The United States District Court for the Southern District of Florida recently granted a title company’s motion for summary judgment, holding that an E&O insurance carrier was required to defend its insured in a related lawsuit brought by the title company arising out of wire fraud. See Houston Specialty Ins. Co. v. Fontecilla, 2021 U.S. Dist. LEXIS 187928 (S.D. Fla. 2021). In the case, Plaintiff issued an E&O policy to the defendant law firm. The law firm also was a policy-issuing agent for the defendant title insurance company. In 2018, the law firm conducted a closing whereby it disbursed funds on behalf of a lender, purportedly in exchange for mortgages on two properties. In connection with these closings, the law firm issued title insurance policies to the lender on behalf of the defendant title insurance company. It was later discovered that “imposters purporting to act on behalf of the property owners executed the loan documents but were not associated with and did not have authority to act on behalf of” the property owners. The title company had to pay the lender to settle the lender’s claims, and the title company brought a state court action against the law firm seeking reimbursement. Plaintiff then brought this action seeking a declaratory judgment that it is not required to defend or indemnify the law firm in the state court action. The title insurer moved to dismiss or, in the alternative, for summary judgment.
The Court denied the motion to dismiss but granted the motion for summary judgment. The Court first held that there was no need to abstain from exercising jurisdiction because, although there was overlap between the facts of this matter and the facts of the state court action, they were not “parallel” proceedings. Nonetheless, the Court granted the title insurance company’s motion for summary judgment. Plaintiff had argued that the E&O policy’s “Theft or Conversion of Funds” exclusion precluded coverage. The Court, however, held that “[u]nfortunately for Plaintiff, . . . the complaint in the Underlying Lawsuit asserts allegations that are not limited to the loss of funds due to theft, stealing, conversion, misuse, or misappropriation,” including that the law firm issued a policy in an amount in excess of $1 million, despite the fact that it needed prior authorization from the title company to do so and did not request or receive such authority. Accordingly, the Court found that Plaintiff had a duty to defend the law firm in the underlying state court action and granted the title company’s motion for summary judgment.