact a broad swath of Wisconsin policyholders because many professional liability, directors and officers liability, and employment practices liability policies are issued on a “claims made and reported” basis.  It is critical for policyholders with these types of policies to adopt proper safeguards to ensure they give timely notice of any claims. Under Anderson, failure to give timely notice under a “claims made and reported” policy will automatically result in a forfeiture of coverage. 

In Anderson, Attorney Thomas Aul represented Melissa and Kenneth Anderson in a real estate transaction related to the purchase of certain commercial property in downtown Delafield, Wisconsin. After the transaction was closed, the Andersons made a claim against Attorney Aul, alleging that he had an unwaivable conflict of interest in the transaction, that he should not have represented them, and that the transaction was unfair and unreasonable to the Andersons as a result. The Andersons notified Attorney Aul in December of 2009 that they were dissatisfied with his legal representation. Unfortunately, Attorney Aul did not report the Andersons’ claim to his professional liability carrier at that time. In fact, Attorney Aul did not report the Andersons’ claim against him until more than a year later, when the Andersons filed a complaint against him in circuit court. 

Attorney Aul’s insurer, Wisconsin Lawyers Mutual Insurance Company (“WLMIC”), denied coverage for the Andersons’ claim because Attorney Aul did not report the claim to WLMIC during WLMIC’s policy period. WLMIC argued that its policy was a “claims made and reported policy,” which, according to WLMIC, means that the policy did not provide coverage to begin with unless the claim was reported during the policy period. In response, Attorney Aul admitted that he failed to report the Andersons’ claim within the policy period but argued that he was still entitled to coverage because WLMIC was not prejudiced by the late notice. Attorney Aul noted that Wisconsin’s notice/prejudice statutes prevent an insurer from denying coverage based on late notice unless it can prove it suffered prejudice as a result of the late notice. 

The Wisconsin Supreme Court ultimately agreed with WLMIC, essentially holding that the notice/prejudice statutes do not apply to “claims made policies and reported” policies. Although the logic upon which Anderson was decided appears flawed, it is still binding law in Wisconsin.  As a result, Wisconsin policyholders must be vigilant in making sure that they report claims to their insurers in a timely fashion. Although the notice requirements of each policy may vary, the safest practice is to assume immediate notice is required until proven otherwise. Even if your current liability policies are not written on a “claims made and reported“ basis, the Anderson decision makes it likely that they will be in the future.