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Nations First Mortgage, LLC v. Tudor Insurance Co.

September 30, 2009


The opinion of the court was delivered by: Judge Vanaskie


At issue in this insurance declaratory judgment action is coverage under two consecutive "claims made" insurance policies for six separate legal actions brought against Plaintiffs. Specifically, Plaintiffs seek a determination that Defendant Tudor Insurance Company ("Tudor") is obligated to provide indemnification and the costs and expenses incurred in defending these actions. A stipulated record has been submitted, both parties have provided briefs supporting their respective positions, and oral argument has been conducted. For the reasons that follow, I find that Tudor has no obligation to defend or indemnify Plaintiffs under the policies in question for any of the six litigations.


A. The Insurance Policies

During the time relevant to this litigation, Plaintiff Nations First Mortgage, LLC ("Nations First") was a limited liability company acting as a mortgage broker in Pennsylvania.*fn1 (Stipulated Record "SR", Dkt. Entry 29, at 2.) Plaintiff Donald Kishbaugh was the President of Nations First, Plaintiff Rose Perdue was an employee/owner of Nations First, and Steven Parisi was Vice President of Nations First. (Id. at 2.) Parisi also was an owner of Eagle Valley Homes and Eagle Valley Homes North, Inc. (Id.) Parisi and Kishbaugh conducted business in land development and residential lots sales under the following entities: P&K Developers, P&K Developers, LLC, and Mobile Developing Company. (Id. at 3.)

Tudor, a non-admitted insurer (qualified as an "eligible surplus insurer" under 40 Pa. Cons. Stat. § 991.1602), annually issued to Nations First "claims made and reported" Errors and Omissions Liability Policies between June 17, 1999, and June 17, 2005. (Id. at 3.) A Mortgage Services Endorsement, identified in the policy form (declarations page) as number "TU 65," was first included in the policy issued for the period June 17, 2001, to June 17, 2002, and included thereafter.*fn2 (Id. at 4.)

Nations First was a client of James & Rae Insurance, Inc., an insurance agency, or producing broker under 40 Pa. Cons. Stat. 991.1602. (Id. at 10.) Nations First enlisted the services of James & Rae to procure Errors and Omissions coverage. Ron Hlavaty, an insurance agent of James & Rae, contacted W.N. Tuscano Agency Inc. ("Tuscano"), a surplus lines licensee under 40 Pa. Cons. Stat. § 991.1602, which worked in Pennsylvania for Tudor.*fn3

(Id. at 4.) Tuscano, in turn, contacted Tudor for the requested coverage. The policies provided coverage of up to $1,000,000 for all claims. (Dkt. Entry 42, 1-6.)

In Nations First's application for insurance in April of 1999, in response to question 20, "Give an example of a claim that you intend to have insured under this policy," the application states: "Error in application processing which will cause bank to require buyback of mortgage." (Dkt. Entry 34-3, at 90.) In Nation's First renewal application of June of 2003, the same response is given. (Dkt. Entry 34-2, at 97.)

The two policies at issue in this litigation are EOP 0023907, for the period from June 17, 2003, to June 17, 2004, and EOP 0025384, for the period from June 17, 2004, to June 17, 2005. (Id., at 4.) The insured identified on the declarations of each policy is Nations First. (Id.; Application, Dkt .Entry 42, at 8.)

The policies provide, in part, the following:

The Company will pay on behalf of the Insured all sums in excess of the deductible that the Insured shall become legally obligated to pay as damages because of claims first made against the Insured and reported to the Company during the policy period. This policy applies to actual or alleged negligent acts, errors or omissions arising solely out of professional services rendered for others as designated in Item 3 of the Declarations.

For this coverage to apply, all of the following conditions must be satisfied:

1. the negligent act, error or omission arising from professional services took place subsequent to the Retroactive Date stated in Item 7 of the Declarations;

2. the insured had no knowledge prior to the effective date of this policy of such actual or alleged negligent act, error, omission or circumstance likely to give rise to a claim;

3. claim is first made against the insured and reported to the Company during the policy period. (Id. at 4-5.)

The term "insured" in the policies is defined as follows:

The term "insured" shall mean the insured shown in the Declarations and any other person acting within the scope of his duties as a past or present partner, principal, officer, director or employee of the Insured. (Id. at 5.) The term "loss" in the policies is defined as: "damages, judgment and claims expenses." (Id.)

Pertinent exclusions from coverage are as follows:

Coverage provided in this policy does not apply to any loss in connection with or arising out of or in any way involving: . . . .

A. Any dishonest, fraudulent, criminal or malicious act or omission of the Insured.

B. The liability of others assumed by the insured under any contract or agreement whether written or oral unless specifically endorsed to this policy.

C. Punitive or exemplary damages, fines or penalties. . . . . (Id. at 5-6.) The Mortgage Services endorsement ("TU 65"), first added to the policy effective June 17, 2001, provided, inter alia, that there was no coverage with respect "to any claim based upon or arising out of . . . the Insured's failure to repurchase any loan(s)." (Id. at 8.)

The policies require notice of any claims as follows: The insured shall, as a condition precedent to their right to the protection afforded by this insurance, give to ...

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