Fidelity National Title Insurance Company v. Houston Casualty Company
Filing
56
ORDER denying 22 Motion for Summary Judgment; granting 26 Motion for Summary Judgment; and directing Clerk to enter judgment and close the file. Signed by Judge John Antoon II on 09/28/2012. (EK)
UNITED STATES DISTRICT COURT
M IDDLE D ISTRICT
OF
F LORIDA
O RLANDO D IVISION
FIDELITY NATIONAL TITLE INSURANCE
COMPANY,
Plaintiff,
-vs-
Case No. 6:11-cv-1438-Orl-28DAB
HOUSTON CASUALTY COMPANY,
Defendant.
______________________________________
ORDER
This matter is an insurance coverage dispute between Plaintiff, Fidelity National Title
Insurance Company (“Fidelity”), and Defendant, Houston Casualty Company (“Houston”).
Fidelity filed a one-count Complaint (Doc.1) for breach of contract, alleging that Houston
failed to defend or indemnify Fidelity’s policy-issuing agent as allegedly required by a
Houston professional liability insurance policy. In its Answer (Doc. 11), Houston asserted a
counterclaim seeking a declaration that it had no duty to defend or indemnify Fidelity’s policyissuing agent.1 The case is currently before the Court on the parties’ cross-motions for
summary judgment (Docs. 22 & 26).2 As set forth below, Fidelity’s motion is denied and
1
In the alternative, Houston requested a judgment declaring that its policy is subject
to rescission. (See Doc. 11 at 14). In light of the rulings in this Order, Houston’s alternative
request regarding rescission has been rendered moot.
2
The pertinent filings are: (1) Fidelity’s Motion for Summary Final Judgment (Doc. 22);
(2) Houston’s Response to Fidelity’s Motion for Summary Judgment and Cross-Motion for
Summary Judgment (Doc. 26); (3) Fidelity’s Reply to Houston’s Response to Fidelity’s Motion
for Summary Judgment (Doc. 28); and (4) Fidelity’s Response to Houston’s Cross-Motion for
Houston’s motion is granted.
I. Background
At all times relevant hereto, non-party Perkins Real Estate Services, Inc. (“Perkins”)3
was in the business of providing title insurance and escrow services in connection with real
estate transactions. (DeLeo Aff., Doc. 42, ¶ 2). Pursuant to an Issuing Agency Agreement
(“IAA”), Perkins was an authorized title insurance policy-issuing agent of Fidelity. (See
DeLeo Aff. ¶ 2; IAA, Ex. B to Doc. 26). The IAA provided that if Fidelity was required to pay
a title insurance claim due to the negligence of Perkins, Perkins would be required to
reimburse Fidelity therefor. (See IAA at 2 (“Allocation of Losses”) and 4 (definition of
“Loss”)). The IAA also required Perkins to carry errors and omissions liability insurance.
(See id. at 5).
In late October 2008, Perkins applied for and obtained a Professional Liability Errors
& Omissions Insurance Policy (“the Policy”) from Houston. The Policy is a claims-made
policy with a policy period of November 1, 2008 to November 1, 2009 and a retroactive date
of November 4, 2003. (Policy, Ex. A. to Doc. 26) Subject to certain exclusions, the
“Coverage” portion of the Policy provides that Houston “shall pay on behalf of [Perkins] any
Loss and Claim Expenses . . . as [Perkins] . . . shall become legally obligated to pay for Claim
or Claims first made against [Perkins] during the Policy Period by reason of any Wrongful Act
Summary Judgment (Doc. 29). Additionally, with permission of the Court, (see Docs. 47 &
51), Houston has filed a Supplemental Response (Doc. 52) and Fidelity has filed a Response
(Doc. 53) thereto.
3
Perkins did business under the name “Fidelity Land Title and Escrow” but is referred
to herein as Perkins.
-2-
by [Perkins] provided always that [Perkins] has no knowledge of such Wrongful Act prior to
the Inception Date of this Policy and further provided that such Wrongful Act took place
subsequent to the Retroactive Date.” (Id.).
Two years earlier, on November 1, 2006, Perkins handled the closing of a $225,000
real estate transaction involving undeveloped land on Dean Road in Orlando, Florida. The
seller in that transaction was Jose A. Ramos (“Ramos”), and the purchaser was Classic
Construction, Inc. (“Classic”).
In connection with that transaction, a title search was
performed and a title insurance policy was issued by Fidelity to Classic. The chain of title
included a quitclaim deed from Corina Altagracia Costa-Cruz (“Costa-Cruz”) to Ramos that
was notarized on August 8, 2005 and recorded in the public records more than a year
later—on August 11, 2006. The sale from Ramos to Classic was via a general warranty
deed that was signed at the November 1, 2006 closing and recorded in the public records
on November 8, 2006; that deed is notarized by Shannon Hobbs (“Hobbs”), a Perkins
employee.
One month after the closing, in a letter to Perkins and Hobbs dated December 1,
2006, an attorney for the son of Costa-Cruz asserted that Costa-Cruz had not sold the
property to Ramos. (Dec. 1, 2006 Letter, Ex. 14 to Doc. 22). The attorney explained in the
letter that when Costa-Cruz did not receive her 2006 property tax bill for the Dean Road
property, her son inquired with the Orange County Property Appraiser regarding the bill. The
Property Appraiser provided Costa-Cruz’s son with copies of the quitclaim deed and the
general warranty deed. Costa-Cruz’s son advised that Costa-Cruz is a full-time resident of
Puerto Rico and was not in Orange County, Florida, on August 8, 2005 when the quitclaim
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deed was purportedly signed by her. Costa-Cruz denied signing the quitclaim deed; did not
know who Ramos was; did not know of either of the addresses listed as hers on the quitclaim
deed; and does not have a driver’s license—contrary to the notary’s indication on the
quitclaim deed that a driver’s license was presented by Costa-Cruz as identification.
After recounting these events in the letter, the attorney for Costa-Cruz’s son then
stated:
Thus, pursuant to the information provided to the
undersigned, [Costa-Cruz’s] signature on the Quit Claim Deed
purporting to vest title to the property in [Ramos] is an apparent
forgery, meaning that the Quit Claim Deed above described was
and is void ab initio and legally ineffective to transfer title . . . ,
and thus rendering the subsequent General Warranty Deed from
Mr. [Ramos] in favor of Classic Construction, Inc. . . . legally
ineffective as well.
...
[Costa-Cruz’s son] and [Costa-Cruz] reserve all rights and
remedies with respect to any and all parties responsible for the
wrongful execution, delivery, notarization and/or recording of any
instruments purporting to transfer, encumber or cloud title to [the]
property. Furthermore, [Costa-Cruz’s son] and [Costa-Cruz]
expect that parties responsible for the foregoing shall bear any
and all expenses associated with expunging instruments
wrongfully executed, delivered, notarized and/or recorded with
respect to [the] property from the Public Records, including,
without limitation, quieting title to the property, and that said
responsible parties shall be liable for any and all damages
suffered and incurred by [either of them] . . . .
(Dec. 1, 2006 Letter at 2) (emphasis removed). The attorney demanded that Classic
immediately vacate the property. (Id.).
On December 4, 2006, Perkins sent the December 1, 2006 letter to Fidelity, referring
to it as “a claim letter that we received . . . claiming that a quit claim deed in the chain of title
was forged.” (Ex. E to Doc. 26). Fidelity acknowledged receipt of the letter and informed
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Perkins that Fidelity employee Stacey Alfonso would be handling the matter. (Ex. G to Doc.
26).
In 2007, an action to quiet title to the property was filed by or on behalf of Classic.4
During that litigation, Zindia Mendoza (“Mendoza”), the notary who had notarized the
quitclaim deed from Costa-Cruz to Ramos on August 8, 2005, acknowledged in her
deposition that in fact she had never met Costa-Cruz; that she never witnessed Costa-Cruz’s
signature; and that she was never presented with identification of Costa-Cruz but only a
driver’s license of Ramos. In light of this testimony, Classic abandoned its claims to the
Dean Road property, and Fidelity—pursuant to the title insurance policy it had issued to
Classic—paid the policy limits of $225,000 to Classic.
Later in 2007, Fidelity filed a lawsuit in state court against Mendoza and the law firm
by which she was employed, alleging that their negligence caused Fidelity to have to pay its
policy limits to Classic.5 In November 2008, as part of that lawsuit, the law firm filed a thirdparty complaint against Perkins and its employee, Shannon Hobbs, for negligence. (Ex. I to
Doc. 26). The law firm alleged that Perkins had “insured and closed the subject transaction
while having knowledge of information that if investigated would have disclosed the alleged
wrongdoing of Mendoza and Ramos.” (Id. at 4).
On December 29, 2008, Fidelity, through counsel, sent Perkins a letter recounting the
4
Case No. 07-CA-2002 in the Circuit Court of the Ninth Judicial Circuit Court for
Orange County, Florida.
5
Case No. 07-CA-0017585-O in the Circuit Court of the Ninth Judicial Circuit for
Orange County, Florida.
-5-
course of the litigation, noting that Perkins was alleged to have acted negligently, and
demanding that Perkins pay Fidelity its unsatisfied damages. (Dec. 29, 2008 Letter, Ex. J
to Doc. 26).6 In a letter dated December 31, 2008, Perkins advised Houston7 of Fidelity’s
claim against Perkins, enclosing a copy of the December 29 letter. (Ex. K to Doc. 26). Five
days later, on January 5, 2009, Perkins sent Houston another letter and a copy of the thirdparty complaint that had been filed against it by Mendoza and the law firm. (Ex. 4 to Doc.
22).
On January 23, 2009, Houston informed Perkins that it had received the demand letter
from Fidelity to Perkins and the third-party complaint filed by the law firm and Mendoza
against Perkins and had “determined that it has no obligation under the Policy either to
defend or indemnify [Perkins] and/or Shannon Hobbs in connection with” that matter. (Ex.
5 to Doc. 22). The denial cited several policy provisions and expressly denied coverage on
the basis that Perkins had knowledge of the “Wrongful Acts” at issue prior to the November
1, 2008 inception date of the policy. (See id. at 3-6). The denial letter also noted two “No”
answers on Perkins’s insurance application regarding Perkins’s knowledge of acts, errors,
omissions, or claims. (See id. at 6). A week later, Perkins asked Houston to reconsider its
position, (see Ex. 6 to Doc. 22), but in a letter dated March 11, 2009, Houston maintained
6
As noted in that letter, Fidelity was also required to pay—in addition to the $225,000
policy limits—fees and costs of more than $40,000.00, but as of that time Fidelity had been
able to recover $7,500.00 from Mendoza’s notary bond; Fidelity thus demanded $257,500.00
from Perkins. (Ex. J to Doc. 26 at 3-4).
7
Perkins reported the claim to Houston’s agent, Professional Indemnity Agency, Inc.
“PIA”); thus, it is PIA’s name that appears on the correspondence in the record.
-6-
its denial of coverage, (see Ex. 7 to Doc. 22).
On March 23, 2011—two years after Houston’s last denial of coverage—Fidelity filed
an Amended Complaint in its state-court lawsuit, adding Perkins as a defendant. (Ex. 8 to
Doc. 22). Fidelity alleged that Perkins—by failing to discover that Costa-Cruz’s signature on
the quitclaim deed was a forgery and that Ramos did not actually own the property—had
breached the IAA and had acted negligently. (Id.). On March 31, 2011, Perkins forwarded
the Amended Complaint to Houston and demanded that Houston defend and indemnify it in
that suit. (Ex. 9 to Doc. 22). In a letter dated May 10, 2011, Houston “continue[d] its position
that it does not have a duty or obligation to defend or indemnify” Perkins. (Ex. 10 to Doc.
22).
Fidelity, Perkins, and the notary’s law firm entered into a settlement agreement on
May 24, 2011. (See Ex. O to Doc. 26). In that document, Perkins agreed to the entry of a
consent judgment and Fidelity agreed not to execute upon that judgment in consideration for
Perkins’s assignment to Fidelity of Perkins’s rights and interests in its insurance contract with
Houston. (Settlement Agreement at 2). The consent judgment was signed by the state court
judge on June 13, 2011, (see Ex. O to Doc. 26), and Fidelity filed this lawsuit against
Houston on August 29, 2011, (Compl., Doc. 1).8
II. Summary Judgment Standards
“The court shall grant summary judgment if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
8
As stated in the Complaint, “Fidelity brings this action in its own name [and] as
assignee of the insured, Perkins, and is otherwise the real party in interest.” (Doc. 1 at 5).
-7-
Fed. R. Civ. P. 56(a). In ruling on a motion for summary judgment, the Court construes the
facts and all reasonable inferences therefrom in the light most favorable to the nonmoving
party. Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000). “Summary
judgment is appropriate ‘in declaratory judgment actions seeking a declaration [as to
insurance coverage] when the insurer’s duty, if any, rests solely on the applicability of the
insurance policy, the construction and effect of which is a matter of law.’” TIG Ins. Co. v.
Smart Sch., 401 F. Supp. 2d 1334, 1337 (S.D. Fla. 2005) (quoting Northland Cas. Co. v.
HBE Corp., 160 F. Supp. 2d 1348, 1358 (M.D. Fla. 2001)).
“Cross motions for summary judgment do not change the standard.” Latin Am. Music
Co. v. Archdiocese of San Juan of the Roman Catholic & Apostolic Church, 499 F.3d 32, 38
(1st Cir. 2007). “Even where the parties file cross motions pursuant to Rule 56, summary
judgment is inappropriate if disputes remain as to material facts.” Christian Heritage Acad.
v. Okla. Secondary Sch. Activities Ass’n, 483 F.3d 1025, 1030 (10th Cir. 2007).
III. Discussion
In its motion, Houston makes three arguments for summary judgment in its favor, and
in its motion Fidelity makes one. Each party claims entitlement to judgment on the issue of
denial of coverage based on “No” answers Perkins gave to questions on its application for
the Policy. Houston additionally asserts that Perkins had knowledge of the subject “Wrongful
Act” prior to the inception date of the Policy and that the “Claim” was not first made against
Perkins during the policy period. These issues are addressed in turn.
A. Application Condition
Houston asserts that two “No” answers that Perkins made on its insurance application
-8-
were incorrect and material and therefore bar coverage. Fidelity counters that the answers
were not misrepresentations and do not avoid coverage. Houston’s position has merit and
entitles it to summary judgment.
On the application that was completed by Perkins on October 23, 2008, Perkins
answered “No” to Questions 21 and 22: “21. Does any person to be insured have
knowledge or information of any act, error or omission which might reasonably be expected
to give rise to a claim against him/her[?]” and “22. After inquiry have any claims been made
against any proposed insured(s) during the past three (3) years?” (Application for Insurance,
Ex. C to Doc. 26, at 4). Beneath these questions, the application stated: “It is understood
and agreed that with respect to questions 20, 21 and 22 above, that if such knowledge or
information exists any claim or action arising therefrom is excluded from this proposed
coverage.” (Id.) (emphasis removed). Moreover, one of the express “Conditions” in the
Policy provides:
Application
By acceptance of this Policy, [Perkins] agree[s] that the
statements in the application are personal representations, that
they shall be deemed material and that this Policy is issued in
reliance upon the truth of such representations and that this
Policy embodies all agreements existing between [Perkins] and
[Houston] or any of their agents relating to this insurance.
(Policy at 8).
Fidelity contends that Perkins did not make a misstatement on the insurance
application, asserting that as of the date of the application Perkins had no “knowledge or
information of any act, error or omission which might reasonably be expected to give rise to
a claim.” This contention is rejected. Fidelity focuses on what Perkins actually believed
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about whether a claim would be made against it, but such a subjective test applies only to
the “knowledge” aspect of the application question, while an objective test applies to the
“might reasonably be expected to give rise to a claim” component. Maher & Williams v. ACE
Am. Ins. Co., Civ. No. 3:08cv1191(JBA), 2010 WL 3546234, at *11 (D. Conn. Sept. 3, 2010)
(“Courts applying prior-knowledge exclusions to claims-made insurance policies use ‘a twopart, subjective-objective test’ to determine whether the exclusion bars coverage for a
particular claim, asking ‘first, whether the insured had actual knowledge of a [wrongful act],
a subjective inquiry; and second, whether a reasonable professional in the insured’s position
might expect a claim or suit to result, an objective inquiry.”(alteration in original) (emphasis
removed)); accord Ulster Cnty. v. CSI, Inc., 945 N.Y.S.2d 480, 482 (App. Div. 2012); see
also Cuthill & Eddy, LLC v. Cont’l Cas. Co., 784 F. Supp. 2d 1331, 1337 (M.D. Fla. 2011)
(“Courts routinely affirm the denial of coverage where an insurance policy contains an
unambiguous ‘prior knowledge’ provision and where an insured has knowledge, prior to the
effective date of the policy, of acts or omissions that might reasonably provide the basis for
a claim.”); Coregis Ins. Co. v. McCollum, 961 F. Supp. 1572, 1579 (M.D. Fla. 1997).9 These
tests are met in this case; the record evidence demonstrates that as of October and
November 2008 Perkins knew of its actions surrounding the Dean Road property transaction
and as an objective matter, those actions might reasonably be expected to give rise to a
claim.
9
Some of the cases cited discuss “prior knowledge” policy provisions or exclusions
rather than “prior knowledge” application questions, but the Court finds the analysis equally
applicable. Moreover, as noted in the next section of this Order the “application condition”
issue overlaps with the “knowledge of wrongful acts” provision raised by Houston.
-10-
As evidenced by Perkins’s own file notes, on October 12, 2006—nearly two years
prior to the inception of the Policy and three weeks before the November 1, 2006 closing on
the Dean Road property—a Perkins employee named Rachel had spoken to a Fidelity
underwriting employee, David Morgan, and was told that “we [Perkins] need to call [CostaCruz] and make sure that she really did sign the deed to Jose Ramos.” (Ex. F to Doc. 26).
The content of those notes is corroborated by the deposition of Morgan, which was taken
during Fidelity’s lawsuit against the notary and law firm,10 and by Morgan’s own notes of the
October 12 conversation with Rachel. (Morgan Dep., Doc. 25, at 13-15; Morgan’s File Notes,
Ex. E to Doc. 25).
Morgan explained that his job duties include responding to questions from policyissuing agents about the circumstances under which Fidelity will issue title-insurance policies.
(Doc. 25 at 8). Agents may contact Fidelity and ask Morgan about problems or concerns that
they have, and that is what occurred when the Perkins employee named Rachel contacted
him on October 12, 2006. (Id. at 13-14). Rachel told Morgan that there was a recent
quitclaim deed for no consideration, and Morgan’s notes state: “need confirmation of
signature on recent [quitclaim] deed.” (Id. at 15; Morgan’s Notes, Ex. E to Doc. 25, at 2).
10
Another deposition of Morgan was taken during this case and was submitted by
Houston—with permission of the Court, (see Docs. 47 & 51)—as supplemental material after
the parties’ summary judgment filings had been made. (Ex. B to Doc. 52). Morgan’s
testimony in the second deposition is consistent with his testimony in the prior deposition,
which was filed in this case by Fidelity with its summary judgment motion; Morgan’s second
deposition will not be separately discussed. Houston also submitted as supplemental
material the deposition of Mary Oswald, an assistant vice president of Fidelity. (Ex. A to Doc.
52). Her testimony is also consistent with Morgan’s testimony on the points noted in the text,
and her deposition need not be separately discussed.
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He instructed Perkins to try to contact Costa-Cruz. (Doc. 25 at 35).
As explained by Morgan, the deed from Costa-Cruz to Ramos was a recently recorded
quitclaim deed for no consideration; it was seemingly not signed pursuant to a sale closing;
it was recorded a year after it was signed; and it was purportedly signed in Florida by an outof-state resident. (Id. at 25-28). These circumstances would lead him to tell an issuing agent
to verify that the grantor actually signed the deed, because they are the type of
circumstances that are suggestive of a fraudulent deed. (Id. at 25).11
In addition to this evidence of discussions between Perkins and Fidelity regarding
concern about the deed from Costa-Cruz to Ramos, it is also undisputed that Perkins
received the December 1, 2006 letter from Costa-Cruz’s son’s attorney and forwarded that
letter to Fidelity on December 4, 2006.
(See Ex. E to Doc. 26).
Attached to that
correspondence to Fidelity are internal Perkins emails from early December 2006 in which
Hobbs was asked whether she recalled if she had contacted Costa-Cruz as Fidelity had
instructed; Hobbs responded that she did not recall contacting Costa-Cruz but that many
Perkins employees were involved in the Dean Road property file. (Attach. to Ex. E to Doc.
26).
Furthermore, on December 27, 2006, Perkins’s director and president, Karen DeLeo12
11
Morgan explained that Fidelity provides an underwriting manual, seminar materials,
bulletins, and checklists to its policy-issuing agents. (Doc. 25 at 11, 20). Among these
materials are bulletins that alert agents to indicators of potentially forged deeds, including the
circumstances noted in the text. (See Ex. J to Doc. 25).
12
DeLeo’s name was Karen Perkins back in 2006, but she has since married and
changed her name. (See DeLeo Aff. ¶ 1).
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(“DeLeo”), spoke to Stacey Alfonso—the Fidelity employee who was handling the matter
regarding the December 1, 2006 letter that Perkins had forwarded to Fidelity, (see Dec. 7
Letter, Ex. G to Doc. 26)—and made notes of that conversation. (See DeLeo Aff. ¶ 15). In
those notes, DeLeo indicated that Alfonso told her that an investigator was being hired to
research all of the information and that Alfonso even suggested that Perkins’s closer might
be involved—a suggestion with which DeLeo disagreed. (Ex. 15 to Doc. 22, entry for
12/27/06; see also DeLeo Aff. ¶ 16). DeLeo also mentioned in her notes that Alfonso “feels
that [Fidelity] will have to pay the [title insurance] policy limits on this claim” and that Alfonso
“[s]aid she’s not sure that a phone call to verify the signing of the [quitclaim deed] would have
helped.” (Ex. 15 to Doc. 22, entry for 12/27/06). In a note dated March 25, 2008, DeLeo
indicated that Fidelity had paid the claim and was going to go after the notary’s law firm. (Id.,
entry for 03/25/08).
Thus, unquestionably, as of October 2008 Perkins knew: that the deed from CostaCruz to Ramos was a forgery; that Costa-Cruz was seeking to hold “those responsible”
accountable for the cloud on title; that Perkins had been told by Fidelity to confirm CostaCruz’s signature on the deed prior to closing but that there was no evidence in Perkins’s file
of that confirmation ever occurring; and that Fidelity had paid its title insurance policy limits
to Classic because of the title defect. Additionally, Perkins knew that the IAA between it and
Fidelity required Perkins to comply with Fidelity’s manuals, instructions, and bulletins in
conducting its title agent services and that it also obligated Perkins to reimburse Fidelity for
title insurance policy payouts that were caused by the negligence of Perkins.
This
undisputed evidence demonstrates that Perkins “had knowledge or information of an[] act,
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error or omission which might reasonably be expected to give rise to a claim against”
Perkins. Thus, Houston did not improperly decline to cover this claim.
Fidelity attempts to avoid this result by arguing that as evidenced by the emails and
file notes sent by Perkins to Fidelity in early December 2006, “Perkins made no secret” about
its actions, yet Fidelity did not at that time take issue with Perkins’s possible failure to contact
Costa-Cruz. (See Pl.’s Resp. Mem., Doc. 29, at 16; Pl.’s Resp. to Def.’s Supplemental
Resp., Doc. 53, at 4). Fidelity contends that the “key circumstances in this matter are . . .
when Fidelity first decided it would sue Perkins” and whether “Perkins had a reasonable
expectation that Fidelity would make a claim against it.” (Doc. 53 at 2-3). Additionally,
Fidelity notes that prior to 2008 it was not Fidelity’s practice to sue its agents. (See id. at 3
(citing Oswald Dep., Ex. A to Doc. 52, at 53-54); see also Doc. 25 at 24)).
Fidelity’s arguments miss the mark. The salient question is not whether Perkins tried
to keep its actions “secret” from Fidelity, whether it expected that Fidelity would bring a claim
against it for negligence or breach of the IAA, or whether Fidelity’s usual practice was not to
sue its policy-issuing agents on such claims. See Coregis, 961 F. Supp. at 1579 (noting that
the fact that law firm’s client had not considered filing a malpractice claim against the firm
prior to the effective date of liability policy was not relevant to question of whether firm had
knowledge of potential of claim being filed by that client). The issue is whether Perkins was
aware before the Policy period of its actions surrounding the quitclaim deed that had resulted
in Fidelity have to pay its title policy limits to Classic and whether those actions would provide
an objective basis to believe that a claim could arise. Without question, Perkins had such
knowledge, and without question Perkins’s actions provided an objective basis to believe that
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a claim could arise. See, e.g., Cuthill & Eddy, LLC, 784 F. Supp. 2d at 1343 (noting, in
finding that prior knowledge exclusion barred coverage, that “regardless of the subjective
beliefs Plaintiffs claim now to have held, the language of the [policy] precludes coverage for
the . . . claim because several insureds objectively ‘had a basis to believe’ that the [acts or
omissions at issue] ‘might reasonably be expected to be the basis of a claim’ prior to the
inception date of the policy”).
Moreover, under Florida law a representation on an application need not be fraudulent
or intentional to serve as a basis for nonrecovery under an insurance policy. A state
statute—section 627.409, Florida Statutes13—and judicial decisions applying it make clear
that even unintentional misstatements on an application may bar recovery. See, e.g., Cont’l
Assur. Co. v. Carroll, 485 So. 2d 406, 409 (Fla. 1986) (“The plain meaning of [section
13
This section provides in part:
Any statement or description made by or on behalf of an insured or annuitant in an
application for an insurance policy or annuity contract, or in negotiations for a policy or
contract, is a representation and is not a warranty. A misrepresentation, omission,
concealment of fact, or incorrect statement may prevent recovery under the contract or policy
only if any of the following apply:
(a) The misrepresentation, omission, concealment, or statement is
fraudulent or is material either to the acceptance of the risk or to the hazard
assumed by the insurer.
(b) If the true facts had been known to the insurer pursuant to a policy
requirement or other requirement, the insurer in good faith would not have
issued the policy or contract, would not have issued it at the same premium
rate, would not have issued a policy or contract in as large an amount, or
would not have provided coverage with respect to the hazard resulting in the
loss.
§ 627.409(1), Fla. Stat.
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627.409] indicates that, where either an insurer would have altered the policy’s terms had it
known the true facts or the misstatement materially affects risk, a nonintentional
misstatement in an application will prevent recovery under an insurance policy.”); accord
Kaufman v. Mut. of Omaha Ins. Co., 681 So. 2d 747, 750 n.5 (Fla. 3d DCA 1996) (“Under
[section 627.409], the insurer is not required to demonstrate fraud[] but only needs to show
a misrepresentation material to the risk assumed. Even a nonintentional misstatement can
bar recovery if material to the risk assumed.” (internal citation omitted)).
In sum, even though Perkins may not have actually believed that Fidelity would sue
it for negligence, Perkins was aware at the time of the insurance application of acts that could
reasonably be expected to give rise to a claim against it. Accordingly, the answer to
Question 21 and the application condition prevent recovery under the policy.14
B. Knowledge of Wrongful Act Prior to Inception of Policy
The Policy provides that coverage is afforded for losses that Perkins becomes “legally
obligated to pay for Claim or Claims first made against [Perkins] during the Policy Period by
reason of any Wrongful Act by an Insured provided always that the Insured has no
knowledge of such Wrongful Act prior to the Inception Date of this Policy.” Houston contends
in its second argument that Perkins had knowledge of the subject Wrongful Act prior to the
14
In addition to the “No” answer to Question 21, the “No” answer to Question 22 has
also been raised. That question, recounted in the text, asked whether any claims had been
made against Perkins in the three years prior to the application. The parties dispute whether
the December 1, 2006 letter from Costa-Cruz’s son’s attorney constituted a “claim” against
Perkins. Because the Court’s determination regarding the answer to Question 21 is sufficient
to bar coverage and to grant summary judgment for Houston, Question 22 will not be
separately addressed. See also section III.C. infra of this Order.
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Policy’s inception date and that therefore there is no coverage. This issue is largely
duplicative of the application condition issue discussed in the prior section, and it also
warrants grant of summary judgment in favor of Houston.
The Policy defines “Wrongful Act” as “any actual or alleged error or omission or
breach of duty committed or alleged to have been committed or for [sic] failure to render such
professional services as are customarily rendered in the profession of the insured.” (Policy
at 2). The Wrongful Act upon which the claims against Perkins were based is the failure of
Perkins to determine that the signature on the August 2005 quitclaim deed was forged
despite information in its possession that could have led it to ascertain that fact. As
discussed in the previous section, it is clear from the undisputed record evidence that Perkins
had knowledge of that Wrongful Act prior to the inception of the Policy. Thus, coverage is
also barred on this basis, and this provision supports a finding of no duty to defend or
indemnify by Houston.
C. Claim Not First Made During Policy Period
In he third argument of its motion, Houston asserts that the claim was not first made
against Perkins during the Policy period. As earlier noted, the Coverage provision of the
policy states in part that Houston will pay for losses that Perkins becomes legally obligated
to pay for “Claims first made against the Insured during the Policy Period by reason of any
Wrongful Act.” Houston argues that the Claim that resulted in the consent judgment was not
first made against Perkins during the Policy Period—November 1, 2008 to November 1,
2009—but instead was made in December 2006 when Costa-Cruz’s son’s attorney sent the
letter to Perkins asserting that the quitclaim deed contained a forged signature. Fidelity
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responds that Houston has never previously asserted this reason for denying coverage and,
citing case law, argues that Houston therefore is estopped from now doing so for the first
time. Fidelity also contests this point on the merits.
Houston did not file a reply to Fidelity’s response to Houston’s cross-motion for
summary judgment despite having the opportunity to do so. Review of Houston’s denial
letters reflects that Fidelity is correct that Houston did not cite this basis for denying
coverage. Because Houston’s other two arguments are dispositive of this case, the Court
will not delve into this issue in detail but concludes that Houston has not established
entitlement to summary judgment on this basis.
IV. Conclusion
In accordance with the foregoing, it is ORDERED and ADJUDGED as follows:
1. The Motion for Summary Final Judgment (Doc. 22) filed by Fidelity National Title
Insurance Company is DENIED.
2. The Motion for Summary Judgment (Doc. 26) filed by Houston Casualty Company
is GRANTED. Houston Casualty Company has established that it is not liable on Fidelity’s
claim for breach of contract and that it is entitled to prevail on its counterclaim for a
declaratory judgment of no duty to defend or indemnify its insured in the underlying state
court lawsuit.
3. The Clerk is directed to enter judgment providing that Plaintiff, Fidelity National
Title Insurance Company, shall take nothing on the claim in its Complaint and that Defendant,
Houston Casualty Company, has prevailed on its Counterclaim seeking a declaratory
judgment that Defendant had no duty to defend or indemnify its insured—Perkins Real Estate
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Services, Inc.—with regard to the claims asserted against Perkins in Case No. 07-CA0017575-O in the Circuit Court of the Ninth Judicial Circuit for Orange County, Florida.
Thereafter, the Clerk shall close this file.
DONE and ORDERED in Orlando, Florida this 28th day of September, 2012.
Copies furnished to:
Counsel of Record
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