A Hartford Financial Services Group Inc. unit must pay a mortgage broker’s $1.5 million settlement with a housing community advocacy group, a federal appeals court ruled Friday in overturning a lower court decision.

In March 2012, the Boston-based Neighborhood Assistance Corporation of America, a nonprofit organization that provides mortgage-related services to primarily low- and moderate-income families, filed suit against San Juan Capistrano, California-based First One Lending Corp., according to court papers in First One Lending Corp.; John Vescera v. The Hartford Casualty Insurance Co.

Through its Home Save program and related Save-the-Dream events, NACA helps people get payment forbearances, interest reductions and principal reductions free of charge, according to court papers.

First One allegedly created a scheme in which it misrepresented to homeowners that it was a nonprofit organization providing housing counseling services free of charge, and falsely represented it was affiliated with NACA, according to court papers.

First One charged homeowners $1,450 to $1,850 to compile documents for mortgage services, and then passed the homeowners on to NACA, which provided those services for free, according to court papers. 

NACA filed a lawsuit against First One, which was settled in May 2013 for $1.5 million. Hartford refused to defend or indemnify First One on the basis there was no potential for coverage because NACA’s complaints “sought noncovered injunctive relief and uninsurable disgorgement of illicit gains.”

First One filed suit against the insurer in U.S. District Court in Santa Ana, California, which ruled in Hartford’s favor. It was overturned by a unanimous three-judge appeals court panel in Friday’s ruling.

“Hartford does not dispute that the amount of the NACA settlement was reasonable,” nor has it shown “that all or part of the NACA settlement was for non-covered restitution or otherwise excluded claims,” it said.

The settlement resolved NACA’s claims, which “were covered claims under the insurance policy’s provision for ‘personal and advertising’ injuries,” it said.

The ruling also said that Hartford hadn’t “shown that the NACA settlement included restitution for homeowners, which the insurance policy would not have covered.” It noted that homeowners were not parties to NACA’s suit. 

“It is also undisputed that nothing required NACA to use its settlement proceeds to reimburse homeowners even as NACA may have chosen to do so,” the panel said.

The ruling affirmed the lower court’s dismissal of First One’s bad faith claim against Hartford.

Cecilia Miller, a shareholder with Buchalter APC in San Diego, who represented First One, said in a statement, “John Vescera and First One Lending are pleased with the Ninth Circuit’s decision and look forward to obtaining the insurance benefits owed.”   

Hartford’s attorneys did not respond to a request for comment.