The opinion of the court was delivered by: MARVIN KATZ
Plaintiff, Britamco Underwriters, Inc. ("Britamco") initiated this declaratory judgment action seeking relief from its duties to defend and indemnify its insureds, defendants Emerald Abstract Co., Inc. ("Emerald") and Irene Wolfgang, co-owner and President of Emerald. Emerald is a title insurance company that acted as a settlement agent in Pennsylvania real estate sales. Defendant Allen Rogers is a co-owner and Vice-President of Emerald. Defendant T.A. Title Insurance Company ("T.A. Title") is an underwriter of title insurance.
The insurance agreement at issue in this action is a "claims made" professional liability insurance policy (the "Policy") issued by Britamco to Emerald that was in effect for the period April 19, 1991 through April 19, 1993 (the "Policy Period"). Pl.Mot.Summ. J., Ex. A. A "claims made" policy insures the policy holder against claims made during the life of the policy as opposed to an "occurrence" policy, which insures against "occurrences" which take place during the policy period and for which claims may arise during the policy period or at a later date. Bensalem Township v. Western World Ins. Co., 609 F. Supp. 1343, 1347 n. 2 (E.D.Pa. 1985). In addition to the temporal exclusion inherent in its "claims made" nature, the Policy, by its terms, excludes coverage for "any act, error or omission of the Insured committed with actual dishonest, fraudulent, criminal or malicious purpose or intent." Pl.Mot.Summ.J., Ex. A, PD(1). The Policy also excludes coverage for liability resulting from an inability to pay or collect money. Id., Ex. A, PD(11).
During the Policy Period, Emerald, performed services pursuant to a written contract for T.A. Title. Def.Mot.Summ.J., Ex. A, P 2. Emerald's contract with T.A. Title required that all funds collected by Emerald at settlements, including transfer taxes and recording fees be held in Emerald's escrow account. Pl.Mot.Summ.J., Ex G, p. 14. As a result of the negligence of Emerald personnel and/or the or the intentional acts of Irene Wolfgang, some settlement funds were deposited directly in Emerald's operating account or other accounts rather than Emerald's escrow account, and other settlement funds originally placed in Emerald's escrow account were subsequently transferred to Emerald's operating account and used to cover Emerald's operating expenses and other obligations. Pl.Mot.Summ.J., Ex G, pp. 14-24, Ex. H, pp. 33-36. This misappropriation of funds resulted in escrow shortages, transfer tax shortages and a failure to record deeds properly. Def.Mot.Summ.J., Ex. A, P 3, Ex. B, P 9; Pl.Mot.Summ.J.Ex. H, pp. 38-39.
In June of 1992, when T.A. Title became aware of these irregularities in Emerald's practices, T.A. Title initiated a private investigation of Emerald's operations. Def. Mot. Summ. J. Ex. B, P 5. Id. Shortly after T.A. Title commenced its investigation, T.A. Title notified Britamco by letter dated June 29, 1992, that Emerald "has been performing its business duties in an incompetent fashion thereby causing losses to us and to our insureds." Pl.Mot.Summ.J., Ex. E.
On July 2, 1992, T.A. Title commenced an action in equity by filing a Complaint in the Delaware County Court of Common Pleas against Emerald, Irene Wolfgang and Allen Rogers seeking equitable relief. Pl.Mot.Summ.J., Ex. B. The Complaint alleges that Emerald failed to satisfy fiduciary obligations including: (1) failing to record deeds on 28 properties; (2) failing to record 25 mortgages; (3) failing to pay transfer taxes and recording fees; and, (4) failing to hold sufficient funds in escrow to meet future obligations, and that T.A. Title was potentially responsible for these deficiencies Id., Ex. B, PP 21-24. In addition, the Complaint alleges that Emerald failed to provide T.A. Title with complete records of settlements involving T.A. Title as title insurance underwriter. Id., Ex. B, PP 16, 18, 25-27. The Complaint requests: (1) an accounting of Emerald's operations; (2) injunction prohibiting Emerald from conducting settlements in the name of T.A. Title; and, (3) formation of a constructive trust naming T.A. Title as the equitable owner of property improperly purchased by Irene Wolfgang with settlement funds that should have been held in escrow. Id., Ex. B, PP 33-40.
On June 28, 1993, T.A. Title filed an Amended Complaint in the state court action adding claims for breach of contract and negligence. Id. Ex. C. In addition to filing the state court action against Emerald and its officers, T.A. Title reported Irene Wolfgang's activities to law enforcement authorities. Pl.Mot.Summ.J. Ex. I, pp. 46-47
T.A. Title's investigation of Emerald's operations and records resulted in the production of a report titled "Emerald Abstract Company Reconstruction Project" (the "Reconstruction Project"). Maureen Wroblewski, Assistant Treasurer and Escrow Accounts Manager of T.A. Title, supervised the preparation of the Reconstruction Project. Def.Mot.Summ.J., Ex. B, P 6. The Reconstruction Project was completed on September 4, 1992. Pl.Mot.Summ. J., Ex. H, p. 32. T.A. Title forwarded the Reconstruction Project to Britamco during the Policy Period and prior to the filing of the Amended Complaint. Def.Mot.Summ.J., Ex. C, p. 104. The Reconstruction Project indicates: (1) that funds that should have been placed in Emerald's escrow account were placed in its operating account; (2) that funds that should have been placed in Emerald's escrow account were not deposited in its escrow account or its operating account; (3) that funds were transferred from Emerald's escrow account to its operating account; (4) that funds due were not collected by Emerald at certain settlements; (5) that the Emerald escrow account incurred overdraft and service charges; and, (6) that Irene Wolfgang used funds deposited in the Emerald escrow account to complete settlement on personal real property. Pl.Mot.Summ. J., Ex. D, Ex. H.
Maureen Wroblewski summarized T.A. Title's investigation and the Reconstruction Project as follows:
I concluded that Emerald Abstract's settlement practices were careless, substandard and contained errors in arithmetic and other accounting mistakes which caused incorrect amounts of money to be received and deposited into Emerald's accounts, moneys to be incorrectly deposited into the wrong accounts, moneys to be paid out to incorrect parties or in incorrect amounts, and a failure to pay out monies which were required to be paid out as a result of settlement. . . .
. . . For instance, certain disbursements required to be made in the course of settlement were simply written in the wrong amount. Over time, these mistakes in the aggregate cause a shortfall in Emerald's accounts. . . .
It was difficult if not impossible to ascertain the exact amount of loss and to completely understand all the errors and mistakes that were made during the course of time that Emerald conducted settlements because of incomplete documentation and lack of memory ...