First Tennessee Bank National v. St. Paul Fire and Marine Insur

Filing

UNPUBLISHED PER CURIAM OPINION filed. Originating case number: 3:09-cv-00550-HEH-MHL Copies to all parties and the district court/agency. [999008813].. [11-1781, 11-1782]

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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 11-1781

FIRST TENNESSEE BANK NATIONAL ASSOCIATION,
Intervenor/Plaintiff - Appellant,
and
GLOBAL TITLE, LLC,
Third Party Plaintiff,
v.
ST. PAUL FIRE AND MARINE INSURANCE COMPANY,
Third Party Defendant – Appellee.

No. 11-1782

GLOBAL TITLE, LLC,
Third Party Plaintiff – Appellant,
and
FIRST TENNESSEE BANK NATIONAL ASSOCIATION,
Intervenor/Plaintiff,
v.
ST. PAUL FIRE AND MARINE INSURANCE COMPANY,
Third Party Defendant - Appellee.

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Appeals from the United States District Court for the Eastern
District of Virginia, at Richmond.
Henry E. Hudson, District
Judge. (3:09-cv-00550-HEH-MHL)

Argued:

September 18, 2012

Before TRAXLER,
Judges.

Chief

Judge,

Decided:

and

DIAZ

and

December 21, 2012

THACKER,

Circuit

Vacated and remanded by unpublished per curiam opinion.

ARGUED: Paul Peter Vangellow, Falls Church, Virginia; Clarence
A. Wilbon, BASS, BERRY & SIMS PLC, Memphis, Tennessee, for
Appellants.
Christopher J. Bannon, ARONBERG GOLDGEHN DAVIS &
GARMISA, Chicago, Illinois, for Appellee.
ON BRIEF: Annie T.
Christoff, BASS, BERRY & SIMS PLC, Memphis, Tennessee; Michael
P.
Falzone,
HIRSCHLER FLEISCHER,
Richmond,
Virginia,
for
Appellant First Tennessee Bank National Association.
Bruin S.
Richardson, LECLAIRRYAN, Richmond, Virginia, for Appellee.

Unpublished opinions are not binding precedent in this circuit.

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PER CURIAM:
Global Title, LLC, served as the closing agent for mortgage
loans originated by Financial Mortgage, Inc. (“FMI”), and funded
by First Tennessee National Bank.
scheduled

loans

funds

FMI

to

would

not

instead

close,

of

First

absconded with the funds.

After learning that three
Global

returned

Tennessee.

the

FMI’s

unused

president

Unable to recover the funds from FMI,

First Tennessee sued Global.

Global

liability

policy

St.

Company.

St. Paul determined that coverage was barred by a

issued

by

sought

Paul

Fire

coverage
&

Marine

under

a

Insurance

policy exclusion and denied the claim, which prompted Global to
sue St. Paul for breach of contract.
shuffling

and

realigning,

plaintiff

asserting

the

claims

After a bit of procedural

case

against

proceeded
St.

Paul;

with
First

Global

as

Tennessee

intervened to assert its claim against Global.
The district court granted summary judgment in favor of St.
Paul, concluding that coverage was excluded under the policy and
that

St.

Global.

Paul

therefore

Global

and

had

First

no

duty

Tennessee

to

defend

appeal.

or
We

indemnify
agree

with

Appellants that there is a possibility of coverage under the
policy and that St. Paul therefore is obligated to defend Global
against First Tennessee’s claims.
district court’s order and remand.

3

Accordingly, we vacate the

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I.
The central question in this case is whether St. Paul is
obligated

under

the

policy

to

defend

brought against Global by First Tennessee.

Global

in

the

action

Under Virginia law, 1

an insurer’s duty to defend its insured is broader than its duty
to indemnify.

“Indeed, an insurer may be required to provide a

defense

where

the

ultimate

that

the

insurer

even

demonstrates

indemnification.”

resolution
is

not

of

the

case

liable

for

Fuisz v. Selective Ins. Co. of Am., 61 F.3d

238, 242 (4th Cir. 1995).
The duty to defend “arises whenever the complaint alleges
facts and circumstances, some of which would, if proved, fall
within the risk covered by the policy.”

Virginia Elec. & Power

Co. v. Northbrook Prop. & Cas. Ins. Co., 475 S.E.2d 264, 265
(Va. 1996) (internal quotation marks omitted).

Conversely, an

insurer has no duty to defend if the insurer “would not be
liable

under

allegations.”

its

contract

for

any

judgment

based

upon

the

Travelers Indemn. Co. v. Obenshain, 245 S.E.2d

247, 249 (Va. 1978); see Virginia Elec. & Power, 475 S.E.2d at

1

The parties agree that Virginia law governs the
disposition of this appeal.
See Klaxon Co. v. Stentor Elec.
Mfg. Co., 313 U.S. 487, 496-97 (1941) (federal court sitting in
diversity must apply the choice-of-law rules of the forum
state); Buchanan v. Doe, 431 S.E.2d 289, 291 (Va. 1993)
(Virginia law governs dispute over insurance policy issued and
delivered in Virginia).
4

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266-67 (insurer has no duty to defend the insured against claim
clearly excluded from coverage under the policy).
Resolution

of

the

duty-to-defend

question

thus

“requires

examination of (1) the policy language to ascertain the terms of
the

coverage

and

(2)

the

underlying

complaint

to

determine

whether any claims alleged therein are covered by the policy.”
Fuisz, 61 F.3d at 242.

“This principle is commonly known as the

‘eight

because

corners

rule’

the

determination

is

made

by

comparing the ‘four corners’ of the underlying complaint with
the

‘four

corners’

of

the

policy

.

.

.

.”

AES

Steadfast Ins. Co., 725 S.E.2d 532, 535 (Va. 2012).

Corp.

v.

With these

principles in mind, we turn now to the specifics of this case.
A.
The policy’s general insuring clause provides coverage to
“protected persons” for loss caused by “wrongful acts” committed
during the performance of or failure to perform “real estate
professional

services,”

including

services

capacity of title, closing, or escrow agent.

performed

in

the

Policy at SP00021.

The policy defines “wrongful act” as “any negligent act, error
or omission.”

Id. at SP00022.

The policy exclusion at issue in this case is the “Handling
of funds” exclusion (the “HOF Exclusion”).
in

relevant

resulting

part,

from

excludes

“[a]ny

from

coverage

unauthorized
5

act

The HOF Exclusion,
claims
committed

for
by

loss
any

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protected
funds.”

Filed: 12/21/2012

person

Pg: 6 of 17

that

an

deprives

owner

of

Policy at SP00028 (emphasis added).

the

use

of

its

The policy does

not define “unauthorized” or “unauthorized act.”
B.
The

amended

intervening

plaintiff)

against Global. 2
First

Tennessee

established

complaint

a

filed

asserted

a

by

First

single

Tennessee

count

of

(as

negligence

According to the allegations of the complaint,
entered

line

of

into

credit

an

agreement

through

which

with
First

FMI

and

Tennessee

provided the funds for mortgage loans originated by FMI.

The

complaint alleged that Global, as closing agent, “would receive
funds from First Tennessee prior to the closing of the [FMI]originated loans.

Global Title was to hold the funds in trust

and then distribute the funds as directed upon closing.”
33.

J.A.

In anticipation of funding three loans, First Tennessee

wired a total of approximately $2.5 million to Global.

The

complaint alleged that when Global later learned from FMI that
the transactions had been cancelled, “[i]nstead of returning the
2

We focus on the allegations of First Tennessee’s amended
complaint-in-intervention
rather
than
First
Tennessee’s
original, multi-count complaint.
The original complaint, which
was dismissed without prejudice, became a nullity upon the
filing of the amended complaint.
See Young v. City of Mount
Ranier, 238 F.3d 567, 573 (4th Cir. 2001) (“[A]n amended
pleading
supersedes
the
original
pleading,
rendering
the
original pleading of no effect.
Thus, if an amended complaint
omits claims raised in the original complaint, the plaintiff has
waived those omitted claims.”).
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funds to First Tennessee . . . , Global Title transferred the
funds . . . to [FMI.]”
In

support

of

J.A. 34.
its

negligence

cause

of

action,

First

Tennessee alleged that, as closing agent, Global had a duty to
protect
Tennessee

First

Tennessee’s

alleged

that

interest

Global

in

“breached

the
the

funds.
duty

it

First
owed

to

First Tennessee when it negligently transferred $2.5 million of
First Tennessee’s money to [FMI],” and that Global’s negligence
in returning the funds entitles it to recovery.
complaint

alleged

no

additional

facts

J.A. 34.

describing

how

or

The
why

Global gave the money to FMI -- there are no allegations, for
example, that Global acted willfully or that Global acted in
concert with FMI. 3

3

First Tennessee attached as exhibits to its intervention
complaint certain documents evidencing the transactions at issue
here.
The documents included supplemental closing instructions
executed by FMI and Global which stated that if the loan did not
close, Global was “to either (1) return the unused cashier’s
check to [FMI]; or (2) return the funds via wire transfer
directly to [First Tennessee].”
J.A. 39, 42, 45.
Relying on
CACI International, Inc. v. St. Paul Fire & Marine Insurance
Co., 566 F.3d 150 (4th Cir. 2009), the district court held that
Virginia’s eight-corners rule did not permit it to consider
documents attached to the complaint. See id. at 156 (declining
to consider documents attached to complaint “because Virginia
courts have not signaled a readiness to look beyond the
underlying complaint” when resolving duty-to-defend questions).
But see Va. Sup. Ct. Rule 1:4(i) (“The mention in a pleading of
an accompanying exhibit shall, of itself and without more, make
such exhibit a part of the pleading.” (emphasis added)).
Although Appellants contend that the district court erred by
refusing to consider the exhibits, we need not decide that
(Continued)
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C.
Adopting the report and recommendation of the magistrate
judge, see 28 U.S.C. § 636(b)(1)(B), the district court granted
summary judgment in favor of St. Paul on the coverage question.
Because the policy did not define “unauthorized,” the district
court, looking to Black’s Law Dictionary, defined “unauthorized”
as

“‘[d]one

without

authority’”

implied, or apparent authority.’”
Dictionary (9th ed. 2009)).
as

“‘[t]he

right

behalf; . . .
relations

by

or

or

“‘made

without

actual,

J.A. 153 (quoting Black’s Law

The court then defined “authority”

permission

to

act

legally

on

another’s

the power of one person to affect another’s legal
acts

done

in

accordance

with

the

other’s

manifestations of assent; the power delegated by a principal to
an agent. . . .’”

J.A. 153.

The district court concluded that, given the allegations in
the complaint that the funds belonged to First Tennessee and
that Global was to hold the funds in trust and distribute them
at closing as directed by First Tennessee, Global’s actions were
“unauthorized”

as

a

matter

of

law.

The

magistrate

judge

question.
As we will explain, the allegations of First
Tennessee’s
complaint,
even
without
consideration
of
the
attached exhibits, are sufficient to trigger St. Paul’s duty to
defend.
8

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explained

this

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conclusion

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in

the

report

and

recommendation

adopted by the district court:
It is undisputed that these three [FMI]-originated
loans never closed, and it is undisputed that First
Tennessee never directed Global Title to transfer the
funds to [FMI] despite the failure to close. Thus,
Global Title's transfer of First Tennessee’s funds to
[FMI] constituted an unauthorized act that deprived
the owner of the use of its funds. Accordingly, the
“Handling of funds” provision excludes coverage for
this unauthorized act.
J.A. 133.

Thus, in this case, because First Tennessee did not

authorize Global to return the funds to FMI, the court held
Global’s action was unauthorized within the meaning of the HOF
Exclusion.

II.
On

appeal,

district
erroneous.
agent

is

court’s

Global

and

First

interpretation

Tennessee
of

the

contend

HOF

that

the

Exclusion

was

They argue that under Virginia law, an act that an
authorized

to

perform

does

not

become

unauthorized

simply because the agent performed the act negligently.

And

because negligent acts are not necessarily unauthorized acts,
Appellants argue that the HOF Exclusion does not foreclose the
possibility of coverage under the policy.

We agree.

A.
Because the policy did not define “unauthorized act,” the
district court properly defined “unauthorized act” as an act
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taken

without

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authority.

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See,

e.g.,

Scottsdale

Ins.

Co.

v.

Glick, 397 S.E.2d 105, 108 (Va. 1990) (“In the absence of a
definition,

words

used

in

an

insurance

policy

their ordinary and accepted meaning.”).

must

be

given

Nonetheless, when the

HOF Exclusion is considered as part of the policy as a whole, we
think it clear that the district court took too narrow a view of
the precise “authority” necessary for an agent’s action to be
“authorized.”
An insurance policy, of course, is a contract subject to
the

same

rules

of

construction

as

any

other

contract.

See

Virginia Farm Bureau Mut. Ins. Co. v. Williams, 677 S.E.2d 299,
302

(Va.

S.E.2d

2009);

405,

409

Harleysville
(Va.

Mut.

1959).

Ins.
“The

Co.

v.

primary

Dollins,
goal

in

109
the

construction of written contracts is to determine the intent of
the contracting parties . . . .”

Flippo v. CSC Assocs. III,

L.L.C., 547 S.E.2d 216, 226 (Va. 2001) (internal quotation marks
omitted); see Bender-Miller Co. v. Thomwood Farms, Inc., 179
S.E.2d 636, 639 (Va. 1971) (“[T]he intent of the parties as
expressed in their contract controls.”).
When

determining

the

intent

of

the

contracting

parties,

“the whole instrument is to be considered; not any one provision
only, but all its provisions; not the words merely in which they
were expressed, but their object and purpose, as disclosed by
the

language,

by

the

subject

matter,
10

and

the

condition

and

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relation of the parties.”

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Worrie v. Boze, 62 S.E.2d 876, 880

(Va. 1951) (emphasis added; internal quotation marks omitted);
see Flippo, 547 S.E.2d at 226 (“[I]ntent is to be determined
from

the

language

employed,

surrounding

circumstances,

the

occasion, and apparent object of the parties.” (emphasis added;
internal quotation marks omitted)).

In our view, the district

court failed to properly consider the “object and purpose” of
the

insurance

policy

when

determining

the

meaning

of

“unauthorized act” in the HOF Exclusion.
The object and purpose of the contract in this case is
clear.

The

contract

is

a

professional

liability

insurance

policy that protects Global from liability for certain losses
caused by Global while performing real-estate-related services
in its capacity as an agent.

“Authority,” the focus of the

district court’s analysis, is of course a critical concept in
the

law

another,

of

agency

there

relationship,

is

-no

however,

absent
agency

authority

to

act

relationship.

questions

about

on

Within

liability

simple “authority,” but on scope of authority.

behalf
an

turn

of

agency
not

on

The principal is

liable for the actions of the agent committed within the scope
of

authority,

but

agent’s authority.

not

for

actions

outside

the

scope

of

the

See, e.g., Allen Realty Corp. v. Holbert,

318 S.E.2d 592, 596 (Va. 1984) (“[A] principal is liable to
third

persons

for

wrongful

acts
11

an

agent

commits

within

the

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scope of his employment, even if the principal does not approve
or know of the misconduct . . . .”); Kern v. Freed Co., 299
S.E.2d 363, 364 (Va. 1983) (“If the agent exceeds his authority,
the principal is not bound by the agent’s acts.”).
Because liability in the agency context -- the very risk
addressed by the policy -- turns on the scope of the agent’s
authority, we believe that when the HOF Exclusion is considered
in light of the purpose and subject-matter of the policy, the
exclusion for losses caused by an “unauthorized act” must be
understood

as

referring

insured’s authority.

to

an

act

outside

the

scope

of

the

See London Guar. & Accident Co. v. C.B.

White & Bros., 49 S.E.2d 254, 259 (Va. 1948) (explaining that
insurance policy must be “construed in the light of the subject
matter

with

which

the

parties

are

dealing

and

the

words

or

phrases of the policy should be given their natural and ordinary
meaning as understood in the business world.” (emphasis added));
accord State Farm Mut. Auto. Ins. Co. v. Powell, 318 S.E.2d 393,
397 (Va. 1984).

We believe this to be the most natural reading

of the policy -- so construed, the policy imposes obligations on
the insurer that track those of an agent’s principal.

Just as

the principal would be liable for the wrongful act of his agent
committed within the scope of the agent’s authority but not for
acts

outside

the

scope

of

authority,

the

policy

provides

coverage for wrongful acts committed within the scope of the
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insured’s authority but not for acts committed outside the scope
of the insured’s authority.
Accordingly, the HOF Exclusion, as we conclude it must be
interpreted, precludes coverage for claims of loss caused by any
act outside the scope of the insured’s authority that deprives
an

owner

of

the

use

of

its

funds.

The

question,

then,

is

whether the allegations in First Tennessee’s complaint clearly
and unambiguously establish that Global’s actions exceeded the
scope of its authority as closing agent such that coverage for
the claim is barred by the HOF Exclusion.
Neck

Ins.

Co.,

effective,

the

427

S.E.2d

193,

exclusionary

196

See Floyd v. Northern
(Va.

language

1993)

must

(“[T]o

clearly

be
and

unambiguously bring the particular act or omission within its
scope.”).
Under

Virginia

law,

an

“act

need

not

be

expressly

or

impliedly directed by the employer in order for the act to occur
within the scope of the employment.

Similarly, an act committed

in violation of an employer’s direction is not always beyond the
scope of the employment.”

Gina Chin & Assocs. v. First Union

Bank, 537 S.E.2d 573, 579 (Va. 2000).
Whether an agent acted within the scope of his authority
turns not on whether the particular act at issue -- often a tort
committed by the agent -– is “within the scope of the agent’s
authority,

but

[on]

whether

the
13

service

itself

in

which

the

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tortious

act

authority.”

Filed: 12/21/2012

was

done

was

.

Pg: 14 of 17

.

.

within

the

scope

of

such

Broaddus v. Standard Drug Co., 179 S.E.2d 497, 503

(Va. 1971) (emphasis added; internal quotation marks omitted).
Under this standard, negligent and even willful and malicious
acts of an agent are not necessarily outside the scope of the
agent’s authority.

See Allen Realty Corp., 318 S.E.2d at 597

(“[A]

liable

principal

is

for

negligent

acts

that

its

agent

commits within the scope of his employment.”); Commercial Bus.
Sys., Inc. v. Bellsouth Servs., Inc., 453 S.E.2d 261, 266 (Va.
1995) (employee’s “willful and malicious acts” done to advance
his

self-interest

were

not

“conclusively”

outside

scope

of

employment because the acts were committed while the employee
was performing his duties and “in the execution of the services
for which he was employed”).
In this case, First Tennessee asserted only a negligence
claim

against

Global.

First

Tennessee

did

not

allege

that

Global’s actions were unauthorized or that Global acted outside
the scope of its authority as closing agent, nor are there any
other factual allegations in the complaint that would permit
this court to conclude, as a matter of law, that the transfer
was outside the scope of Global’s authority.
Assocs.,

537

S.E.2d

at

577

(listing

See Gina Chin &

factors

relevant

to

determination of whether given action was within the scope of
employment).

Because a negligent act by an agent may still be
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an act within the scope of the agent’s authority, see Allen
Realty Corp., 318 S.E.2d at 597, we agree with Appellants that
the

HOF

Exclusion

thus

does

not

clearly

and

unambiguously

encompass the conduct alleged in First Tennessee’s complaint.
See Floyd, 427 S.E.2d at 196.
St. Paul, however, argues that while the duty to defend is
broad, the insured cannot create coverage by inventing scenarios
not alleged in the complaint that theoretically could be covered
by the policy.

And in St. Paul’s view, because the complaint

does not allege that Global was attempting to return the funds
to First Tennessee when it transferred them to FMI, Global’s
claim

that

it

negligently

performed

an

authorized

act

is

inconsistent with the allegations of the complaint and does not
trigger St. Paul’s duty to defend.

We disagree.

Although the complaint does not include details about how
or why the transfer occurred, First Tennessee had no obligation
to include any such additional details in its complaint.

The

allegations in the amended complaint were sufficient to support
First Tennessee’s negligence claim: that Global had a duty to
protect First Tennessee’s interest in the funds and to return
the unused funds to First Tennessee; that Global breached that
duty

by

returning

the

funds

to

FMI

instead;

and

that

First

Tennessee suffered damages from Global’s breach of its duties.
See McGuire v. Hodges, 639 S.E.2d 284, 288 (Va. 2007) (listing
15

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elements of negligence claim).
complaint

could

negligence,

and

“without
the

Pg: 16 of 17

The allegations of the amended

amendment”

allegations

trigger St. Paul’s duty to defend.

support

are

a

for

sufficient

therefore

judgment

to

Parker v. Hartford Fire Ins.

Co., 278 S.E.2d 803, 804 (Va. 1981) (per curiam).
B.
Upon

concluding

that

coverage

was

barred

by

the

HOF

Exclusion, the district court held that St. Paul had no duty to
defend Global or indemnify Global for any judgment that might be
entered against it.

Because the allegations of the complaint

do not establish the applicability of the HOF Exclusion as a
matter

of

law,

the

district

court’s

indemnification issue was premature.

ruling

on

the

If the evidence in First

Tennessee’s action shows that Global’s actions were outside the
scope of Global’s authority as closing agent, St. Paul will have
no

obligation

to

indemnify

Global

for

the

judgment.

The

possibility that St. Paul might not ultimately be responsible
for

the

judgment,

however,

has

no

effect

on

St.

Paul’s

obligation to defend Global against First Tennessee’s claims.
See Virginia Elec. & Power, 475 S.E.2d at 266 (“[T]he obligation
to defend is not negated merely by the unsuccessful assertion of
a claim otherwise facially falling within the risks covered by
the policy. . . .

The insurer has the obligation to defend the

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insured in such circumstances even though the obligation to pay
is not ultimately invoked.”).

III.
For

the

reasons

discussed

above,

we

hold

that

the

allegations of First Tennessee’s complaint create a possibility
of

coverage

under

the

policy’s

insuring

clause

and

do

unambiguously fall within the scope of the HOF Exclusion.

not
The

district court therefore erred in concluding that St. Paul had
no duty to defend or indemnify Global against First Tennessee’s
claims.

Accordingly, we vacate the district court’s judgment

relieving St. Paul of its duty to defend and indemnify Global,
and we remand the case to the district court.

Upon resolution

of First Tennessee’s action against Global, the indemnification
issue will be ripe for reconsideration by the district court.

VACATED AND REMANDED

17