A federal judge has sided with Allied World Insurance Co. in a legal malpractice insurance dispute involving West Chester-based Lamb McErlane, leaving the law firm uncovered for a $557,001 claim.

U.S. Magistrate Judge Timothy Rice of the Eastern District of Pennsylvania granted Allied World's motion for judgment on the pleadings on Feb. 23, ruling that the claim originated in May 2015, more than a year before the law firm's policy period began. Rice said a May 2015 letter outlining allegations against the firm constituted a claim.

A Chester County judge ordered the firm last year to disgorge $4.3 million in legal fees billed in its work for Charles Norris as executor of Sir John Thouron's estate. Chester County Court of Common Pleas Judge Mark Tunnell Jr. said the firm breached its fiduciary duty to the estate. He also ordered the firm to pay back more than $135,000 to the estate of one of Thouron's beneficiaries, and surcharged Norris and Lamb McErlane $557,001 for losses to the estate resulting from a tax penalty.

According to Rice's opinion, Lamb McErlane represented the executor from 2006 to 2017. In April 2013, the estate beneficiaries objected to the costs, and in May 2015, they submitted a letter to the Chester County Orphans' Court alleging that Norris and Lamb McErlane charged excessive fees.

“This letter alleged Lamb McErlane had performed 'flawed and inadequate' work, 'grossly mismanaged' the federal tax filing process, and negligently 'fail[ed] to check a box,' leading to a tax penalty in excess of $500,000,” Rice wrote.

In June 2016, Allied World agreed to insure Lamb McErlane against professional liability claims made between June 20, 2016, and June 20, 2017. And in March 2017, Tunnell's order held the firm liable for the $557,001 tax loss.

Lamb McErlane sought coverage from Allied World for that amount, but the insurer argued that the claim originated in May 2015, when the beneficiaries filed their letter.

Rice agreed. “The firm's argument is an attempt to rewrite the policy to permit a claim only after an insured is faced with a viable cause of action in a formal legal proceeding,” his opinion said. “Although the beneficiaries were precluded from bringing a malpractice claim directly against Lamb McErlane in the estate proceedings, they were permitted to object to excessive legal fees already paid by the estate. They not only did so, they notified Lamb McErlane of their objections to Lamb McErlane's legal work.”

In the underlying matter, Lamb McErlane filed an appeal to Tunnell's decision in June. Lamb McErlane filed a praecipe for discontinuance Feb. 13. Firm chairman Joel Frank said the firm reached a confidential settlement in that matter more than a month ago.

Frank said the firm is not covered by any other policy for the $557,001 claim.

Robert Bodzin of Kleinbard LLC represented Allied World and did not return a call seeking comment.

In the underlying case, John Chesney of Drinker Biddle & Reath is representing the estate's beneficiaries. He could not be reached for comment Monday. Patrick O'Connor of Cozen O'Connor, who represents the law firm in that matter, did not respond to a call seeking comment.