Last Wednesday, the United States District Court for the District of Maryland decided Cornerstone Title & Escrow, Inc. v. Evanston Insurance Co.
This case dealt with an insurance dispute between Cornerstone Title, a title and closing company, and Evanston Insurance. Title companies always seem to be getting themselves into trouble.
In this case, Plaintiff purchased an insurance policy from Defendant obligating Defendant to indemnify Plaintiff for all damages, which was defined as “the monetary portion of any judgment, award or settlement . . . not [to] include . . . (b) the restitution of consideration or expenses paid to the insured for services or goods.” The policy also contained several exclusions from coverage, which included claims “based upon or arising out of any dishonest, deliberately fraudulent, malicious, willful or knowingly wrongful act or omission committed by or at the direction of the Insured . . . [or] based upon or arising out of the Insured gaining any profit or advantage to which the Insured is not legally entitled.” Take a breath and digest that for a second.
Plaintiff was then sued by the Maryland Attorney General, Consumer Protection Division (“CPD”). CPD alleged that Plaintiff took part in a foreclosure rescue enterprise but did not give homeowners all of the money owed to them from the sale of their homes. Although Plaintiff consistently denied the allegations that they had violated the Protection of Homeowners in Foreclosure Act (“PHIFA”) and the Consumer Protection Act (“CPA”), Plaintiff reached a settlement with CPD and agreed to pay $100,100 in restitution fees, maybe in part because the Maryland Attorney General has to be a pretty scary foe if you are a company it is targeting.
Plaintiff then sought coverage from Defendant, who denied the request and claimed that the policy’s definition of damages excluded restitution claims. As a result, Plaintiff filed suit alleging that Defendant breached its duty to defend and sought indemnification.
Since there was no dispute of material fact (both parties agreed on the terms of the policy), summary judgment was appropriate. Maryland law uses a two-step process to determine if the insurer has a duty to defend. First, the court will review the policy to figure out the scope of the coverage. In this step, the court will give the words in the contract “their usual, ordinary, and accepted meaning.”
Second, the court will determine whether the allegations against the insured represent a case covered by the insurance policy. It is interesting to note that in Maryland, if the allegations do not clearly bring the case under complaint within the coverage (the allegations might be vague, for example), the general rule is that the insurer has a duty to defend as long as there is potentially a case under the coverage umbrella. That is, where there is doubt, the court will construe the policy in favor of the insured.
Consequently, the court had to figure out two questions: (1) whether the restitution relief fell under the definition of damages, and (2) whether any of the exclusions in the policy applied. Because the definition of damages included “the monetary portion of any judgment,” and the restitution in question was not “restitution of consideration or expenses paid to the insured for goods or services,” the relief did fall under the damages definition. Although Plaintiff argued that legally, damages and restitution are different, the court will look to the language of the contract. In this case, “damages” was clearly defined.
As for the exclusions, Defendant argued that by perpetrating willful and intentional fraud, Plaintiff’s actions fell under the policy exclusions. However, Plaintiff countered by contending that violations of PHIFA and CPA do not require willful or intentional conduct. Because Plaintiff never admitted to fraudulent or dishonest acts, they assert that the allegations do not clearly bring the case under complaint within coverage, so therefore doubt must be resolved in their favor.
The court found in favor of Defendant on this issue. Although the truthfulness of the allegations was uncertain, the allegations themselves were clear: They stated that Plaintiff had engaged in willful and intentional fraudulent behavior. Citing Utica Mutual Ins. Co. v. Miller, the court explained that the exclusions here only require that the claim arise from the actions described in the exclusions – a determination of liability is not necessary. The exclusion applies to claims of liability. As a result, the court granted Defendant’s motion for partial summary judgment.
You can read the full opinion here.