Appeal from the United States District Court for the Middle District of Louisiana. D.C. DOCKET NUMBER CA-89-514-A. JUDGE John V. Parker
Before Wisdom, Davis, and Smith, Circuit Judges.
The question in this case is whether an insurance company waived its right to void a legal malpractice policy because the insured misrepresented his knowledge of malpractice claims against him. In this diversity case, Louisiana authorities compel this Court to hold that the insurer has waived its right. We AFFIRM the judgment of the district court.
Michael J. Matthews, a Louisiana lawyer and a notary public, applied to The Home Insurance Company (Home Insurance) for malpractice insurance. A policy was issued to him on August 28, 1986 for one year. A second application to renew the policy was signed July 3, 1987, and this policy was also for one year. Both the original policy application and the second application contained the following question:
Does any lawyer in question 5(A) [Matthews] know of any circumstance, act, error, or omission that could result in a professional liability claim against him or his predecessor in business?
On both occasions, Matthews answered this question "No".
On September 28, 1988, Matthews sought to renew his policy for one year. He attached to his renewal application*fn1 sixteen supplemental claims forms relating to settlement disputes with clients. Because of the many attached claims, Home Insurance declined to renew Matthews' policy. It did not, however, terminate the policy. Notice of non-renewal was mailed to Matthews on November 8, 1988.
Under Louisiana law, if a commercial insurance policy is not renewed, "coverage shall remain in effect under the same terms and conditions until sixty days after notice is mailed or delivered".*fn2 Home Insurance continued the policy during this period, and Matthews paid a pro-rated premium on or about January 25, 1989.
The insurance contract in pertinent part provides:
If the company shall cancel or refuse to renew the policy for reasons other than the named insured's non-payment of premiums and/or deductibles or non-compliance with the terms and conditions of this policy, then the named insured upon payment of an additional premium as set forth herein shall have the option to extend the insurance afforded by this policy subject otherwise to its terms, limit of liability, exclusions and conditions, to apply to claims first made against the insured during (a) 12 months, (b) 24 months, or (c) 36 months, as elected by the named insured, following immediately upon the effective date of such termination, but only by reason of any act, error or omission in professional services rendered before such effective termination date and otherwise covered by this insurance.
Matthews purchased this optional reporting period for the 36 month term on or about January 25, 1989.
On July 11, 1989, Home Insurance sought a declaratory judgment that the policies and the extended reporting period coverage be declared void ab initio based upon Matthews' negative answer to the question of whether he knew of any reason to suspect that a malpractice claim could be brought against him. Matthews had acted dishonestly in the practice of law. We need not document his multiple transgressions; Matthews pleaded guilty on June 20, 1988 to five counts of forgery and five counts of felony theft of clients' funds. Two of the guilty pleas involved conduct that occurred before Matthews signed the 1986 ...