FIFTH CIRCUIT CONCLUDES THAT POLICY PROVISION REQUESTING POLICYHOLDERS TO “PLEASE” REPORT CLAIMS TO CLAIMS DEPARTMENT IS AN IMMATERIAL NOTICE CONDITION, THUS PLEASING THE INSURED.
Last week, the United States Court of Appeals for the Fifth Circuit concluded that insurance policy provision requesting policyholders to “please” report claims to the claims department was an immaterial notice condition and, therefore, the insurer must show it was prejudiced by any breach to relieve itself of its duty to defend and indemnify. In Landmark American Ins. Co. v. Lonergan Law Firm, P.L.L.C., No. 19-10385, 2020 WL 3024842 (5th Cir., June 4, 2020, mem. op.), attorney Gaylene Lonergan 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 for malpractice. At the time, Lonergan held a professional liability insurance policy with Landmark. The “Notice of Claim” provision in Landmark’s policy obligated Lonergan to “Please send all claim information to: Attention: Claims Dept. [address].” As part of her application to renew her policy with Landmark, Lonergan sent a “Claim Supplement” to Landmark’s underwriting department stating the date of suit, the claims, and the status of discovery and settlement negotiations.
Landmark sought a declaration in federal court that it did not have a duty to defend Lonergan under the policy because she failed to “report” the Investors’ claim. The district court agreed and awarded summary judgment to Landmark. Lonergan appealed.
On appeal, Landmark argued that the plain meaning of “reported” must be informed by the policy’s “Notice of Claim” provision, which requested that claim information be sent to the claims department. And because the Claim Supplement was sent to the underwriting department, Lonergan argued that Lonergan did not “report” the claim. The Investors argued that the plain meaning of “reported” is to have provided relevant claim information, and that the Claim Supplement provided the relevant information.
The Fifth Circuit Court of Appeals distinguished Landmark’s policy provision requesting policyholders to “please” report claims to the claims department, from policies mandating that policyholders “shall” report claims to the claims department, and concluded that Landmark’s policy provision could not be considered a material condition. Because the court found the notice condition immaterial, it noted that “Landmark may be relieved of its duty to defend and indemnify only upon a showing [that the contract was breached and] Landmark was prejudiced by the breach.” The court held that Lonergan reported her claim under the policy. The court remanded the case on the issue of whether Lonergan breached the policy’s notice condition and whether any such breach prejudiced Landmark.