The Wisconsin Supreme Court recently issued a decision in Anderson v. Aul, 2015 WI 19, which clarified whether Wisconsin Statutes, §631.81 (1) and §632.26 (2), protect an insured when they fail to report a claim during the policy period of a claims-made-and-reported policy.
Aul was an attorney being sued by his former clients for legal malpractice. Aul received a letter from the Andersons on December 23, 2009 which stated that they “were dissatisfied with the legal representation Aul had provided.” This letter constituted a “claim made against the insured (Aul)”. As a result, Aul’s duty to report the claim to his professional liability insurance carrier was triggered.
Aul had purchased a claims-made-and-reported policy from the Wisconsin Lawyers Mutual Insurance Company (WILMIC) with a policy period of April 1, 2009 through April 1, 2010. However, Aul did not report this claim to WILMIC until March 2011. This was nearly one year after the policy period expired. The policy provided coverage for those “claims that are first made against the insured and reported to the insurance company during the policy period.” This language is typical of claims-made policies, although some policies do allow for an extended reporting period to report claims after the policy period ends. This is usually limited to 30, 60, or 90 days.
In this case, WILMIC argued that they did not owe a duty to defend Aul, or pay any damages, because Aul had failed to report the claim during the policy period as required. Aul responded by citing two Wisconsin Statutes, §631.81 (1) and §632.26 (2). These statutes say that an insurance company cannot deny a claim because of late notice, unless the insurance company was prejudiced by that late notice. In other words, if the insurance company could still investigate a claim, and was not harmed by the late notice in any way, the insurance company cannot deny coverage to their insured.
Therefore, the question the Wisconsin Supreme Court had to answer was whether these two notice-prejudice statutes supersede the reporting requirements specific to claims-made-and-reported policies. The Court stated that “Requiring an insurance company to provide coverage for a claim reported after the end of a claims-made-and-reported policy period is PER SE prejudicial to the insurance company.”
In other words, if you fail to tell your insurance carrier of a claim made against you during the policy period, you cannot rely on Wisconsin Statutes, §631.81 (1) and §632.26 (2) to protect you. So what does this mean to policyholders in Wisconsin?
First, this decision only applies to claims-made-AND-REPORTED policies. It does not apply to occurrence-based policies. Also, this decision does not apply to pure claims-made policies.
Examples of policies that typically have claims-made-and-reported wording are:
- Professional Liability Policies for lawyers, engineers, architects, doctors, etc.
- Employment Practices Liability
- Manufacturing Errors and Omissions
- Product Recall
- Directors & Officers
- Fiduciary
- Contractors Professional Liability
- Pollution Liability
- Cyberliability
- Technology Errors & Omissions
If you are not sure if your policy is a claims-made-and-reported policy, make sure you review the terms of that policy with your agent.
Second, businesses need to be aware of this decision at all levels of management. For example, a human resources person may be aware of an employment practices claim from a disgruntled employee, but the person responsible for reporting insurance claims may not. As a result, a claim may be late reported and denied under a claims-made-and-reported policy.
Finally, policyholders should always err on the side of caution and report any potential claim no matter if the policy is occurrence-based, pure claims-made, or claims-made-and-reported based. It is far better to send notice of a potential claim to your insurance company and rule out any potential denial due to late notice.
If you have any questions, please contact a knowledge broker.
