By Susan G. Schellinger
The Wisconsin Supreme Court recently issued a decision that drives home the importance for businesses and individuals, as policyholders, to immediately report claims to their insurance company. Even a small delay may result in a loss of coverage thereby increasing the risk that, if a claim against you is successful, you will be left to pay for the legal fees to defend the claim, along with the damages that you may be ultimately responsible for – even if your insurance policy would have paid those costs in full if you had notified the insurance company promptly.
In the recent case of Anderson v. Aul, issued on February 25, 2015, the Wisconsin Supreme Court found that under a claims-made-and-reported liability policy, the policyholder’s failure to report the claim during the term of the policy resulted in a loss of coverage.
All liability insurance policies include a provision requiring that claims be reported within a certain period of time. The purpose of these types of provisions is to enable the insurance company to investigate claims while they are still fresh. When a claim is made against a policyholder, it is important for the policyholder to understand the notice provisions and comply with them. It is better to promptly over report potential claims than to risk giving up coverage. Although there are Wisconsin statutes that may excuse a policyholder where a claim is not filed right away, those protections do not apply to all types of policies, and particularly do not apply to claims-made-and-reported policies.
So which rules apply to which policies? There are two primary types of liability insurance policies: occurrence and claims-made policies. Occurrence policies provide coverage if the negligent act or omission that causes harm occurs during that policy period, regardless of the date on which a claim is made against the policyholder. It is the event causing the injury that triggers coverage under the policy. As a result, under an occurrence policy, a claim can often be covered even if it is made many years after the policy expires. Most commercial general liability policies are occurrence policies. The second primary type of liability policy, claims–made, are divided into two types: pure claims-made policies and claims-made-and-reported policies. A claims-made policy provides coverage for claims made during the policy period, regardless of when the event causing the injury occurred. These types of policies are common for policies covering professional liability, directors and officers liability, and errors and omissions. Under both types of claims-made policies, the event upon which the claim is based can, and often does, occur before the policy came into existence.
Typically, an occurrence policy and a pure claims-made policy require the policyholder to provide notice of any claim made against it to the insurance company “as soon as practicable” or within a stated period of time. On the other hand, a claims-made-and-reported policy provides coverage only if the claim is both made during the policy period and it is reported by the policyholder to the insurance company during the policy period.
In Anderson, the Wisconsin Supreme Court found that the requirement in a claims-made-and-reported policy that required the policyholder to provide notice of the claim during the policy period is strictly enforceable. In other words, any delay by the policyholder in reporting the claim will not be excused. There will not be coverage if the claim is filed after the policy period. There are two Wisconsin statutes that state that failure to report a claim within the time period required by a liability policy will not invalidate or reduce a claim unless the insurer is prejudiced and it was reasonably impossible to meet the time limit. However, under this new Supreme Court precedent, those statutes do not apply to claims-made-and-reported policies.
Every policyholder should be very aware that any delay in notice may result in a loss of coverage. The consequence of missing a reporting deadline, particularly under a claims-made-and-reported policy are harsh. These harsh results will apply not only to the policyholder, but also to the claimant in the event the policyholder is not otherwise collectible. Therefore, in the event that a claim is made against you or your company, you should ensure that the claim is promptly reported to the insurance company. Likewise, if you make a claim against someone else that may be insured under a claims-made-and-reported policy, you should take steps to try to ensure that the claim is promptly sent to the insurance company.
If you have any questions about this recent development, or any other insurance coverage related issues, please contact your Davis & Kuelthau attorney or the author, Susan G. Schellinger, Chair of the Insurance Coverage Group at 414.225.1492 / sschellinger@dkattorneys.com.