Anderson v. Aul

• Decision Date: 25 February 2015
• Docket Number: No. 2013AP500.,2013AP500.
• Citation: 361 Wis.2d 63,862 N.W.2d 304
• Parties: Melissa ANDERSON and Kenneth Anderson, Plaintiffs–Appellants, v. Thomas AUL, Defendant–Respondent, Aul Real Estate Investment Company, LLC, Cornerstone Investments of Delafield, LLC, Riverside Investments, LLC, XYZ Insurance Company and ABC Insurance Company, Defendants, Wisconsin Lawyers Mutual Insurance Company, Intervenor–Respondent–Petitioner.
• Court: Wisconsin Supreme Court

361 Wis.2d 63

862 N.W.2d 304

Melissa ANDERSON and Kenneth Anderson, Plaintiffs–Appellants

v. Thomas AUL, Defendant–RespondentAul Real Estate Investment Company, LLC, Cornerstone Investments of Delafield, LLC, Riverside Investments, LLC, XYZ Insurance Company and ABC Insurance Company, DefendantsWisconsin Lawyers Mutual Insurance Company, Intervenor–Respondent–Petitioner.

No. 2013AP500.

Supreme Court of Wisconsin.

Argued Nov. 5, 2014.

Decided Feb. 25, 2015.

Reconsideration Denied April 22, 2015.

For the intervenor-respondent-petitioner, there were briefs by Claude J. Covelli and Boardman & Clark LLP, Madison, and oral argument by Claude J. Covelli.

For the plaintiffs-appellants, there was a brief by Holly Strop and Strop Law Offices, LLC, Madison, and Jeffrey O. Davis, Patrick S. Nolan, and Quarles & Brady LLP, Milwaukee. Oral argument by Jeffrey O. Davis.

An amicus curiae brief was filed by Lee M. Seese and Michael Best & Friedrich LLP, Waukesha, on behalf of the Wisconsin Bankers Association and Wisconsin Realtors Association.

Opinion

SHIRLEY S. ABRAHAMSON, Chief Justice.

¶ 1 This is a review of a published court of appeals decision and order reversing a judgment of the Waukesha County Circuit Court, Lee S. Dreyfus, Jr., Judge.¹

¶ 2 Melissa and Kenneth Anderson sued their former attorney, Thomas Aul, for legal malpractice. Wisconsin Lawyers Mutual Insurance Company (WILMIC), Attorney Aul's professional liability insurer, intervened in the lawsuit. WILMIC sought summary judgment declaring that the insurance policy it issued to Attorney Aul did not cover the Andersons' claim.

¶ 3 The WILMIC insurance policy provides coverage for those “claims that are first made against the insured and reported to the [insurance company] during the policy period ” (emphasis added). This type of policy is commonly known as a claims-made-and-reported policy.

¶ 4 Wisconsin's notice-prejudice statutes, Wis. Stat. §§ 631.81(1) and 632.26(2) (2011–12),² provide that an insured's failure to furnish timely notice of a claim as required by the terms of a liability policy will not bar coverage unless timely notice was “reasonably possible” and the insurance company was “prejudiced” by the delay.

¶ 5 The question presented is whether Wisconsin's notice-prejudice statutes supersede the WILMIC policy's requirement that claims be reported during the policy period. If the notice-prejudice statutes supersede this reporting requirement, the next question is whether, under the notice-prejudice statutes, WILMIC was prejudiced by Attorney Aul's failure to report the claim during the policy period.

¶ 6 The parties agree that the Andersons' claim against Attorney Aul was first made during the policy period, that Attorney Aul did not report the claim during the policy period, and that reporting the claim during the policy period was reasonably possible. They dispute whether the WILMIC policy's requirement that claims be reported during the policy period is governed by the notice-prejudice statutes and also whether WILMIC was prejudiced by Attorney Aul's failure to report the claim during the policy period.

¶ 7 Upon considering the text of the notice-prejudice statutes, the historical context of claims-made-and-reported policies, the statutory history of the notice-prejudice statutes, the consequences of alternative interpretations of the notice-prejudice statutes, and the purpose of claims-made-and-reported policies, we conclude that Wisconsin's notice-prejudice statutes do not supersede the reporting requirement specific to claims-made-and-reported policies.

¶ 8 Because we conclude that the notice-prejudice statutes do not supersede the WILMIC policy's requirement that claims be reported within the policy period, we need not address whether, under the notice-prejudice statutes, WILMIC was prejudiced by Attorney Aul's failure to report the claim during the policy period. However, even if we had determined that the notice-prejudice statutes supersede this reporting requirement, WILMIC would prevail. 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.

¶ 9 Accordingly, the decision of the court of appeals is reversed.

¶ 10 Our analysis is as follows: After briefly setting forth the undisputed facts, we discuss the standards of review applicable to a review of summary judgment and to the interpretation and application of insurance policies and statutes. We follow this discussion with an analysis of the nature and history of claims-made-and-reported insurance policies and the terms of the WILMIC policy at issue in the instant case. Lastly, we interpret the relevant statutes, Wis. Stat. §§ 631.81(1) and 632.26(2), and discuss their application to the WILMIC policy.

I

¶ 11 The facts are not in dispute for purposes of this review.

¶ 12 On December 23, 2009, Melissa and Kenneth Anderson's attorney notified Attorney Thomas Aul by letter that they “were dissatisfied with the legal representation [Attorney Aul had] provided.” The specific allegations were that Attorney Aul had an unwaivable conflict of interest in the Andersons' purchase of commercial property in downtown Delafield; that Attorney Aul nonetheless represented the Andersons in that transaction; that the terms of the transaction were “unfair and unreasonable”; and that the “transaction violate[d] the rules of attorney professional responsibility.” The Andersons demanded that Attorney Aul pay them $117,125.

¶ 13 Attorney Aul received the letter from the Andersons' attorney while he was insured under the claims-made-and-reported professional liability policy issued by WILMIC.

¶ 14 It is undisputed that the letter from the Andersons' attorney constituted a “claim first made against the insured” during the policy period (April 1, 2009, to April 1, 2010) and that the policy required Attorney Aul to report that claim to WILMIC during the same period. Attorney Aul did not report the claim to WILMIC until March 2011, nearly a year after the policy period expired.

¶ 15 A year later, in March 2012, the Andersons filed suit against Attorney Aul and several companies owned by Attorney Aul.³ The Andersons alleged breach of fiduciary duty, legal malpractice (negligence), breach of contract, and misrepresentation contrary to Wis. Stat. § 100.18. The Andersons also sought punitive damages for Attorney Aul's “malicious” conduct toward the Andersons “or his intentional disregard of the[ir] rights.”

¶ 16 In May 2012, WILMIC moved to intervene in the lawsuit and undertook Attorney Aul's defense under a reservation of rights. The circuit court granted WILMIC's motion to intervene and bifurcated the case to address the issue of coverage first.

¶ 17 WILMIC filed a motion for summary judgment, seeking a declaration that the insurance policy it had issued to Attorney Aul did not provide coverage for the Andersons' claim. The circuit court granted WILMIC's motion for summary judgment. In an oral ruling, the circuit court stated that it was “satisfied that Mr. Aul did not notify [WILMIC] in a timely fashion.” The circuit court further stated that “there's nothing in this record that indicates specifically that WILMIC has been prejudiced by this [untimely reporting], but that's not the standard as it presently exists....”

¶ 18 On appeal, the court of appeals reversed the summary judgment in WILMIC's favor and held that “[b]oth the applicable statutes ... and our case law make it clear that the circuit court must determine whether untimely notice prejudiced an insurer; the finding of untimeliness is not solely dispositive.”⁴ The court of appeals then applied the definition of “prejudice” adopted by this court in Neff v. Pierzina, 2001 WI 95, ¶ 44, 245 Wis.2d 285, 629 N.W.2d 177,⁵ and concluded that because Attorney Aul's untimely reporting of the claim did not hinder WILMIC's “ability to investigate, evaluate, or settle [the] claim, determine coverage, or present an effective defense,” WILMIC had not been prejudiced.⁶

II

¶ 19 Summary judgment is granted when there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law.⁷ “An appellate court reviews a summary judgment applying the same standards and methods used by the circuit court.”⁸

¶ 20 Whether summary judgment should be granted in the instant case depends on the interpretation of the WILMIC insurance policy and the interpretation and application of Wis. Stat. §§ 631.18 and 632.26, the notice-prejudice statutes. Interpretation and application of insurance policies and statutes are ordinarily questions of law this court decides independently of the decisions of the circuit court and court of appeals but benefiting from their analyses.

III

¶ 21 Before examining the reporting requirement set forth as a condition of coverage in the claims-made-and-reported policy at issue in the instant case, we examine the nature and history of claims-made-and-reported policies, comparing them with other types of liability policies. This background information helps inform our interpretation of the text of the WILMIC insurance policy and the notice-prejudice statutes.

A

¶ 22 There are two primary types of professional liability insurance policies: occurrence policies and claims-made policies.⁹ Claims-made policies are further divisible into two primary types: pure claims-made policies and claims-made-and-reported policies.¹⁰

¶ 23 Occurrence policies provide coverage “if the negligent act or omission occurs within the policy period, regardless of the date ... the claim is made or asserted.” ¹¹

It is the timing of the event causing injury, not the assertion or reporting of a claim based on that injury, that triggers the initial grant of coverage. An insurance company may be held liable under an occurrence policy for claims made long after the policy period has expired.

¶ 24 An occurrence policy may, however, require the insured to provide notice...