In a significant decision the Wisconsin Supreme Court has held that claims-made-and-reported requirements in claims made policies should be enforced as written. An insured’s failure to report a claim during the time required by the policy will operate as a bar to coverage. See Anderson v. Aul, 2015 WI 19. The Court reversed the Court of Appeals decision holding that Wisconsin’s notice-prejudice statute superseded the claims-made-and-reported requirement of the professional liability policy. The Court also observed that even if the notice-prejudice statutes applied, requiring an insurer to provide coverage for a claim reported after the end of a claims-made-and-reported policy period was per se prejudicial to the insurance company. The decision places Wisconsin in the majority of jurisdictions that have enforced claims-made-and-reported policies as written.
The facts in the case were undisputed. On December 23, 2009 the Andersons notified Attorney Aul by letter that they were dissatisfied with the legal representation he had provided and demanded that Attorney Aul pay them $117,000.00. Aul received the letter while he was insured under a claims-made-and-reported professional liability policy. It was undisputed that the letter was a claim first made during the policy period and that the policy required Aul to report the claim during the same period. However, Aul did not report the claim until nearly a year after the policy expired.
A year later suit ensued and the professional liability insurer moved to intervene and sought a declaration that the insurance policy it had issued to Aul did not provide coverage because the claim was not reported as required during the policy period. The circuit court agreed with the insurer and granted its motion for summary judgment.
The Court of Appeals reversed the trial court’s decision, finding that Wisconsin’s notice-prejudice statutes, Wis. Stat. 631.81(1) and § 632.26, applied to the reporting requirement of the claims-made-and reported policy. These two statutes have been interpreted in tandem to hold that an insurer whose insured provides late notice within one year of the time required by the policy must show that it was prejudiced by the late notice in order to decline coverage. When notice is given more than one year after the time required by the policy, there is a rebuttable presumption of prejudice and the burden of proof shifts to the claimant to prove that the insurer was not prejudiced by the untimely notice. See Neff v. Pierzina, 2001 WI 95 ¶ 43, 245 Wis. 2d 285, 629 N.W.2d 177. The court stated that both the applicable statutes and Wisconsin’s case law made it clear that in order to decline coverage based on the late notice, the insurer must show it was prejudiced by the late notice. The court then applied the definition of "prejudice" adopted in prior cases and concluded that because Aul’s untimely reporting of the claim did not hinder the insurer’s ability to investigate, evaluate or settle the claim; determine coverage or present an effective defense, the insurer had not been prejudiced and therefore the policy provided coverage.
The Supreme Court reversed and enforced the claims-made-and-reported requirement of the policy as written, holding that the notice-prejudice statutes did not supersede the plain language of a claims-made-and reported policy. Wisconsin therefore joined the vast majority of jurisdictions which have strictly enforced the requirement that notice be provided during the described period without regard to whether or not the insurer was prejudiced by the delay.