A federal appeals court has overturned a lower court ruling and held an insurer may have had a duty to defend an attorney sued in connection with a scam under terms of her malpractice claims-made policy.

Dallas attorney Gaylene Lonergan was hired by a group of investors in 2015 to help close a real estate deal, according to Wednesday’s ruling by the 5th U.S. Circuit Court of Appeals in New Orleans in Landmark American Insurance Co. v. Lonergan Law Firm, P.L.L.C. et al.

After the deal turned out to be a scam, the investors sought to recoup their losses by suing Ms. Lonergan in Texas state court for attorney malpractice.

Ms. Lonergan had a claims-made policy with Landmark, a unit of Atlanta-based RSUI Group Inc., for the period May 2015 to May 2016, according to the ruling. Landmark refused to defend Ms. Lonergan in the litigation, which led to a judgment of $805,000 plus interest against her, according to the complaint in the case.

While that litigation was still pending, Landmark filed suit in U.S. District Court in Fort Worth, Texas, seeking a declaration it did not have a duty to defend Ms. Lonergan because she had failed to report the claim during the policy period.

The investors argued Ms. Lonergan had reported the claim in a “claim supplement” she had submitted in April 2016 as part of her application to renew her Landmark insurance policy.
Landmark argued the claim supplement was insufficient to satisfy Ms. Lonergan’s obligation to report the claim. The District Court agreed with the insurer and awarded summary judgment to Landmark.

The ruling was overturned by a unanimous three-judge appeals court panel. Investors argued the claim supplement provided the relevant information in the case and that the district court had erred in holding Ms. Lonergan failed to report the claim as required by the policy, the appeals court panel said.

Landmark countered that policyholders are obligated to send information on claims to the claims department, and because the claim supplement was sent to the underwriting department, she did not report the claim as required by the policy, according to the ruling.

“We agree with the investors,” the appeals court said in its ruling. “Landmark does not dispute that it received the claim supplement during the policy period. Lonergan therefore ‘reported’ – provided information of – the claim to Landmark as required by the policy.”

In reading the case for further proceedings, however, the ruling said, “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.”

Attorneys in the case could not be reached for comment.

In August, a federal appeals court held in a divided ruling that upheld a lower court’s decision that RSUI appropriately denied a technology company coverage under its directors and officers liability policies because it had failed to give timely notice of its claim during the coverage’s initial policy period.