United States District Court, E.D. Pennsylvania
FIDELITY NATIONAL TITLE INSURANCE CO., as assignee of and successor in interest to LENDERS EDGE SETTLEMENT SERVICES, LLC and INTEGRITY ASSURANCE, INC., Plaintiff,
MAXUM INDEMNITY COMPANY a/k/a MAXUM SPECIALTY INSURANCE GROUP and AMERICAN SAFETY INDEMNITY COMPANY, Defendants.
F. KELLY, Sr. J.
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.
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
(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.
THE UNDERLYING MATTER
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.)
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. (Id. ¶ 13)
(citing Underlying Compl. ¶¶ 30-34.)
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. (Id.
¶ 30.) Drechsel's signing authority was removed from
the Lenders Edge Escrow Account as of September 19, 2013.
(Id. ¶ 35.)
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.
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
¶ 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
¶ 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
Compl. ¶¶ 55-59.)
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. (Def.'s Mot.
J. on Pleadings/Summ. J. ¶ 14) (citing Ex. B, Common
Policy Declarations.) The Policy provides the following
LIABILITY COVERAGE FORM (NON-MEDICAL)
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
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