Feb. 25, 2014 – An attorney who filed an untimely notice of potential claim with his professional liability insurer is still covered, a state appeals court has ruled, because the late notice did not prejudice the professional liability insurer under the circumstances.
The Wisconsin Lawyers Mutual Insurance Co. (WILMIC) argued that an attorney’s notice of potential claim was untimely, barring coverage for any liability that should arise based on the claim. A circuit court agreed, granting summary judgment to WILMIC.
In Wisconsin Lawyers Mut. Ins. Co. v. Anderson, 2013AP500 (Feb. 19, 2014), a three-judge panel for the District II Court of Appeals reversed, concluding that the circuit court erred when it did not determine whether WILMIC was prejudiced by the untimely notice.
Attorney Thomas Aul, a member of Aul Real Estate Investment Co. LLC, represented prospective buyers Melissa and Kenneth Anderson in the purchase of commercial property from Aul Real Estate, which drafted the land contract for the parties.
At the closing, the Andersons signed a “waiver of conflict of interest,” which said they knowingly waived the right to consult independent counsel and accepted the representation of their interests by Aul. Later, though, they became dissatisfied.
The hired a lawyer, who sent Aul a letter on Dec. 23, 2009. The letter stated reasons why Aul should pay them $117,125. More than two years later, in March 2012, the Andersons filed a lawsuit against Aul. WILMIC intervened on the coverage issue.
Untimely Notice Not Prejudicial
WILMIC received notice of the Anderson’s initial letter to Aul in March 2011, almost 15 months after Aul received the letter and 11 months after Aul’s 2009-10 WILMIC policy period had ended. The Andersons filed the lawsuit a year after WILMIC received notice.
WILMIC argued that Aul was not covered because he did not timely report the claim. The policy covered claims made and reported in writing during the policy period, and failure to report a claim or “claim incident” was deemed prejudicial to WILMIC.
But the three-judge appeals panel noted that WILMIC’s policy terms “are not the only provisions concerning how the timeliness of notice of a claim affects coverage.”
It noted that Wis. Stat. section 631.81(1) says an insured must give notice of a claim within one year after it was required by the policy or “as soon as reasonably possible.”
But that provision also says “failure to furnish such notice or proof within the time required by the policy does not invalidate or reduce a claim unless the insurer is prejudiced thereby and it was reasonably possible to meet the time limit.”
Under section 632.26(2), the panel noted, “if notice was not given as required under the policy, the burden shifts to the insured to show that there was no prejudice to the insurer.” The parties disputed whether courts must always decide the prejudice issue.
The Andersons, arguing that insurance coverage applied to their claim against Aul, conceded that the notice of claim was not timely filed. But they said the circuit court was still required to determine whether WILMIC was prejudiced by the untimely notice. If not, they argued, the applicable statutes require WILIMIC to cover any liability that results.
WILMIC argued that the applicable statutes do not require a showing of prejudice unless the claim is filed “as soon as reasonably possible.”
WILMIC also argued that it was prejudiced by the untimely claim because it is a claims-made policy and it did not contemplate coverage beyond the applicable policy period.
However, the appeals court rejected both of WILMIC’s arguments, concluding that circuit courts must make a determination on the prejudice issue under applicable case law and “WILMIC was not prejudiced by Aul’s untimely notice of the Andersons’ claim.”
The panel noted that WILMIC learned of the claim almost a year before the Andersons filed a lawsuit and had time to investigate, evaluate, settle, and present a defense.
“Indeed, there are no facts to show that WILMIC is not in the same position it would have been in with respect to the Andersons’ underlying claim or Aul’s claim for coverage if Aul had given timely notice,” wrote Judge Lisa Neubauer.