Third Circuit: Title Insurers Need Only Defend Covered Claims Under Pennsylvania Law

The United States Court of Appeals for the Third Circuit, predicting how Pennsylvania’s highest court would rule, recently held that real estate title insurance companies are only required to defend claims specifically covered under their policies.   In doing so, the Third Circuit found that the well-settled “in for one, in for all” rule requiring general liability insurers to defend an entire action if at least one claim was potentially covered did not apply to title insurers. In Lupu v. Loan City, LLC , Nos. 17-1944 & 17-2024, 2018 U.S. App. LEXIS 25561 (3 rd Cir. September 10, 2018), a residential homeowner refinanced his home loan and mortgage with Loan City LLC.   Stewart Title Guaranty Company (“Stewart Title”) provided title insurance on the loan.   The mortgage was subsequently transferred on multiple occasions, eventually landing with Ocwen Loan Servicing, LLC (“Ocwen”).   The homeowner defaulted on his loan, and thereafter sued to void the instruments evidencing his debt.  The homeowner’s complaint, which was amended several times, initially focused on a challenge to the use of the so-called MERS System -- a private mortgage registry that allows its members to avoid the need for county-level public recordation when transferring mortgage interests -- claiming that it violated Pennsylvania law.   After the filing of a third amended complaint, however, the homeowner submitted responses to interrogatories claiming that the original loan documents were forged.   These new allegations prompted Ocwen to seek defense coverage from Stewart Title.   However, because the MERS-related...
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UPDATE: SECOND CIRCUIT REMANDS REINSURANCE LIMITS DISPUTE

In the latest opinion emanating from a high-profile reinsurance case that we have been chronicling in this blog, the United States Court of Appeals for the Second Circuit recently vacated a district court’s ruling premised upon the so-called “ Bellefonte rule” applied in reinsurance law, and directed the district court to reassess the facultative reinsurance certificates at issue based on standard rules of contract interpretation.   Global Reinsurance Corp. v. Century Indem. Co. , No. 15-2164, 2018 U.S. App. LEXIS 12121 (2d Cir. May 9, 2018). Our blog posts on prior rulings in this matter can be found here and here .   To briefly recap, Global Re arose from a summary judgment ruling in which the underlying district court, relying largely upon the Second Circuit’s seminal decisions in Bellefonte Reinsurance Co. v. Aetna Casualty & Surety Co., 903 F.2d 910 (2d Cir. 1990) and Unigard Security Ins. Co., Inc. v. North River Ins. Co. , 4 F.3d 1049 (2d Cir. 1993), held that the reinsurer was not obligated to pay defense expenses billed by the cedent over and above the amounts set forth in the “reinsurance accepted” clauses of the facultative certificates at issue.  On appeal, the Second Circuit issued an initial opinion in which it undertook a detailed re-examination of its prior holdings in Bellefonte and Unigard .   The court specifically called into question the Bellefonte court’s conclusion that the reinsurance certificate in that case “unambiguously capped the reinsurer’s liability for both loss and expenses.”   The...
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Updates on The Right to Independent Counsel and Bellefonte Reinsurance Rule

This will serve as an update on two significant decisions in the insurance coverage and reinsurance arenas that we blogged about last year:  (1) Mount Vernon Fire Insurance Company v. Visionaid Inc. , in which the Massachusetts Supreme Judicial Court, answering certified questions from the First Circuit Court of Appeals, found that an insurer’s duty to defend does not include the duty to pay for the prosecution of counterclaims; and (2)  Global Reinsurance Corp. of America v. Century Indemnity Co. , where the Second Circuit Court of Appeals certified a question to the New York Court of Appeals pertaining to the so-called “ Bellefonte rule” applied in reinsurance law.  Click here for our prior post on Global Re  and here for our prior post on Visionaid.   Recently, the First Circuit returned to Visionaid to resolve the sole remaining issue involving the insured’s claimed right to independent counsel.  In an entertaining opinion replete with humorous asides (“[t]he case pits an insured … against its employment-practices liability insurer (say that ten times fast!)”), the court ruled that there was no conflict of interest between the parties justifying the appointment of independent counsel to defend the insured at the insurer’s expense.  And in Global Re , the New York Court of Appeals answered the Bellefonte -related certified question posed by the Second Circuit, finding that there was no presumption or rule of construction imposing a cap which limits the total amount of reinsurance available under a facultative reinsurance certificate.  We delve into...
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Court Finds No Coverage For Prosecuting Counterclaims

The Massachusetts Supreme Judicial Court recently weighed in on the perennial issue of whether an insurer’s obligation to defend extends to the prosecution of counterclaims on behalf of the insured.  In Mount Vernon Fire Insurance Co. v. Visionaid, Inc., 477 Mass. 343 (2017), the state’s highest court ruled that the duty to defend does not require insurers to fund an insured’s counterclaim, even when it may be intertwined with the defense of a covered claim. The insurer in Visionaid issued an employment practices liability policy to the insured, a manufacturer of lens cleaning and eye safety products.   Under this “claims-made” policy, the insurer had a right and duty to defend, and was obligated to pay 100% of the defense costs for a covered claim.  In the underlying suit, a former employee sued the insured for wrongful termination based on age discrimination.  The insured, in turn, accused the then-employee of misappropriating funds.  The insurer agreed to defend the case subject to a reservation of rights, and appointed panel counsel.  The insured subsequently requested that the insurer pursue and fund a counterclaim for the alleged embezzlement.  The insurer declined to do so, contending that the policy did not require it to prosecute the counterclaim.  The insured countered that the insurer’s position created a conflict of interest justifying the appointment of independent counsel, at the insurer’s expense. The insurer filed a declaratory judgment action in Massachusetts federal district court seeking a ruling that it was not obligated to assert or fund the...
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Southern District of New York Vacates Reinsurance Arbitration Award Based Upon Party Arbitrator Bias and Non-Disclosure

The United States District Court for the Southern District of New York recently vacated an arbitration award against reinsurers based upon the “evident partiality” of the cedent’s party-appointed arbitrator in failing to disclose his significant contacts and relationships with the cedent and its principals.  Certain Underwriting Members at Lloyd’s of London v. Insurance Company of the Americas , No. 16-CV-323 (VSB) and Certain Underwriting Members at Lloyd’s, London Subscribing to Treaty No. 0272/04 v. Insurance Company of the Americas , No. 16-CV-374 (VSB) (S.D.N.Y. March 31, 2017).  Rosenthal Lurie & Broudy represented the Treaty No. 0272/04 underwriters (hereinafter referred to as the “third-layer reinsurers”) in these consolidated matters. The underlying arbitration proceeding involved a dispute as to whether coverage existed for two workers’ compensation claims under a clash catastrophe excess of loss reinsurance agreement.  The arbitration panel consisted of three arbitrators, one appointed by the cedent, another appointed by the first and second-layer reinsurers, and an umpire.  After a four-day hearing, the arbitration panel found in favor of the cedent.  The first and second-layer reinsurers were ordered to pay alleged losses of more than $2.5 million.  In addition, the award provided that in the event one of the claims exceeded $5 million, the third-layer reinsurers would be liable under a separate reinsurance agreement. The first and second-layer reinsurers subsequently filed a motion to vacate the arbitration award in the Southern District of New York, followed by a separate motion to vacate or modify the award by the third-layer reinsurers.  The...
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NINTH CIRCUIT FINDS NO COVERAGE FOR FDIC CLAIMS UNDER D&O POLICY

In recent years, the Federal Deposit Insurance Corporation (“FDIC”), acting as a receiver, has filed numerous lawsuits against the former directors and officers of banks which failed during the course of the global financial crisis.  These suits generally contend that the alleged malfeasance of the directors and officers at the time led to the banks’ downfall.  A key and frequent issue emanating from these cases is whether the banks’ Directors & Officers (“D&O”) liability insurance policies provide coverage for such losses.  The United States Court of Appeals for the Ninth Circuit recently considered this issue, finding that a so-called “insured-versus-insured” exclusion contained in a D&O policy unambiguously barred coverage for the FDIC’s claims. In Federal Deposit Insurance Corp. v. BancInsure, Inc. , 2017 U.S. App. LEXIS 452 (9 th Cir. Jan. 10, 2017), the FDIC, acting in its capacity as receiver of the failed Security Pacific Bank (“Security Pacific”), filed a declaratory judgment action against its D&O carrier, BancInsure, seeking coverage for losses arising from the former directors’ and officers’ alleged negligence, gross negligence and breach of fiduciary duty.   BancInsure argued that coverage was barred by the D&O policy’s “insured-versus-insured” exclusion, which precluded coverage for claims brought “by, or on behalf of, or at the behest of” Security Pacific, a person insured under the policy, or any “successor, trustee, assignee or receiver”.  The FDIC countered that an exception for shareholder derivative suits set forth in the exclusion applied since its claims were similar to those asserted in such suits, and...
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NEW YORK HIGH COURT TO HELP DECIDE FATE OF IMPORTANT REINSURANCE DOCTRINE

In the latest twist regarding the efficacy of the so-called “ Bellefonte ” rule applied in reinsurance law, the United States Court of Appeals for the Second Circuit has asked the New York Court of Appeals, the state’s highest court, to weigh in on whether there is a hard “cap” on the amount of combined “losses” and “expenses” that a reinsurer may be obligated to pay under a facultative reinsurance certificate even when the reinsured policy paid defense expenses outside of limits. In Global Reinsurance Corp. v. Century Indem. Co. , No. 15-2164 (2d Cir. Dec. 8, 2016), the cedent claimed in the underlying federal district court action that the reinsurer was obligated to pay a share of more than $60 million in defense expenses incurred in connection with thousands of underlying asbestos bodily injury suits.  The reinsurer argued that the dollar amounts set forth in the “reinsurance accepted” sections of the nine facultative reinsurance certificates issued to the cedent (ranging from $250,000 to $2 million) unambiguously capped the amount that the reinsurer was obligated to pay for both losses and expenses combined.  The cedent countered that those limits applied only to “loss” (i.e. settlements and damages), and that the reinsurer was required to pay all expenses in addition to such limits, just as the cedent was obligated to do under the reinsured policy.  On summary judgment, the district court sided with the reinsurer, and, in so doing, relied upon the Second Circuit’s landmark reinsurance decisions in Bellefonte Reinsurance Co....
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FLORIDA SUPREME COURT DECIDES WHAT COVERAGE TEST TO APPLY WHEN MULTIPLE PERILS CAUSE A PROPERTY LOSS

Earlier this month, the Supreme Court of Florida issued its long-awaited decision regarding the applicable standard for determining the availability of insurance coverage where there are multiple, concurrent causes of a property loss. In Sebo v. American Home Assurance Company, Inc., No. SC14-897 (Fla. Dec. 1, 2016), the court, applying the so-called "concurrent cause" doctrine, held that an entire claim may be covered even though one of the causes of the loss is excluded under a first-party property policy. The court suggested, however, that coverage may not apply if it can be established that an excluded peril is the "efficient proximate cause" of the loss.  In Sebo, the insured's $11.2 million home in Naples, Florida sustained serious water damage both before, and in the wake of, Hurricane Wilma in 2005. There was no dispute that the loss was caused by multiple perils, namely, a combination of construction defects, heavy rains and wind. The insurer denied coverage for most of the damage because the insured's "all-risk" property policy specifically excluded damage due to construction defects. The insured subsequently filed an action for declaratory relief against the insurer, and a jury found in favor of the insured in the amount of $8 million. The Second District Court of Appeal, however, reversed and remanded the case for a new trial, holding that the cause of the loss should be examined under the "efficient proximate cause" doctrine rather than the "concurrent cause" theory applied by the trial court.  On appeal, the Supreme Court was...
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