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Fidelity National Title Insurance Co. v. Maxum Indemnity Co.

United States District Court, E.D. Pennsylvania

September 12, 2017

FIDELITY NATIONAL TITLE INSURANCE CO., as assignee of and successor in interest to LENDERS EDGE SETTLEMENT SERVICES, LLC and INTEGRITY ASSURANCE, INC., Plaintiff,
v.
MAXUM INDEMNITY COMPANY a/k/a MAXUM SPECIALTY INSURANCE GROUP and AMERICAN SAFETY INDEMNITY COMPANY, Defendants.

          MEMORANDUM

          ROBERT F. KELLY, Sr. J.

         Presently before the Court is Defendant Maxum Indemnity Company a/k/a Maxum Specialty Insurance Group's (“Maxum”) Motion for Judgment on the Pleadings and/or Motion for Summary Judgment and Plaintiff Fidelity National Title Insurance Co.'s (“Fidelity”) Response in Opposition. Also before the Court is Fidelity's Cross-Motion for Summary Judgment, Maxum's Response in Opposition, Fidelity's Reply Brief, and Maxum's Sur-reply. For the reasons noted below, Maxum's Motion for Judgment on the Pleadings and/or Motion for Summary Judgment is granted, and Fidelity's Motion for Summary Judgment is denied.

         I. BACKGROUND

         This is a breach of contract action regarding a professional liability insurance policy (“the Policy” or “Maxum Policy”) issued by Maxum to Lenders Edge Settlement Services, LLC (“Lenders Edge”). (See generally Compl.; see also Def.'s Mot. J. on Pleadings/Mot. Summ. J., Ex. B (“Maxum Policy”).) Specifically, Fidelity, an assignee and successor in interest to Lenders Edge's cause of action, claims that Maxum breached its obligation to defend Lenders Edge in a matter filed in the Court of Common Pleas of Philadelphia County known as Fid. Nat'l Title Ins. Co. v. Lenders Edge Settlement Servs., LLC, et al., No. 130902562 (“the Underlying Matter”). Maxum denied a defense and coverage to Lenders Edge for the Underlying Matter via correspondence dated November 11, 2013. (Def.'s Br. in Support Mot. J. on Pleadings/Summ. J. at 2.) Maxum contends that the denial of a defense and coverage was correct pursuant to (1) the Complaint (“Underlying Complaint”) filed in the Underlying Matter; (2) the clear and unambiguous Policy provisions; and (3) Pennsylvania law.[1] (Id.) Consequently, Maxum filed this Motion for Judgment on the Pleadings and/or Motion for Summary Judgment confirming the denial of a defense and coverage and seeking dismissal of all claims directed towards it in this matter. Fidelity filed a Response in Opposition to Maxum's Motion and separately cross-moved for summary judgment.

         A. THE UNDERLYING MATTER

         The Plaintiff in the Underlying Matter is identified as Fidelity National Title Insurance Company, a national title insurance underwriting company. (Def.'s Mot. J. on Pleadings/Summ. J. ¶ 7) (citing Ex. D ¶ 1 (“Underlying Compl.”).) The Underlying Complaint was filed on or about September 23, 2013, in the Court of Common Pleas of Philadelphia County, asserting claims of declaratory judgment, negligence and vicarious liability, breach of contract, personal guarantee, and specific performance. (Id. ¶ 8) (citing Underlying Compl.) The Underlying Complaint identified Lenders Edge, Integrity Assurance, Inc. (“Integrity”), and their owners, principals, and/or alleged employees, Alfred J. Drechsel (“Drechsel”), Andrew C. Salvucci, and Charles W. Morrone, as Defendants. (Id. ¶ 9) (citing Underlying Compl. ¶¶ 4-6.)

         The Underlying Matter asserted that Fidelity and Lenders Edge entered into an Issuing Agency Contract that appointed Lenders Edge as a policy issuing agent authorized to undertake certain duties regarding the issuance of title insurance, commitments, policies, endorsements, and other title assurances for real property. (Id. ¶ 10) (citing Underlying Compl. ¶¶ 12-14.) Fidelity alleged that in conjunction with the Issuing Agency Contract, the Defendants in the Underlying Matter were obligated to maintain and disburse funds related to the real estate transactions in accordance with the purpose for which they were entrusted. (Id. ¶ 11) (citing Underlying Compl. ¶ 15.) The Underlying Complaint alleged that the Defendants breached the contract by creating “irregularities in the Accounts;” creating “shortfall[s] in both Accounts resulting in many mortgage transactions not being funded and properly closed;” and creating a shortfall in the approximate amount of $2, 136, 718.69. (Id. ¶ 12) (citing Underlying Compl. ¶¶ 24, 29.) It is specifically alleged that funds from the Accounts were transferred to Drechsel's personal accounts.[2] (Id. ¶ 13) (citing Underlying Compl. ¶¶ 30-34.)

         For example, the Underlying Complaint alleged that on September 16, 2013, Fidelity discovered irregularities in the Lenders Edge Escrow Account. (Underlying Compl. ¶ 23.) The next day, September 17, 2013, Fidelity discussed the irregularities with Drechsel, who acknowledged shortfalls in the Escrow Account that resulted in many mortgage transactions not being funded or properly closed. (Id. ¶ 24.) On September 18, 2013, Fidelity confirmed that Lenders Edge and Integrity were the escrow and title agents for eighteen mortgage transactions with total outstanding mortgage payoffs of at least $3, 658, 592.72. (Id. ¶ 25.) Fidelity was the underwriter for fifteen of the eighteen transactions, which had outstanding payoffs of $2, 871, 718.69. (Id. ¶ 26.) As of September 18, 2013, the Lenders Edge Escrow Account had a balance of $735, 000, creating a $2, 136, 718.69 shortfall in the amount needed to satisfy the approximately $2, 871.718.69 in outstanding payoffs. (Id. ¶ 29.) On or about September 18, 2013, a representative from Fidelity reviewed the Lenders Edge and Integrity Accounts records and determined that funds from the accounts had been transferred to Drechsel's personal bank accounts.[3] (Id. ¶ 30.) Drechsel's signing authority was removed from the Lenders Edge Escrow Account as of September 19, 2013. (Id. ¶ 35.)

         Two Counts in the Underlying Complaint were specifically directed towards Lenders Edge: Count III - Negligence/Vicarious Liability (“Count III” or the “Negligence Count”), which sought monetary damages arising from Lenders Edge's negligent disregard of its duties; and Count V - Breach of Contract, which sought monetary damages arising from Lenders Edge's breach of its agency agreement with Fidelity. (See Underlying Compl.) In addition, three Counts were pleaded against all defendants: Count I - Declaratory Judgment; Count IX - Accounting; and Count X - Specific Performance. Fidelity concedes that the Maxum Policy did not cover Counts I, V, IX, and X, but argues that Count III, the Negligence Count, was “clearly” covered. (Pl.'s Resp. Opp'n Def.'s Mot. at 12.) Accordingly, the crux of the matter before the Court is whether the Maxum Policy covered Count III of the Underlying Complaint.

         The Negligence Count, which incorporated by reference all prior averments, stated as follows:

¶ 55. Defendant Lenders Edge owed a duty to Fidelity to properly maintain or supervise the maintenance of the Lenders Edge Escrow Account and to properly account for all payments and funds Lenders Edge received in connection with the issuance of Fidelity's policies pursuant to the Lenders Edge Contract.
¶ 56. Defendant Lenders Edge also owed a duty to Fidelity to properly train and supervise the employees and/or principals to whom it assigned such responsibility.
¶ 57. Lenders Edge breached its duty to Fidelity by negligently disregarding the foregoing duties and responsibilities.
¶ 58. As a result of Lenders Edge's negligent disregard of its duties, Fidelity may be required to indemnify its insured for their covered losses under respective title insurance policies resulting from Lenders Edge's negligent conduct.
¶ 59. As a further result of Lenders Edge's negligent disregard of its duties, Fidelity has been and may be exposed to additional claims from its insureds who may allege to have suffered covered losses under respective title insurance policies resulting from Lenders Edge's negligent conduct.

         (Underlying Compl. ¶¶ 55-59.)

         B. THE POLICY

         Maxum issued a Policy of Professional Liability Insurance number PFP 6020753-01 to Lenders Edge for a Policy Period of November 11, 2012 to November 11, 2013.[4] (Def.'s Mot. J. on Pleadings/Summ. J. ¶ 14) (citing Ex. B, Common Policy Declarations.) The Policy provides the following relevant language:

         PROFESSIONAL LIABILITY COVERAGE FORM (NON-MEDICAL)

         SECTION I - COVERAGE:

1. Insuring Agreement
A. We will pay those sums that an “insured” becomes legally obligated to pay as “damages” because of a “wrongful act” in the rendering of or failure to render “professional services” by any “insured” or by any person for whose “wrongful acts” an “insured” is legally responsible for. We will have the right and duty to defend any “insured” against any “suit” seeking those “damages”. However, we will have no duty to defend an “insured” against any “suit” seeking “damages” for a “wrongful act” to which this insurance does not apply.
2. Exclusions
This Insurance does not apply to:
B. Any dishonest, fraudulent, criminal or malicious act or omission by any “insured” or at the direction of any “insured”.
Q. Any “claim” arising out of or resulting from any “insured's” fiduciary duty, ...

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