Feb. 25, 2015 – An attorney sued by a former client is not covered under a legal malpractice insurance policy because the attorney did not timely notify the insurer of the claims, the Wisconsin Supreme Court has ruled in a decision released today.
Attorney Thomas Aul had a legal malpractice insurance policy with Wisconsin Lawyers Mutual Insurance Company (WILMIC), which covered claims first made and reported during the policy period. These are known as claims-made-and-reported policies.
Aul’s policy covered the one-year period from April 2009 to April 2010. In December 2009, Aul received a letter from the attorney for Melissa and Kenneth Anderson.
Aul had represented the Andersons in a commercial real estate deal, and the Andersons alleged Aul represented them despite an unwaivable conflict of interest that affected the transaction. They wanted Aul to pay them more than $117,000.
Aul did not report the claim to WILMIC until March 2011, almost a year after his 2009-10 malpractice policy expired. In 2012, the Anderson’s filed a lawsuit for malpractice, breach of contract, and misrepresentation. They also wanted punitive damages.
Aul’s policy with WILMIC said Aul had to file a written report of a “claim or claim incident” during the policy period in which the claim is received, and failing to do so would be deemed conclusively prejudicial to WILMIC’s interest regarding known claims. The Anderson’s December 2009 letter to Aul was considered a claim or claim incident.
WILMIC intervened and provided a defense, but later asked the court to determine that the insurance policy at issue did not cover the claims against Aul. The circuit court ruled for WILMIC, concluding Aul did not notify WILMIC of the claim during the policy period.
An appeals court reversed, concluding that Aul’s late notice did not prejudice WILMIC, and under Wis. Stat. sections 631.81 and 632.26, untimely notice does not preclude coverage if the insured proves that the insurer was not prejudiced because of it.
The appeals court determined that although Aul notified WILMIC of the claim after the policy expired, it was still year before the Anderson’s filed the lawsuit and WILMIC had time to investigate and evaluate the claim for settlement or defense.
But in Anderson v. Aul, 2015 WI 19 (Feb. 25, 2015), the Wisconsin Supreme Court unanimously reversed the appeals court, concluding that Aul was not covered under WILMIC’s malpractice insurance policy despite the notice-prejudice statutes.
In a lead opinion by Chief Justice Shirley Abrahamson, three justices concluded that sections 631.81 and 632.26 did not supersede the terms of the WILMIC policy.
“We conclude after a close examination of the notice-prejudice statutes that they were not intended to supersede the reporting requirement specific to claims-made-and-reported policies,” wrote the chief, joined by Justices David Prosser and Ann Walsh Bradley.
The lead opinion noted that it would be unreasonable to rewrite the terms of the WILMIC policy, despite a concern that “a decision favorable to WILMIC in the present case may open the door for insurance companies to incorporate similar reporting requirements into a wide range of insurance policies and thereby circumvent the consumer protection aspects of these notice-prejudice statutes.”
Justice Annette Ziegler wrote a concurring opinion, joined by three other justices to form the majority opinion of the court. The majority agreed that the notice-prejudice statutes did not defeat WILMIC’s policy terms, concluding the statutes were not applicable.
But Justice Ziegler wrote separately “to clarify that a majority of the court concluded that the statutes at issue are not ambiguous and that their plain meaning dictates the outcome of this case.” The majority rejected any analysis involving the “consequences of alternative interpretations,” which the chief justice employed in the lead opinion.
“[A]lthough a court may consider whether a particular interpretation of a statute would produce an absurd or unreasonable result, a court may not balance the policy concerns associated with the ‘consequences of alternatives,’” Justice Ziegler wrote.
The Aul decision means that, under claims-made-and-reported policies, attorneys must continue to timely report claims with legal malpractice insurers during the policy period in which the claim is filed. Failing to do so may preclude coverage under Aul, even if the insured can show the insurer would not be prejudiced by the untimely filing.