The Wisconsin Supreme Court is reviewing a case that could rock the Wisconsin legal malpractice insurance marketplace. Thomas Aul received a demand letter from a client in December 2009 and shortly after retained an attorney for his defense. However, he waited until March 2011 to report it to his insurer (Wisconsin Lawyers Mutual Insurance Company). WILMIC had provided coverage on a claims made basis and denied the claim due to untimely reporting. When Aul sued the lower court granted summary judgement in the insurers favor. The case was appealed and the WI Supreme Court will rule on the issue.
Occurrence coverage in legal malpractice insurance has been unavailable in almost all circumstances for over a decade. Reinsurers have pushed primary insurance companies into offering claims made only for several reasons.
- Professional liability insurance has historically been extremely volatile and “long tailed”. Anything the insurers can do to shorten the period between when claims are submitted and when they are paid reduces volatility.
- Volatility increases premiums. The less certain actuaries are in the correct pricing of a risk the higher the end premiums will be.
- Claims made reduces the time it takes for claims to develop, lowering risk to insurers. More stable loss projects correlate with more stable premiums.
- Once the industry moved to claims made insurance carriers stopped offering occurrence options as the pricing their actuaries required was cost prohibitive.
The Aul case is focusing on whether the policy language will stand as written. The complaint does not dispute that the claim was reported late but focuses on an allegation that the insurer was not injured by the late reporting. A verdict against the insurer will almost certainly scare insurance companies from the state and decrease competition, increasing premiums for Wisconsin law firms.
The case highlights the risk in delaying reporting on incidents. Many firms struggle with the idea of reporting incidents that may not evolve into actual claims. A filed claim, even if nothing is paid, will often raise premiums and stop many alternative insurers from offering competitive terms when quoting. Contact our brokers to discuss legal malpractice quotes for firms with a claim history. By carefully presenting a firm’s claim history, the reasons for reporting and controls put into place to prevent future incidents can result in optimal insurance placement outcomes.