The US Court of Appeals for the Fifth Circuit has overturned a lower court ruling and held that an insurer may have a duty to defend an attorney who was sued in connection with a scam under terms of a malpractice claims-made policy. The case is Landmark American Insurance Co. v. Lonergan Law Firm, P.L.L.C et al. No. 19-10385, 2020 U.S. App. LEXIS 5190 (5th Cir. Feb 19, 2020).
In 2015, attorney Gaylene Lonergan, out of Dallas, was hired by a group of investors to help close a real estate deal. The deal turned out to be a scam, and the investors sued Lonergan in Texas state court for attorney malpractice.
Lonergan had a claims-made policy with Landmark American Insurance Company (Landmark) from May 8, 2015 to May 8, 2016. Landmark refused to defend Lonergan in the litigation, which resulted in a judgment of $805,000 plus interest against her.
While that litigation was pending, Landmark filed suit in the U.S. District Court in Fort Worth, Texas, seeking a declaration that it did not have a duty defend because she had failed to report the claim during the policy period.
The investors argued that Lonergan had reported the claim in a "claim supplement" that she submitted in April 2016 that she submitted to Landmark as a part of an application to renew the insurance policy.
Landmark argued that the claim supplement was insufficient to satisfy the obligation to report the claim against her. The District Court agreed with the Landmark and awarded the company summary judgment.
On appeal, the investors argued that the claim supplement provided the relevant information necessary to give the insurer notice of the claim, and the District Court erred in holding that Lonergan failed to report the claim as was required by the policy.
Landmark argued that the policyholders are obligated under the policy to send information regarding claims to the claims department, and because the claim supplement that Lonergan sent in to the insurer went to the underwriting department, it was not submitted to the insurer properly.
The appellate court agreed with the insurers, and stated in its ruling that since Landmark did not dispute that it received the claim supplement during the policy period, Lonergan therefore "reported" the claim to Landmark as was required by the policy.
The court remanded the case for further proceedings, stating that "Even though we hold that Lonergan reported her claim under the policy, we decline to reach the issue of whether she breached the policy notice conditions or whether any such breach may have prejudiced Landmark."
Editors Note: The three-judge panel kicked the real decision in this case back to the lower court. The parties did not dispute whether or not the insurer had received some sort of notice, the question really was whether or not the notice that had been provided fit within the requirements of the policy.
A prudent attorney will ensure that they report all claims to their insurer, even if it might compromise whether or not you can get coverage from that insurer again in the future.