Melissa Anderson v. Thomas Aul , 361 Wis. 2d 63 ( 2015 )

2015 WI 19
SUPREME COURT OF WISCONSIN
CASE NO.: 2013AP500
COMPLETE TITLE: 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.
REVIEW OF A DECISION OF THE COURT OF APPEALS
Reported at 353 Wis. 2d 238, 844 N.W.2d 636
(Ct. App. 2014 – Published)
PDC No: 2014 WI App 30
OPINION FILED: February 25, 2015
SUBMITTED ON BRIEFS:
ORAL ARGUMENT: November 5, 2014
SOURCE OF APPEAL:
COURT: Circuit
COUNTY: Waukesha
JUDGE: Lee S. Dreyfus Jr.
JUSTICES:
CONCURRED: ZIEGLER, CROOKS, ROGGENSACK, GABLEMAN, JJJJ.,
concur. (Opinion filed.)
DISSENTED:
NOT PARTICIPATING:
ATTORNEYS:
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.
2
2015 WI 19
NOTICE
This opinion is subject to further
editing and modification. The final
version will appear in the bound
volume of the official reports.
No. 2013AP500
(L.C. No. 2012CV732)
STATE OF WISCONSIN : IN SUPREME COURT
Melissa Anderson and Kenneth Anderson,
Plaintiffs-Appellants,
v.
Thomas Aul,
Defendant-Respondent, FILED
Aul Real Estate Investment Company, LLC,
Cornerstone Investments of Delafield, LLC, FEB 25, 2015
Riverside Investments, LLC, XYZ Insurance
Company and ABC Insurance Company, Diane M. Fremgen
Clerk of Supreme Court
Defendants,
Wisconsin Lawyers Mutual Insurance Company,
Intervenor-Respondent-Petitioner.
REVIEW of a decision of the Court of Appeals. Reversed.
¶1 SHIRLEY S. ABRAHAMSON, C.J. This is a review of a
published court of appeals decision and order reversing a
No. 2013AP500
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.
1
Anderson v. Aul, 2014 WI App 30, 353 Wis. 2d 238, 844
N.W.2d 636.
Justices Ann Walsh Bradley and David T. Prosser join this
lead opinion. Justices N. Patrick Crooks, Patience D.
Roggensack, and Michael J. Gableman join Justice Annette K.
Ziegler's concurring opinion, which represents the majority
opinion of the court. See ¶106 n.1 of Justice Ziegler's
opinion.
2
All subsequent references to the Wisconsin Statutes are to
the 2011-12 version unless otherwise indicated.
2
No. 2013AP500
¶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,
3
No. 2013AP500
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
4
No. 2013AP500
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
3
The companies named as defendants were: Aul Real Estate
Investment Company, LLC; Cornerstone Investments of Delafield,
LLC; and Riverside Investments, LLC.
5
No. 2013AP500
"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
4
Anderson, 353 Wis. 2d 238, ¶11.
6
No. 2013AP500
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
5
"Prejudice to the insurer in this context is a serious
impairment of the insurer's ability to investigate, evaluate, or
settle a claim, determine coverage, or present an effective
defense, resulting from the unexcused failure of the insured to
provide timely notice." Neff v. Pierzina, 2001 WI 95, ¶44, 245
Wis. 2d 285, 629 N.W.2d 177.
6
Anderson, 353 Wis. 2d 238, ¶¶13, 16.
7
Wis. Stat. § 802.08(2).
8
Frost ex rel. Anderson v. Whitbeck, 2002 WI 129, ¶4, 257
Wis. 2d 80, 654 N.W.2d 225.
7
No. 2013AP500
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
9
See generally New Appleman on Insurance Law § 20.01[5][a]
(Library ed.) (discussing occurrence-based and claims-made-based
liability insurance). See also Gerald Kroll, The "Claims Made"
Dilemma in Professional Liability Insurance, 22 UCLA L. Rev.
925, 928-31 (1974) (comparing occurrence and claims-made
policies from the perspective of insurance companies and
insureds).
10
See Jeffrey P. Griffin, The Inapplicability of the
Notice-Prejudice Rule to Pure Claims-Made Insurance Policies, 42
Conn. L. Rev. 235, 246-47 (2009) (distinguishing claims-made-
and-reported policies from pure claims-made policies).
Courts and commentators often imprecisely use the term
"claims-made" when they are in fact referring to pure claims-
made policies or claims-made-and-reported policies.
8
No. 2013AP500
¶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 of a claim "as soon as practicable" or within
a stated period. The requirement that notice be given to the
insurance company "as soon as practicable" or within a stated
period serves to maximize the insurance company's "opportunity
to investigate, set reserves, and control or participate in
negotiations with the third party asserting the claim against
the insured."12
11
Griffin, supra note 10, at 239 (quoting Gulf Ins. Co. v.
Dolan, 433 So. 2d 512, 514 (Fla. 1983)).
12
Prodigy Commc'ns Corp. v. Ag. Excess & Surplus Ins. Co.,
288 S.W.3d 374, 380 (Tex. 2009) (internal quotations omitted)
(citing Steven Plitt et al., Couch on Insurance § 186:13 (3rd
ed. 1997)). See also Underwood Veneer Co. v. London Guarantee &
Accident Co., 100 Wis. 378, 381, 75 N.W. 996 (1898) ("The reason
for requiring [immediate] notice is . . . to enable the
[insurance company] to investigate the facts and circumstances
of the accident while they [a]re fresh in mind, with the view of
settling the loss . . . and, in case of a contest, to be
prepared to defend the same . . . .").
9
No. 2013AP500
¶25 In contrast, a pure claims-made policy provides
coverage for claims made during the policy period.13 Like an
occurrence policy, a pure claims-made policy may require the
insured to provide notice "as soon as practicable" or within a
stated period.
¶26 A claims-made-and-reported policy, as its name
suggests, provides coverage for claims both made and reported
during the policy period. To trigger an initial grant of
coverage, the injured third party must make a claim against the
insured during the policy period and the insured must report
that claim to the insurance company within the same period.14
The event upon which the claim is based can, and often does,
occur before the policy came into existence.15
¶27 Like occurrence policies and pure claims-made
policies, a claims-made-and-reported policy can also contain a
notice provision requiring the insured to give notice to the
13
See 5 Ronald E. Mallen & Jeffrey M. Smith, Legal
Malpractice § 34:14 (5th ed. 2000).
14
New Appleman on Insurance Law § 20.01[7][c] (stating that
"coverage is triggered only where the third-party claim is
asserted against the policyholder during the policy period and
the policyholder notifies the carrier of the claim during the
policy period" (emphasis in original)).
15
1 Arnold P. Anderson, Wisconsin Insurance Law § 5.4 (6th
ed. 2013) ("The claims-made policy usually provides coverage for
negligent acts that occurred before the policy's effective
date . . . .").
10
No. 2013AP500
insurance company "as soon as practicable" or within a stated
period.16
¶28 The requirement in a claims-made-and-reported policy
that claims be reported within the policy period and the
requirement that notice be provided "as soon as practicable" or
within a stated period are distinct and serve different
purposes.17 The requirement that claims be reported during the
policy period "is directed to the temporal boundaries of the
policy's basic coverage terms . . . ."18 If the claim is not
reported within the policy period, there is no initial grant of
coverage. As we stated previously, the purpose of the
requirement that notice be given "as soon as practicable" or
within a stated period is to enable the insurance company to
begin investigating the claim.
16
See Griffin, supra note 10, at 247 ("The insuring
agreements in [claims-made-and-reported] policies typically
state that 'the insured shall, as a condition precedent to their
rights under this policy, give written notice as soon as
practicable to the company of a claim made against the
insured . . . .").
17
See Chas. T. Main, Inc. v. Fireman's Fund Ins. Co., 551
N.E.2d 28, 29 (Mass. 1990) ("There are, in general, two types of
notice requirements . . . . One is a requirement that
notice . . . be given to the insurer 'as soon as
practicable' . . . . The other . . . requires reporting of the
claim during the term of the policy . . . . The purposes of the
two types of reporting requirements differ sharply.").
18
Prodigy Commc'ns Corp., 288 S.W.3d at 380 (citing Steven
Plitt et al., Couch on Insurance § 186:13 (3rd ed. 1997)).
11
No. 2013AP500
¶29 Not surprisingly, these two provisions (the reporting
requirement specific to claims-made-and-reported policies and
the notice requirement in all three kinds of liability policies)
have been confused by practitioners and the judiciary.19 This
confusion can make it difficult to interpret notice-prejudice
statutes and the cases discussing them.
¶30 Occurrence policies once dominated the professional
liability insurance market.20 However, in the late 1960s and
early 1970s, pure claims-made policies and claims-made-and-
reported policies began gaining favor in the professional
liability insurance market as an antidote to the problems
arising with occurrence insurance.21
19
Steven Plitt et al., Couch on Insurance § 186:13 (3rd ed.
1997).
20
See Sol Kroll, "Claims Made" - Industry's Alternative:
"Pay as You Go" Products Liability Insurance, 1976 Ins. L.J. 63,
64 (1976) (discussing the history of liability insurance and the
industry's transition from occurrence-based to "claims made"-
based policies).
21
John K. Parker, The Untimely Demise of the "Claims Made"
Insurance Form? A Critique of Stine v. Continental Casualty
Company, 1983 Det. C. L. Rev. 25, 28-29 (1983). See also
Carolyn M. Frame, "Claims-Made" Liability Insurance: Closing the
Gaps With Retroactive Coverage, 60 Temp. L.Q. 165, 171 (1987)
("In an attempt to reverse escalating losses, insurers developed
the claims-made policy to replace the occurrence policy."). See
also Gerald Kroll, The "Claims Made" Dilemma in Professional
Liability Insurance, 22 UCLA L. Rev. 925, 927 (1974) ("[T]he
'claims made' policy can be advantageous to both insureds and
insurers and deserves preservation.").
For a general discussion of this history, see Griffin,
supra note 10, at 239-46.
12
No. 2013AP500
¶31 The primary drawback of occurrence-based professional
liability policies is that the insurance company faces long tail
exposure. "This 'tail' is the lapse of time between the date of
the error and the time the claim is made."22 Long tail exposure
prevents insurance companies from making a precise calculation
of premiums based upon the cost of the risks assumed.23
¶32 In contrast, "[t]he principal advantage of the claims-
made policy for insurers is the avoidance of 'tail liability.'
After termination of a policy, the claims-made insurer is no
longer exposed to liability . . . ."24 In addition, because pure
claims-made policies and claims-made-and-reported policies are
advantageous to insurance companies, they apparently result in
lower premiums for the insured.25
¶33 By the mid-1980s, there was "almost universal
acceptance of the 'claims made' insurance form."26 "Most recent
22
Zuckerman v. Nat'l Union Fire Ins. Co., 495 A.2d 395, 399
(1985).
23
Zuckerman, 495 A.2d at 399.
Occurrence policy premiums have proven to be "inadequate to
cover the inflationary increase in the cost of settling claims
asserted years later." Id. Furthermore, the insurance company
may no longer be in existence when the claim is finally made.
Id.
24
Frame, supra note 21, at 166 (footnote omitted).
25
Griffin, supra note 10, at 244-45.
26
Parker, supra note 21, at 32. See also, e.g., Zuckerman,
495 A.2d 395; Gulf Ins. Co., 433 So. 2d 512; Poirier v. Nat'l
Union Fire Ins. Co., 517 So. 2d 225 (Ct. App. La. 1987).
13
No. 2013AP500
forms [for legal malpractice insurance] are 'claims-made-and-
reported,' requiring that the claim first be made against the
insured and reported to the insurer within the policy term."27
B
¶34 With this background regarding the three main types of
professional liability insurance policies in mind, and cognizant
of the distinction between the reporting requirement specific to
claims-made-and-reported policies and the notice requirement
that may appear in all three types of policies, we turn to the
text of the WILMIC insurance policy.
¶35 The requirement that all claims made against the
insured during the policy period be reported to WILMIC during
the policy period is set forth in several places within the
policy.
¶36 First, the declarations page of the insurance contract
states: "This policy is limited to liability for only those
claims that are first made against the insured and reported to
the Company during the policy period. This is a non-renewable
policy."
¶37 Second, the introduction to the reissue application
that Attorney Aul submitted to WILMIC in 2009, which is
incorporated into the policy, begins by stating: "Because
claims made and reported policies expire each year, it is
27
5 Mallen & Smith, supra note 13, § 34:14.
14
No. 2013AP500
critical that you report claims promptly and before your policy
expires" (emphasis in policy).
¶38 Third, a box titled "IMPORTANT NOTICE" on the cover of
the policy booklet states: "THIS IS A CLAIMS MADE AND REPORTED
INSURANCE POLICY. COVERAGE IS LIMITED TO LIABILITY FOR ONLY
THOSE CLAIMS THAT ARE FIRST MADE AGAINST YOU AND REPORTED IN
WRITING TO US DURING THE POLICY PERIOD. THIS IS A NONRENEWABLE
POLICY" (emphasis in policy).
¶39 Fourth, the first paragraph of Article I of the
insurance policy (titled "COVERAGE AGREEMENTS") states:
This insurance applies to claims first made against
you and first reported to us in writing during the
policy period that result from wrongful acts that
occur after the retroactive date, if any. You must
send a written report of a claim or claim incident to
us at our address set forth on the declarations page
during the policy period. . . . Your failure to send a
written report of a claim or claim incident to us
within the policy period shall be conclusively deemed
prejudicial to us.
(Emphasis in policy.)
¶40 Fifth, Article IV of the insurance policy (titled
"CONDITIONS") states:
A. Notice of claim, claim incident or suit
1. As a condition of this insurance coverage,
you shall, within this policy period:
a. give us written notice of any claim or
claim incident; and
b. immediately forward to us every demand,
notice, summons or other process received
directly by you or by your
representatives, in the event suit is
brought against you.
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No. 2013AP500
2. The written notice of a claim or claim
incident shall include the:
a. date or dates of the alleged wrongful
act, error or omission; and
b. injury or damages that have resulted or
may result; and
c. circumstances by which you first became
aware of such alleged wrongful act.
(Emphasis in policy.)
¶41 Finally, Article V of the insurance policy (titled
"EXCLUSIONS") states:
We will not defend or pay, under this coverage:
. . . .
J. Any claim or claim incident not reported in
writing within the time period required in
Article IV, Conditions.
(Emphasis in policy.)
¶42 The text of the WILMIC insurance policy clearly
states, and the parties do not dispute, that the policy's
coverage is limited to those claims that were first made against
Attorney Aul and first reported in writing to WILMIC between
April 1, 2009, and April 1, 2010. As we discussed previously,
the purpose of restricting coverage to claims both made and
reported during the policy period is to set "the temporal
boundaries of the policy's basic coverage terms," that is, to
"define[ ] the limits of the insurer's obligation."28
28
13 Steven Plitt et al., Couch on Insurance § 186:13 (3rd
ed. 1997).
16
No. 2013AP500
¶43 Neither party asks the court to rewrite the insurance
policy (a task we will not undertake) to bind WILMIC to a risk
it "did not contemplate and for which it has not been paid."29
Rather, the parties dispute the effect of the notice-prejudice
statutes on the WILMIC policy's reporting requirement.
¶44 We therefore turn to the notice-prejudice statutes.
IV
¶45 There are two notice-prejudice statutes at issue in
the instant case.
¶46 First is Wis. Stat. § 631.81(1), which applies to all
insurance policies delivered in this state30 and provides that
failure to furnish "notice or proof of loss" within the time
required by the policy will "not invalidate or reduce a claim
unless the insurer is prejudiced thereby and it was reasonably
possible to meet the time limit." The text of § 631.81(1) reads
as follows:
(1) Timeliness of notice. Provided notice or proof of
loss is furnished as soon as reasonably possible
and within one year after the time it was
required by the policy, 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.
29
Smith v. Katz, 226 Wis. 2d 798, 807, 595 N.W.2d 345
(1999) ("It is important to remember that 'a contract of
insurance is not to be rewritten by the court to bind an insurer
to a risk which the insurer did not contemplate and for which it
has not been paid.'").
30
See Wis. Stat. § 631.01(1).
17
No. 2013AP500
¶47 Second is Wis. Stat. § 632.26, which applies to "every
liability insurance policy" delivered in this state31 and
provides that an insured's failure to give any notice required
by the policy will not preclude coverage if it was not
reasonably possible to give the prescribed notice, notice was
given as soon as reasonably possible,32 and the insurance company
was not prejudiced by the late notice.33 The statute further
states that "the risk of nonpersuasion is upon the person
claiming there was no prejudice."34 The text of Wis. Stat.
§ 632.26 reads as follows:
(1) Required provisions. Every liability insurance
policy shall provide:
. . . .
(b) That failure to give any notice required by the
policy within the time specified does not invalidate a
claim made by the insured if the insured shows that it
was not reasonably possible to give the notice within
the prescribed time and that notice was given as soon
as reasonably possible.
(2) Effect of failure to give notice. Failure to give
notice as required by the policy as modified by sub.
(1)(b) does not bar liability under the policy if the
insurer was not prejudiced by the failure, but the
risk of nonpersuasion is upon the person claiming
there was no prejudice.
31
Wis. Stat. § 632.26(1).
32
Wis. Stat. § 632.26(1)(b).
33
Wis. Stat. § 632.26(2).
34
Id.
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No. 2013AP500
¶48 We are faced with a difficult and close question of
statutory interpretation, namely whether these statutes
supersede the terms of the WILMIC policy that limit its coverage
to those claims that are first made against Attorney Aul and
first reported to WILMIC within the policy period. We resolve
this question by employing the tools of statutory
interpretation.
¶49 The court has set forth the tools of statutory
interpretation many times. "Our goal in interpreting a statute
is to discern and give effect to the intent of the
legislature."35 We begin with the statute's text.36 "Words are
ordinarily interpreted according to their common and approved
usage; technical words and phrases . . . are ordinarily
interpreted according to their technical meaning."37 We read
statutes as a whole and "give effect to each word" in the
statute "to avoid surplusage."38
¶50 "[I]t is often valuable to examine the statute in
context."39 "[C]ontext inflects statutory interpretation."40
35
Hubbard v. Messer, 2003 WI 145, ¶9, 267 Wis. 2d 92, 673
N.W.2d 676.
36
Legue v. City of Racine, 2014 WI 92, ¶61, 357 Wis. 2d 250, 849 N.W.2d 837.
37
Id.
38
Id.
39
Seider v. O'Connell, 2000 WI 76, ¶43, 236 Wis. 2d 211,
612 N.W.2d 659.
40
Id., ¶45.
19
 No. 2013AP500
"The statutory language is examined in the context in which it
is used."41 Context refers not only to the language of the
statute but also to the relationship of the statute at issue
with other statutes.42 Context can also mean the factual
setting.43 The same statute may be "ambiguous in one setting and
unambiguous in another."44 "[R]easonable minds can differ about
a statute's application when the text is a constant but the
circumstances to which the text may apply are kaleidoscopic."45
¶51 To determine a statute's meaning, we examine the
statutory history and case law. In addition, the purpose of the
statute and "the consequences of alternative interpretations"
inform our interpretation.46 We decline to read statutes in a
way that produces absurd, implausible, or unreasonable results,
or results that are at odds with the legislative purpose.47
¶52 We begin our interpretation of the notice-prejudice
statutes with the statutory texts.
41
Klemm v. Am. Transmission Co., 2011 WI 37, ¶10, 333
Wis. 2d 580, 798 N.W.2d 223.
42
Seider, 236 Wis. 2d 211, ¶43.
43
Id.
44
Id.
45
Id.
46
Legue, 357 Wis. 2d 250, ¶61.
47
Hubbard, 267 Wis. 2d 92, ¶9.
20
No. 2013AP500
¶53 On their face, these statutes can be read to prohibit
an insurance company from denying coverage under a liability
policy because notice of a claim was given after the end of the
policy period, unless the insurance company was prejudiced by
the delay. The Andersons urge us to adopt this reading of the
statutes and to invalidate the WILMIC policy's requirement that
claims be reported during the policy period. They argue that
the statutes supersede this requirement.
¶54 The only court that has considered Wisconsin's notice-
prejudice statutes in the context of a claims-made-and-reported
policy is the United States Court of Appeals for the Seventh
Circuit.48 In Lexington Insurance Co. v. Rugg & Knopp, Inc., 165
F.3d 1087 (7th Cir. 1999), the federal court of appeals adopted
the literal reading of the statutes advanced by the Andersons in
the present case. In adopting this interpretation, the federal
court of appeals was greatly influenced by its limited role as a
federal court sitting in diversity on a case requiring the
interpretation of Wisconsin law.49
¶55 The insurance policy at issue in Lexington Insurance
required that any claim made within the policy period be
reported to the insurance company within 30 days of the policy's
expiration. The federal court of appeals first noted that if
interpretation of the insurance policy were the only issue,
48
Lexington Ins. Co. v. Rugg & Knopp, Inc., 165 F.3d 1087
(7th Cir. 1999).
49
Id. at 1092.
21
No. 2013AP500
there would be no coverage because the insured indisputably
failed to report the claim as required by the policy.50 It then
examined Wisconsin's notice-prejudice statutes, noting that "a
federal court sitting in diversity must proceed with caution in
making pronouncements about state law."51
¶56 The federal court of appeals concluded that,
regardless of the type of policy, the insurance company could
not “refuse liability for payment merely because of late
notice."52 It based this determination on the literal words of
the statutes, holding that on their face, the notice-prejudice
statutes provide that in Wisconsin, an insurance company may not
contractually limit its liability to claims reported within the
policy period.53
¶57 Nevertheless, the federal court of appeals recognized
that statutory interpretation does not end with an examination
of the statute's text.54 We agree. Although the literal reading
of a statute is important, a court is not bound by that reading
when other factors contradict it. A statute that has
superficial clarity may nevertheless contain latent ambiguities,
50
Id. at 1089.
51
Id. at 1092.
52
Id. at 1094.
53
Id. at 1092.
54
Id. at 1091-92.
22
No. 2013AP500
and courts may turn to various interpretive aids for guidance in
resolving them.55
¶58 The notice-prejudice statutes state that they apply to
all liability policies, but as we explained previously, there
are three different types of professional liability policies
with two different types of notice and reporting requirements.
The statutes do not differentiate between the notice requirement
that may be included in any of the three types of liability
policies and the reporting requirement particular to claims-
made-and-reported policies.
¶59 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.
¶60 We begin by examining the context of the statutes,
including the historical context of occurrence and claims-made-
and-reported policies, as well as the statutory history.
¶61 We discussed previously the history of claims-made-
and-reported policies. Claims-made-and-reported policies were
relatively new to the liability insurance market in the 1970s.
Occurrence liability policies were predominant.
¶62 Wisconsin Stat. § 631.81 was enacted in 1975.56
Wisconsin Stat. § 632.26 was enacted in 1979.57 Thus, both
55
2A Norman Singer & Shambie Singer, Sutherland Statutes
and Statutory Construction § 46:4 (7th ed. 2008).
56
Ch. 375, Laws of 1975.
23
No. 2013AP500
notice-prejudice statutes were enacted when occurrence liability
policies were predominant. These notice-prejudice statutes were
part of a broader revision of Wisconsin's insurance laws in
response to recommendations made by the Insurance Laws Revision
Committee of the Wisconsin Legislative Council. The minutes
from this Committee's meetings are not helpful in determining
whether the notice-prejudice statutes were intended to reach the
reporting requirement specific to claims-made-and-reported
policies.
¶63 Based, however, on the timing of the development of
claims-made-and-reported insurance and the enactment of the
notice-prejudice statutes, it is plausible that the Committee
and the legislature were thinking of the traditional requirement
that insureds provide notice "as soon as practicable" or within
a stated period, not the reporting requirement specific to
claims-made-and-reported policies.
¶64 We turn now to statutory history, that is, to the
predecessor statutes to Wis. Stat. §§ 631.81 and 632.26, for
insight into the scope of these notice-prejudice statutes and
their applicability to the reporting requirement in claims-made-
and-reported policies.
¶65 The historical context of the statutes begins with
Bachhuber v. Boosalis, 200 Wis. 574, 229 N.W. 117 (1930), which
57
Ch. 102, Laws of 1979.
24
No. 2013AP500
involved an occurrence-based automobile liability policy.58
After a collision, the insured was charged with "negligence
causing the damage."59 The insurance company argued that the
insured was not covered under the policy because he failed to
comply with the policy's notice provisions.60 The policy
required the insured to give "immediate notice of the
accident . . . and immediate notice of the claim."61 This court
agreed with the insurance company: "The provisions in the policy
as to notice . . . are conditions precedent, failure to perform
which . . . constitutes [a] defense[] to liability on the
policy" (emphasis added).62
¶66 The important words are "conditions precedent." A
condition precedent is an event that must occur before
performance under a contract becomes due.63 In other words,
58
For earlier cases requiring compliance with an insurance
policy's notice requirements in order to gain coverage, see
Britz v. Am. Ins. Co., 2 Wis. 2d 192, 199-200, 86 N.W.2d 18
(1957).
59
Bachhuber v. Boosalis, 200 Wis. 574, 575, 229 N.W. 117
(1930).
60
Id.
61
Id.
62
Id.
63
Restatement (Second) of Contracts § 224, at 160 (1981).
The Restatement (Second) of Contracts abandons the term
"condition precedent" in favor of "condition." Id. at 164. The
Reporter's Note to § 224 states that the phrase "condition
precedent" has been the subject of frequent criticism and has
caused unnecessary confusion. Id.
(continued)
25
 No. 2013AP500
there is no coverage under the policy until the condition
precedent has been performed.64 Thus, by construing the
occurrence policy's "immediate notice" requirement as a
condition precedent, the Bachhuber court determined that no
coverage existed under the policy in the absence of "immediate
notice."
¶67 Bachhuber reflects what was then the prevailing
interpretation of policy provisions requiring notice "as soon as
For a discussion of the use of the phrase "condition
precedent," see Fox v. Catholic Knights Ins. Soc'y, 2003 WI 87,
¶¶23-24, 263 Wis. 2d 207, 665 N.W.2d 181.
64
See Richard Lord, 16 Williston on Contracts § 49:87 (4th
ed. 2000) (stating that when an insurance contract contains a
condition precedent, "the fulfillment of the condition by the
insured must occur before the insurer becomes legally liable on
the policy"). See also id., § 49:109 ("Insurance contracts
quite commonly contain, as an express condition precedent to the
insurer's duty to defend or indemnify the insured, a provision
requiring the insured to give notice to the insurer, within a
specified or reasonable time . . . . [L]iability will arise only
when notice is given.").
26
No. 2013AP500
practicable" or within a stated time.65 Such provisions were
considered "of the essence of the [liability insurance]
contract."66 Even when the liability policy lacked a forfeiture
clause, an insured's failure to provide notice "as soon as
practicable" or within a stated time would usually "release the
insurer from liability."67 In other words, there was no coverage
65
See L.S. Elkins, Annotation, Liability Insurance: Clause
with Respect to Notice of Accident, Claim, etc., or with Respect
to Forwarding Suit Papers, 76 A.L.R. 23, 53-74 (1932) (surveying
cases holding that liability policy provisions requiring
immediate notice or notice within a reasonable time create
conditions precedent to the insurance company's obligation to
pay); Restatement of Contracts § 259, at 371 (1932) ("Though
failure by [the insured] to notify the [insurance company]
within the 30-day period is stated as a condition subsequent
terminating a duty to pay, such notification is in effect a
condition precedent, since there is no duty of immediate
performance until notification has been given."). See also
Foster v. Fid. & Cas. Co., 99 Wis. 447, 449, 75 N.W. 69 (1898)
(because the insured failed to fulfill the condition precedent
of providing immediate notice of "any accident or injury for
which a claim is to be made," judgment in the insured's favor
was reversed).
66
L.S. Elkins, Annotation, Liability Insurance: Clause with
Respect to Notice of Accident, Claim, etc., or with Respect to
Forwarding Suit Papers, 76 A.L.R. 23, 58 (1932).
67
L.S. Elkins, Annotation, Liability Insurance: Clause with
Respect to Notice of Accident, Claim, etc., or with Respect to
Forwarding Suit Papers, 76 A.L.R. 23, 201-02 (1932).
(continued)
27
No. 2013AP500
under the policy when an insured did not comply with a condition
precedent such as notice within a specified time.
¶68 The Wisconsin legislature responded swiftly to the
harsh result in Bachhuber by enacting Wis. Stat. § 204.33 (1931-
32).68 This notice-prejudice statute provided that failure to
give timely notice would not bar coverage if the insurance
company was not prejudiced by the delay. The effect of the
statute was to expand certain policies' coverage. The statute
applied, however, only to "liability or loss arising by reason
of the ownership, maintenance or use of a motor vehicle issued
in this state."69 The statute reads in relevant part as follows:
(3) . . . . Failure to give [timely] notice shall not
bar liability under such policy of insurance,
Even now, "a vast majority of notice provisions are
described as conditions precedent to recovery under the
policies." 13 Steven Plitt et al., Couch on Insurance § 186:41
(3rd ed. 1997). However, many courts do not apply the "strict
forfeiture" rule when an insured fails to fulfill the condition
precedent that notice be provided "as soon as practicable" or
within a stated time. Steven Plitt et al., Couch on Insurance
§ 186:6 (3rd ed. 1997). "A recent survey places 11 states and
the District of Columbia in this [strict forfeiture]
category . . . ; 25 states require some showing of prejudice
from the insurer." Id.
68
See ch. 477, Laws of 1931; Britz, 2 Wis. 2d at 201.
69
Wis. Stat. § 204.33(1) (1931-32). See RTE Corp. v.
Maryland Cas. Co., 74 Wis. 2d 614, 631, 247 N.W.2d 171 (1976)
(holding that "[t]his court has consistently treated the rule
established in the [notice-prejudice] statute as an exception to
the general rule" that insurance companies need not show
prejudice to bar coverage based on an insured's failure to
fulfill the condition precedent of providing notice "as soon as
practicable" or within a stated time.).
28
No. 2013AP500
agreement of indemnity or bond . . . if the
insurer was not prejudiced or damaged by such
failure, but the burden of proof to so show shall
be upon the person claiming such liability.70
¶69 Bachhuber was followed by Britz v. American Insurance
Co., 2 Wis. 2d 192, 202, 86 N.W.2d 18 (1957). Britz did not
involve an automobile accident; it involved theft. The parties
disputed whether the notice-prejudice statute applied to the
insurance policy at issue, which required notice "as soon as
practicable." The court concluded that the statute's explicit
reference to automobile liability policies was dispositive.
Insurance companies could deny coverage under non-automobile
liability insurance policies when the insured failed to provide
notice within the period stated in the policy.
¶70 A decade later, Allen v. Ross, 38 Wis. 2d 209, 156
N.W.2d 434 (1968), involved an automobile liability policy. The
policy provided that notice had to be given to the insurance
company "as soon as practicable" after an accident occurred.
The court declared that the automobile liability policy's notice
requirement was subject to the notice-prejudice statute.71
¶71 Thus, by the mid-1970s, it was well settled that the
notice-prejudice statute then in existence applied only to
automobile liability policies. The statute had not been applied
70
Wis. Stat. § 204.33(3) (1931-32).
71
Allen v. Ross, 38 Wis. 2d 209, 213, 156 N.W.2d 434
(1968).
29
No. 2013AP500
to any non-automobile liability policy or to the reporting
requirement specific to claims-made-and-reported policies.
¶72 In 1975, the legislature modified and reenacted the
notice-prejudice statute as Wis. Stat. § 631.81. The scope of
the notice-prejudice statute's applicability was expanded from
automobile liability policies to "all insurance policies."72
¶73 It is clear the legislature intended Wis. Stat.
§ 631.81 to reach beyond automobile liability polices, but
neither the text of the revised statute nor the Committee
comments discussing the provision addresses the distinction
between the requirement that notice be provided "as soon as
practicable" or within a stated period and the reporting
requirement specific to claims-made-and-reported policies.
¶74 Although it is not clear from the statutory history or
Committee materials we located that the legislature intended
this notice-prejudice statute to reach beyond the traditional
type of notice requirement, the Committee comments to Wis. Stat.
§ 631.81 are helpful. They seem to signify that the statute
does not reach the reporting requirement specific to claims-
made-and-reported policies.
¶75 The Comments state that "[t]he proper time for giving
notice of a loss or injury depends on the nature of the
coverage . . . . In each class of insurance, the interests of
the insured and insurer must be carefully evaluated and weighed
72
Ch. 375, Laws of 1975, § 41, Leg. Council Note to
631.81(1).
30
No. 2013AP500
against each other."73 The Comments then provide the following
example: "For instance, the conditions for hospitalization
benefits in case of plain sickness insurance are easy to check
even after some time . . . . The insurer's position in adjusting
such claims may not be materially affected if it receives the
hospital or doctors' bills months later."74
¶76 These Comments suggest that the statute refers to the
kind of notice provision that enables an insurance company to
effectively investigate a claim, not to the reporting
requirement in claims-made-and-reported policies. As we
explained previously, the requirement in claims-made-and-
reported policies that claims be reported during the policy
period is not designed to assist the insurance company in
investigating those claims. It therefore appears that Wis.
Stat. § 631.81 does not reach the reporting requirement specific
to claims-made-and-reported policies.
¶77 Wisconsin Stat. § 632.26 was enacted in 1979, just
four years later.75 The statute explicitly states that it
applies to "[e]very liability insurance policy."76 The statute
again fails, however, to distinguish between a policy
requirement that notice be provided "as soon as practicable" or
73
Id.
74
Id.
75
See ch. 102, Laws of 1979.
76
Wis. Stat. § 632.26(1).
31
No. 2013AP500
within a stated period and the reporting requirement specific to
claims-made-and-reported policies. Again, it is not clear from
the statutory history or Committee materials that the
legislature intended this notice-prejudice statute to reach
beyond the traditional type of notice requirement to the
reporting requirement specific to claims-made-and-reported
policies.
¶78 There is no indication from the historical context of
claims-made-and-reported policies or the statutory history that
the legislature intended to extend the reach of the notice-
prejudice statutes to the reporting requirement specific to
claims-made-and-reported policies.
¶79 To aid us in reaching the correct interpretation of
the notice-prejudice statutes, we next examine the consequences
of alternative interpretations.
¶80 If we interpret the notice-prejudice statutes as
inapplicable to the reporting requirement specific to claims-
made-and-reported policies, the consequence is that such
reporting requirements will remain in full force and effect and
an insured may lose coverage by missing the reporting deadline.
Strictly limiting the time in which an insured must report a
claim can lead to harsh results for the insured and third-party
victims. Indeed, in the present case, the Andersons can be
viewed as being victimized twice; first they were allegedly
harmed by Attorney Aul's negligence in representing them and now
they are harmed by Attorney Aul's failure to abide by the WILMIC
policy's reporting requirement.
32
No. 2013AP500
¶81 Furthermore, we are concerned 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.
¶82 Yet, if we interpret the notice-prejudice statutes to
apply to the reporting requirement specific to claims-made-and-
reported policies, we will in effect rewrite the terms of such
policies. This interpretation would mean the legislature has
eliminated a significant element of claims-made-and-reported
policies. The reporting requirement, after all, is what
distinguishes claims-made-and-reported policies from other kinds
of liability policies. Thus, claims-made-and-reported policies
would be converted into pure claims-made policies or occurrence
policies. Such an interpretation would frustrate the purpose of
claims-made-and-reported policies.77
¶83 We did not locate anything in the statutory text, the
history of claims-made-and-reported policies, the statutory
history, or the Committee materials indicating that the
77
"The ultimate threat (and evidence of prejudice) is that
allowing late notice will turn a claims-made policy into an
occurrence policy, which could make insurance difficult to
obtain for . . . professional liability. Insurers do not write
occurrence policies for such risks because it is unprofitable
and difficult to underwrite." 1 Arnold P. Anderson, Wisconsin
Insurance Law § 5.10 (6th ed. 2013).
33
No. 2013AP500
legislature intended to invalidate claims-made-and-reported
policies.
¶84 In this close statutory interpretation case, we
conclude that requiring an insurance company to cover a claim
reported after the end of a claims-made-and-reported policy
period would mean expanding the policy's initial grant of
coverage. We conclude that interpreting Wisconsin's notice-
prejudice statutes to rewrite the fundamental terms of the
WILMIC insurance policy would be unreasonable.
¶85 Persuasive authority from several courts that have
decided issues substantially similar to those presented in the
instant case bolsters our conclusion that the notice-prejudice
statutes do not apply to the requirement in claims-made-and-
reported policies that claims be reported during the policy
period.78
¶86 Numerous courts have concluded that a claims-made-and-
reported policy's limitation of coverage to claims reported
during the policy period is enforceable notwithstanding a
78
See Russ ex rel. Schwartz v. Russ, 2007 WI 83, ¶34 n.9,
302 Wis. 2d 264, 734 N.W.2d 874 ("The present case involves a
matter of first impression for which no Wisconsin cases are
directly on point. Therefore, we may look to other
jurisdictions for persuasive authority.").
34
No. 2013AP500
statutory or common-law notice-prejudice rule.79 Other courts
have held the reporting requirement in claims-made-and-reported
policies unenforceable in light of statutory or common-law
notice-prejudice rules.80
79
See, e.g., Gargano v. Liberty Int'l Underwriters, Inc.,
572 F.3d 45, 49 (1st Cir. 2009); DiLuglio v. New England Ins.
Co., 959 F.2d 355, 359 (1st Cir. 1992); Burns v. International
Ins. Co., 929 F.2d 1422, 1425 (9th Cir. 1991); Esmailzadeh v.
Johnson & Speakman, 869 F.2d 422, 424-25 (8th Cir. 1989);
Simundson v. United Coastal Ins. Co., 951 F. Supp. 165, 167-68
(D. N.D. 1997); Bianco Prof'l Ass'n v. Home Ins. Co., 740
A.2d 1051, 1057-58 (N.H. 1999); Textron, Inc. v. Liberty Mut.
Ins. Co., 639 A.2d 1358, 1364-66 (R.I. 1994); Hasbrouck v. St.
Paul Fire & Marine Ins. Co., 511 N.W.2d 364, 367-69 (Iowa 1993);
Chas. T. Main, Inc., 551 N.E.2d at 29-30; Zuckerman, 495 A.2d at
403-05; Gulf Ins. Co., 433 So. 2d at 515-16; Ins. Placements,
Inc. v. Utica Mut. Ins. Co., 917 S.W.2d 592, 597 (Mo. Ct. App.
1996); Sletten v. St. Paul Fire and Marine Ins. Co., 780
P.2d 428, 430-31 (Ariz. Ct. App. 1989).
80
See, e.g., Lexington Ins. Co., 165 F.3d at 1092-94
(concluding, in the absence of a state appellate court ruling on
the matter, that Wisconsin's notice-prejudice statutes supersede
the reporting requirement in claims-made-and-reported policies,
but noting that the insurance company likely had a meritorious
claim of prejudice due to the insured's late reporting);
Sherwood Brands, Inc. v. Great Am. Ins. Co., 13 A.3d 1268, 1288
(Md. 2011) (holding that Maryland's notice-prejudice statute
requires a showing of prejudice by the insurance company when
"the act triggering coverage occurs during the policy period,
but the insured does not comply strictly with the policy's
notice provisions," even when the policy is a claims-made-and-
reported policy). In Sherwood Brands, the Court of Appeals of
Maryland repeatedly highlighted the difference between the
notice-prejudice statutes in Wisconsin and Maryland to support
its holding that in Maryland, an insurance company must show
prejudice to deny coverage on the grounds that an insured
reported a claim after the end of a claims-made-and-reported
policy period. Sherwood Brands, 13 A.3d at 1286, 1288.
35
No. 2013AP500
¶87 Gulf Insurance Co. v. Dolan, 433 So. 2d 512 (Fla.
1983), was an early and influential case regarding the
enforceability of claims-made-and-reported insurance.81 The
insured argued that general public policy considerations
rendered unenforceable the insurance policy's limitation of
coverage to claims both made and reported during the policy
period. The Florida Supreme Court disagreed with the insured.
¶88 The insured asserted that enforcing the requirement of
notice within the policy period, when the claim at issue was
first made against the insured the day before the policy period
ended, would be unjust. In rejecting the insured's argument,
the court noted that "[t]he essence" of a claims-made-and-
reported policy is "notice to the carrier within the policy
period."82 The court reasoned that if it held otherwise it would
be rewriting the policy to extend coverage:
If a court were to allow an extension of reporting
time after the end of the policy period, such is
tantamount to an extension of coverage to the insured
gratis, something for which the insurer has not
bargained. This extension of coverage . . . in effect
rewrites the contract between the two parties. This
we cannot and will not do.83
¶89 Gulf Insurance involves a factual scenario different
from the present case. In Gulf Insurance, reporting the claim
81
See Griffin, supra note 10, at 251-52.
82
Gulf Ins. Co. v. Dolan, 433 So. 2d 512, 514 (Fla. 1983)
(emphasis in original).
83
Id. at 515-16.
36
No. 2013AP500
within the policy period may not have been reasonably possible.
In the instant case, it was reasonably possible for Attorney Aul
to report the claim within the policy period. We do not address
in this case whether a policy's limitation of coverage to claims
reported during the policy period is enforceable when reporting
the claim during the policy period was not reasonably possible.
However, even Gulf Insurance acknowledged that "if an
impossibility prevented notice being given to an insurer at the
very end of the policy period, it may well be that an insured
would be relieved of giving notice during the period of such
impossibility."84
¶90 In Zuckerman v. National Union Fire Insurance Co., 495
A.2d 395 (N.J. 1985), the New Jersey Supreme Court adopted the
Gulf Insurance reasoning and held that "no considerations of
public policy . . . inhibit our enforcement" of a claims-made-
and-reported policy's limitation of coverage to claims both made
and reported during the policy period.85 The court rejected the
insured's argument that the insurance company should be required
to prove "appreciable prejudice" in order to avoid liability.86
"Appreciable prejudice" was a New Jersey common-law doctrine
applicable to notice requirements in occurrence-based automobile
84
Gulf Ins. Co., 433 So. 2d at 512 n.1.
85
Zuckerman v. Nat'l Union Fire Ins. Co., 495 A.2d 395, 404
(N.J. 1985).
86
Id. at 405-06.
37
No. 2013AP500
insurance policies.87 The court held this common-law doctrine
inapplicable "to a 'claims made' policy that fulfills the
reasonable expectations of the insured with respect to the scope
of coverage."88
¶91 In Chas. T. Main v. Fireman's Fund Insurance Co., 551
N.E.2d 28 (Mass. 1990), the Supreme Judicial Court of
Massachusetts addressed the effect of a notice-prejudice statute
on an insurance company's ability to deny coverage under a
claims-made-and-reported policy for a claim reported after the
end of the policy period. The statute, Mass. Gen. Laws ch. 175,
§ 112, stated in relevant part:
An insurance company shall not deny insurance coverage
to an insured because of failure of an insured to
seasonably notify an insurance company of an
occurrence, incident, claim or of a suit founded upon
an occurrence, incident or claim, which may give rise
to liability insured against unless the insurance
company has been prejudiced thereby.
¶92 In holding this statute applicable "only to the 'as
soon as practicable' type of notice [requirement] and not to the
'within the policy year' type of reporting requirement,"89 the
court emphasized the distinction between claims-made-and-
reported policies and occurrence policies and the purposes of
each:
87
Id. at 405.
88
Id. at 406.
89
Chas. T. Main, Inc., 551 N.E.2d at 30.
38
No. 2013AP500
The purpose of a [claims-made-and-reported] policy is
to minimize the time between the insured event and the
payment. For that reason, the insured event is the
claim being made against the insured during the policy
period and the claim being reported to the insurer
within that same period . . . . If a claim is made
against an insured, but the insurer does not know
about it until years later, the primary purpose of
insuring claims rather than occurrences is frustrated.
Accordingly, the requirement that notice of the claim
be given in the policy period . . . is of the essence
in determining whether coverage exists. Prejudice for
an untimely report in this instance is not an
appropriate inquiry.90
¶93 The Supreme Judicial Court of Massachusetts concluded
that requiring an insurance company writing a claims-made-and-
reported policy to show prejudice on account of the "insured's
failure to report a claim within the policy period . . . would
defeat the fundamental concept on which [claims-made-and-
reported] policies are premised."91 The court stated that it
would be unreasonable to think the legislature intended to
invalidate claims-made-and-reported policies.92
¶94 In Simundson v. United Coastal Insurance Co., 951 F.
Supp. 165 (D.N.D. 1997), the United States District Court for
the District of North Dakota took a similar approach with regard
to a common-law notice-prejudice rule. According to the
insurance company, the claims-made-and-reported policy it had
issued to the insured did not cover the claim because it was not
90
Id.
91
Id.
92
Id.
39
No. 2013AP500
reported until roughly two years after the policy period
expired. The general rule applicable to occurrence policies in
North Dakota is that insurance companies cannot refuse coverage
because of untimely notice of a claim unless the company suffers
prejudice.
¶95 The federal district court granted summary judgment to
the insurance company. The federal court refused to accept the
argument in this claims-made-and-reported policy case that
"coverage should be available because [the insurance company]
suffered no actual prejudice from the delay . . . ."93 Even
though the North Dakota courts had not yet ruled on the issue,
the federal court held for the insurance company, refusing to
rewrite the basic terms of the claims-made-and-reported policy.
It stated:
[T]o require an insurer to suffer actual prejudice
from a tardy notice of claim before denying coverage
under a "claims made" policy would be changing the
very nature of the policy. . . . Such a rule would in
effect treat a "claims made" policy as an "occurrence"
type policy, presumably a more expensive policy that
was not bargained for. Therefore, this court finds
that the North Dakota Supreme Court, if faced with the
issue, would find in accordance with the majority of
other courts that the actual prejudice rule does not
apply to "claims made" insurance policies.94
¶96 Finally, in Gargano v. Liberty International
Underwriters, Inc., 572 F.3d 45, 49 (1st Cir. 2009), the United
93
Simundson v. United Coastal Ins. Co., 951 F. Supp. 165,
167 (D. N.D. 1997).
94
Id. at 167.
40
No. 2013AP500
States Court of Appeals for the First Circuit cited Chas T. Main
with approval. The federal court of appeals stated that under
settled Massachusetts law, an "insured event" arises in the
context of a claims-made-and-reported policy when: "(1) the
claim [is] . . . first made against the insured during the
policy period, and (2) the claim [is] . . . reported to the
insurer within the policy period."95 The court "reject[ed] out
of hand Gargano's assertion that the insurance companies must
demonstrate prejudice . . . to escape liability."96 Rather, the
court declared that the requirement of reporting "within the
policy period 'is of the essence in determining whether coverage
exists.'"97
¶97 Thus, these courts have held that claims-made-and-
reported policies' restriction of coverage to claims both made
and reported during the policy period is enforceable despite
statutory or common-law notice-prejudice rules similar to our
own notice-prejudice statutes.
¶98 In sum, the benefits to insurance companies and
insureds of claims-made-and-reported policies, the statutory
history underlying Wisconsin's notice-prejudice statutes, the
persuasive authority of other courts that have decided the
question presented by this case, and the unreasonable results a
95
Gargano, 572 F.3d at 49.
96
Id. at 51.
97
Id. at 49 (quoting Chas. T. Main, Inc., 551 N.E.2d at
30).
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No. 2013AP500
contrary holding would produce persuade us that Wisconsin's
notice-prejudice statutes permit an insurance company to deny
coverage without a showing of prejudice when an insured fails to
report a claim within a claims-made-and-reported policy period.
V
¶99 Because we hold the notice-prejudice statutes
inapplicable to the WILMIC insurance policy's requirement that
claims be reported during the policy period, we need not
consider the prejudice element of the statutes. However, even
if we were to conclude that the notice-prejudice statutes apply
to the reporting requirement at issue, WILMIC would prevail.
¶100 In short, 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 because it expands the grant of coverage
provided by the insurance policy.
¶101 Premiums on claims-made-and-reported insurance
policies are ordinarily set below the levels charged for
comparable occurrence policies based in part on the limitation
of coverage to claims reported within the policy period. Thus,
when a claim is not reported within the policy period, requiring
the insurance company to nevertheless provide coverage is
prejudicial.98 Holding otherwise would defeat the fundamental
premise of claims-made-and-reported policies.
98
See DiLuglio v. New England Ins. Co., 959 F.2d 355, 359
(1st Cir. 1992); Bianco Prof. Ass'n, 740 A.2d at 1057.
(continued)
42
No. 2013AP500
¶102 In their briefs and at oral argument, the parties
focused on the question of prejudice. WILMIC argued that
requiring it to provide coverage for a claim reported after the
end of the policy period would be per se prejudicial and would
negate the purpose of the claims-made-and-reported policy for
which the parties had bargained. The Andersons argued that
establishing prejudice from the fact of late reporting in the
context of claims-made-and-reported insurance would negate the
purpose of the notice-prejudice statutes.
¶103 As we noted previously, from the Andersons' vantage
point, they have been victimized twice: first by Attorney Aul's
malpractice and now by his failure to comply with his
malpractice insurance policy's reporting requirement. We reach
a harsh result, but one we have determined the law requires. We
Although the seventh circuit court of appeals held against
the insurance company, it characterized this prejudice approach
as a promising one for insurance companies (but one that was
waived in the case at hand). Lexington Ins. Co., 165 F.3d at
1095.
See also Chas. T. Main, Inc., 551 N.E.2d at 30 (holding
that Massachusetts's notice-prejudice statute "applies only to
the 'as soon as practicable' type of notice [requirement] and
not to the 'within the policy year' type of reporting
requirement" because requiring an insurance company to show
prejudice based on an "insured's failure to report a claim
within the policy period or a stated period thereafter would
defeat the fundamental concept on which claims-made policies are
premised"); New Appleman on Insurance § 20.01[7][b] ("In those
jurisdictions that have examined the distinction between [pure]
claims-made and claims-made-and-reported policies, the courts
have uniformly relieved the insurers from any requirement to
prove prejudice under the latter form of coverage.").
43
No. 2013AP500
conclude that the legislature did not intend to rewrite the
fundamental terms of the WILMIC insurance policy or to make the
strict reporting requirement underlying claims-made-and-reported
policies unenforceable in this state.
¶104 For the reasons set forth, we conclude that
Wisconsin's notice-prejudice statutes do not supersede the
reporting requirement specific to claims-made-and-reported
policies.
¶105 Because we so conclude, 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.
By the Court.—The decision of the court of appeals is
reversed.
44
No. 2013AP500.akz
¶106 ANNETTE KINGSLAND ZIEGLER, J. (concurring). I agree
with the lead opinion's1 conclusion that Wis. Stat. §§ 631.81 and
632.26 do not apply to the "within the policy period" reporting
requirement at issue. I am compelled to write 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 in this case. The opinion of the court was to be
written to clearly state these conclusions. State ex rel. Kalal
v. Circuit Court for Dane Cnty., 2004 WI 58, ¶¶45-46, 271
Wis. 2d 633, 681 N.W.2d 110. I need to write because the lead
opinion writer has rejected suggested changes to the opinion
which would make these conclusions clear, and as a result, I
write to clarify the majority opinion of the court.
¶107 I write to clarify that although 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 alternative
interpretations." I do not join the lead opinion's discussion
of these "consequences," because I would engage in a more
traditional plain-meaning analysis to interpret the notice-
prejudice statutes, Wis. Stat. §§ 631.81 and 632.26. I write
separately because the lead opinion does not use the phraseology
typically associated with a plain-meaning analysis, but instead
1
Today, three justices join this concurrence. Accordingly,
this concurrence represents the majority opinion of the court.
The opinion authored by Chief Justice Shirley S. Abrahamson is
now the lead opinion.
1
No. 2013AP500.akz
engages in this more subjective "consequences" analysis, which
is seemingly inconsistent with our jurisprudence.
¶108 "[S]tatutory interpretation 'begins with the language
of the statute. If the meaning of the statute is plain, we
ordinarily stop the inquiry.'" Id., ¶45 (quoting Seider v.
O'Connell, 2000 WI 76, ¶43, 236 Wis. 2d 211, 612 N.W.2d 659).
We interpret statutes "reasonably, to avoid absurd or
unreasonable results." Id., ¶46. "'If this process of analysis
yields a plain, clear statutory meaning, then there is no
ambiguity, and the statute is applied according to this
ascertainment of its meaning.'" Id. (quoting Bruno v. Milwaukee
Cnty., 2003 WI 28, ¶20, 260 Wis. 2d 633, 660 N.W.2d 656). "'In
construing or interpreting a statute the court is not at liberty
to disregard the plain, clear words of the statute.'" Id.
(quoting State v. Pratt, 36 Wis. 2d 312, 317, 153 N.W.2d 18
(1967)).
¶109 "[A] statute is ambiguous if it is capable of being
understood by reasonably well-informed persons in two or more
senses." Id., ¶47. "[T]he test for ambiguity examines the
language of the statute 'to determine whether well-informed
persons should have become confused, that is, whether the
statutory . . . language reasonably gives rise to different
meanings.'" Id. (quoting Bruno, 260 Wis. 2d 633, ¶21) (internal
quotation marks omitted). Wisconsin courts ordinarily do not
consult extrinsic sources of statutory interpretation, such as
legislative history, unless the language of the statute is
ambiguous. Id., ¶50. However, "legislative history is
2
No. 2013AP500.akz
sometimes consulted to confirm or verify a plain-meaning
interpretation." Id., ¶51. A court may also verify a plain-
meaning interpretation by consulting statutory history, that is,
prior enacted and repealed versions of the statute under review.
Cnty. of Dane v. LIRC, 2009 WI 9, ¶27, 315 Wis. 2d 293, 759
N.W.2d 571.
¶110 The notice-prejudice statutes at issue, Wis. Stat.
§§ 631.81 and 632.26, by their plain language are not ambiguous
and do not apply to the "within the policy period" reporting
requirement at issue. These statutes expressly prevent an
insurer from "invalidat[ing]" "a claim" under certain
conditions. Wis. Stat. §§ 631.81(1), 632.26(1)(b). These
statutes do not create an initial grant of coverage. Lead op.,
¶¶82-84. There is no initial grant of coverage for a claim
reported outside of the claims-made-and-reported policy period.
Lead op., ¶28. The notice-prejudice statutes, therefore, do not
apply to such a claim. Lead op., ¶59.2 Applying these statutes
to the reporting requirement at issue would create an initial
grant of coverage, which would go far beyond the statutory
language that prevents the invalidation of existing coverage
under certain conditions. See Shannon v. Shannon, 150
2
When the notice-prejudice statutes apply to a claim, "the
determination whether an insurer has been prejudiced by the lack
of timely notice is essentially a question of fact." Neff v.
Pierzina, 2001 WI 95, ¶47, 245 Wis. 2d 285, 629 N.W.2d 177.
"'[W]e will uphold the trial court's factual determinations
underlying the question of prejudice unless clearly erroneous.'"
Id., ¶44 (quoting Rentmeester v. Wis. Lawyers Mut. Ins. Co., 164
Wis. 2d 1, 8-9, 473 N.W.2d 160 (Ct. App. 1991)).
3
No. 2013AP500.akz
Wis. 2d 434, 450-54, 442 N.W.2d 25 (1989) (explaining that
courts may use estoppel or waiver to prevent forfeiture of
existing coverage but not to create an initial grant of
coverage). Accordingly, these statutes are unambiguous in the
present case because reasonably well-informed persons should
know that these statutes do not apply to the reporting
requirement at issue. See Kalal, 271 Wis. 2d 633, ¶47.
¶111 The lead opinion analyzes the statutory history of
these statutes. Lead op., ¶¶64-73. The lead opinion's analysis
should not be construed as a determination that such analysis is
necessary because of any ambiguity in the statutes. To the
contrary, analysis of statutory history is part of a plain-
meaning analysis and can be used to confirm a statute's plain
meaning. Heritage Farms, Inc. v. Markel Ins. Co., 2009 WI 27,
¶15, 316 Wis. 2d 47, 762 N.W.2d 652 (relying on statutory
history to confirm a statute's plain meaning); Cnty. of Dane,
315 Wis. 2d 293, ¶27 (explaining that statutory history is part
of a plain-meaning analysis).
¶112 After analyzing statutory history, the lead opinion
briefly considers legislative history——specifically, comments
made by Wisconsin Legislative Council's Insurance Laws Revision
Committee. Lead op., ¶¶74-76. Because the statutes are
unambiguous, the opinion's reason for consulting legislative
history also must be to confirm the plain meaning of these
statutes. See Kalal, 271 Wis. 2d 633, ¶51 ("[L]egislative
history is sometimes consulted to confirm or verify a plain-
meaning interpretation."); Manitowoc Cnty. v. Samuel J.H., 2013
4
No. 2013AP500.akz
WI 68, ¶27, 349 Wis. 2d 202, 833 N.W.2d 109 (relying on
legislative history to confirm plain meaning).
¶113 I also briefly discuss the lead opinion's
consideration of "consequences of alternative interpretations."
Lead op., ¶¶79-84. I do not join the lead opinion's analysis of
these "consequences." The lead opinion states that our holding
might harm the Andersons by depriving them of insurance proceeds
from Wisconsin Lawyers Mutual Insurance Company and might
encourage insurers to add "within the policy period" reporting
requirements to more policies. Lead op., ¶¶80-81. The lead
opinion then weighs those concerns against the consequences of a
contrary holding: transforming all claims-made-and-reported
policies into pure claims-made policies and creating an initial
grant of coverage for which an insurer did not receive a
premium. Lead op., ¶¶82, 84. The lead opinion correctly
concludes that applying the notice-prejudice statutes to the
reporting requirement at issue "would be unreasonable." Lead
op., ¶84. See Chas. T. Main, Inc. v. Fireman's Fund Ins. Co.,
551 N.E.2d 28, 30 (Mass. 1990) ("A requirement that an insurer
on a [claims-made-and-reported] policy must show that it was
prejudiced by its insured's failure to report a claim within the
policy period . . . would defeat the fundamental concept on
which [claims-made-and-reported] policies are premised. The
likely result would be that [claims-made-and-reported] policies,
which offer substantial benefits to purchasers of insurance as
well as insurance companies, would vanish from the scene. It
would be unreasonable to think that the Legislature intended
5
No. 2013AP500.akz
such a result."). However, the lead opinion's analysis of
"consequences" is not in step with a more traditional plain-
meaning analysis. As a result, I depart from the lead opinion
so as to avoid confusion.
¶114 While courts interpret statutes "to avoid absurd or
unreasonable results," Kalal, 271 Wis. 2d 633, ¶46, it is not
the role of the court to weigh the "consequences of alternative
interpretations." A court may consider the consequences of a
particular interpretation of a statute to determine whether that
interpretation would produce an absurd or unreasonable result.
Here, however, the lead opinion goes beyond the avoidance of
absurd or unreasonable results by weighing the "consequences of
alternative interpretations" so to inject a subjective component
into an otherwise objective analysis. See Force ex rel.
Welcenbach v. Am. Family Mut. Ins. Co., 2014 WI 82, ¶165, 356
Wis. 2d 582, 850 N.W.2d 866 (Ziegler, J., dissenting) ("An
unpalatable result is not the same as an absurd result. We are
to look to the text of the statute to determine whether relief
is afforded to the litigants."). I could agree with the lead
opinion's analysis in paragraphs 82 and 84 only to the extent
that it confirms the notice-prejudice statutes' plain meaning by
considering the unreasonable results that a contrary holding
would produce. See Samuel J.H., 349 Wis. 2d 202, ¶¶24, 26
(confirming plain-meaning interpretation by determining that a
contrary interpretation would produce an absurd or unreasonable
result).
6
No. 2013AP500.akz
¶115 To be clear, courts should not consider the
"consequences of alternative interpretations" when interpreting
a statute. Doing so goes beyond the avoidance of unreasonable
or absurd results. See Force, 356 Wis. 2d 582, ¶165 (Ziegler,
J., dissenting). The "consequences of alternative
interpretations" language was created by Chief Justice
Shirley S. Abrahamson's opinion in State v. Hayes, 2004 WI 80,
¶16, 273 Wis. 2d 1, 681 N.W.2d 203. See Hayes, 273 Wis. 2d 1,
¶112 (Sykes, J., concurring) (explaining that consideration of
consequences of alternative interpretations "is new to our
statutory interpretation jurisprudence, and the majority cites
no authority for it"). This approach to statutory
interpretation is problematic because it involves "a judicial
policy judgment based upon a weighing and balancing of competing
'purposes and consequences' of alternative interpretations.
This leaves room for the substitution of the judiciary's
subjective policy choices for those of the legislature, a
phenomenon that a text-based, plain-meaning approach to
statutory interpretation seeks to guard against." Id. (Sykes,
J., concurring). I agree that the lead opinion's analysis in
this regard is problematic.
¶116 Although I reject the lead opinion's consideration of
"consequences of alternative interpretations," I agree with the
lead opinion's conclusion that the notice-prejudice statutes, by
their plain meaning, do not apply to the reporting requirement
at issue. I also agree with the lead opinion's conclusion,
consistent with that plain meaning, that applying these statutes
7
No. 2013AP500.akz
to the reporting requirement at issue would produce unreasonable
results. I join that conclusion only to the extent that it can
be construed as engaging in a plain-meaning analysis of these
unambiguous statutes. This writing is intended make clear the
majority opinion of the court.
¶117 For the foregoing reasons, I respectfully concur.
¶118 I am authorized to state that Justices N. PATRICK
CROOKS, PATIENCE DRAKE ROGGENSACK, and MICHAEL J. GABLEMAN join
this concurrence.
8
No. 2013AP500.akz
1