721 F.3d 958 (8th Cir. 2013), 12-1599, Lexington Ins. Co. v. Integrity Land Title Co., Inc.

Docket Nº:12-1599.
Citation:721 F.3d 958
Opinion Judge:MELLOY, Circuit Judge.
Party Name:LEXINGTON INSURANCE COMPANY, Plaintiff-Appellee v. INTEGRITY LAND TITLE CO., INC.; Integrity Disbursing, LLC, Defendants Fidelity National Financial, Inc., as Successor by Merger to Lawyers Title Insurance Corporation and Commonwealth Land Title Insurance Co., Intervenor defendants-Appellants.
Attorney:William L. Sauerwein, argued, Anne Johnston Kelly, on the brief, Saint Louis, MO, for Appellant. Lynn Wilson Hursh, argued, Gerald Anthony King, on the brief, Kansas City, MO, for Appellee.
Judge Panel:Before RILEY, Chief Judge, WOLLMAN and MELLOY, Circuit Judges.
Case Date:July 31, 2013
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit

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721 F.3d 958 (8th Cir. 2013)



INTEGRITY LAND TITLE CO., INC.; Integrity Disbursing, LLC, Defendants

Fidelity National Financial, Inc., as Successor by Merger to Lawyers Title Insurance Corporation and Commonwealth Land Title Insurance Co., Intervenor defendants-Appellants.

No. 12-1599.

United States Court of Appeals, Eighth Circuit.

July 31, 2013

Submitted: Nov. 15, 2012.

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William L. Sauerwein, argued, Anne Johnston Kelly, on the brief, Saint Louis, MO, for Appellant.

Lynn Wilson Hursh, argued, Gerald Anthony King, on the brief, Kansas City, MO, for Appellee.

Before RILEY, Chief Judge, WOLLMAN and MELLOY, Circuit Judges.

MELLOY, Circuit Judge.

This declaratory judgment action concerning an errors and omissions (" E & O" ) insurance policy is the sixth lawsuit arising from several real estate transactions. Defendants Integrity Land Title Co. and Integrity Disbursing, LLC (collectively " Integrity" ), issued title commitments, served as closing agents, disbursed construction funds, and sold title-insurance policies relating to certain real estate transactions. Intervenor Fidelity National Financial, Inc. (" Fidelity" ),1 issued the title-insurance policies and eventually paid substantial sums to settle claims on those policies. Plaintiff Lexington Insurance Company (" Lexington" ), issued the disputed E & O policy to Integrity and denied coverage to Integrity for claims arising from the real estate transactions.

In the present case, Lexington seeks a declaration that it owes Integrity neither coverage nor defenses under the E & O policy. Fidelity, who hopes to recover from Lexington as well as from Integrity, intervened and asserted that it, too, desired a declaration regarding coverage. Fidelity then reversed course and moved for a stay. Fidelity argued in its motion that the district court 2 should grant a stay and allow coverage issues to be decided in one of five pending state-court actions.

The district court denied Fidelity's motion for a stay and granted summary judgment to Lexington, finding no duty to provide coverage or defenses based upon the E & O policy. Fidelity appeals the denial of its motion for a stay as well as the grant of summary judgment. We affirm.

I. Background

The underlying events that gave rise to the claims on the Fidelity title-insurance policies and the Lexington E & O policy are material to understanding the issues in this case. Lexington's denials of coverage and the district court's substantive rulings

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depended in large part on the E & O policy's coverage dates, the dates on which underlying events occurred, the dates on which Integrity received notice of claims, and the dates on which Integrity provided notice of claims to Lexington. Accordingly, we describe below the E & O policy, the transactions, and the claims as relevant to resolution of this appeal.

A. The Lexington E & O Policy

Integrity applied for the E & O policy from Lexington in February 2008 and again in April 2008. Integrity's April 2008 application was the same as the February 2008 application, but with the February date crossed out and the April date written in. Based on the April 2008 application, Lexington issued a " claims made and reported" policy with a policy period from April 15, 2008, through July 15, 2009, and with a retroactive date of May 23, 2006. The policy provided $1 million in coverage as follows:

[Lexington] will pay on behalf of [Integrity] Damages for which [Integrity] becomes legally obligated to pay because of any Claim first made against [Integrity] during the Policy Period and reported in writing to [Lexington] pursuant to the terms of this policy, within the Policy Period, or to the extent applicable, the Basic or Extended Reporting Period. Such Damages must arise out of the actual or alleged Wrongful Act first committed on or after the Retroactive Date ... in the course of [Integrity's] rendering or failing to render Professional Services for others.

The policy contained a " Prior and Pending Litigation Exclusion" that excluded coverage for " any claim or litigation against any insured occurring prior to, or pending as of the inception date of this policy including (but not limited to) claims, demands, causes of action, legal or quasi-legal proceedings, decrees, or judgments" and " any subsequent litigation or claims arising from or based on substantially the same matters as alleged in the pleading of such prior or pending litigation." The policy also contained a " Prior Knowledge Exclusion" that excluded coverage for claims " based upon or arising out of any alleged act, error, omission or circumstance likely to give rise to a Claim that an Insured had knowledge of prior to the effective date of the this policy." Further, in the application for the policy, Integrity answered " no" to a question that asked if Integrity had knowledge of any acts, errors, or omissions that " might" give rise to a claim under the proposed policy. The policy application was expressly incorporated into and served as part of the policy. The application also warned that no coverage would extend to claims arising from such acts, errors, or omissions that Integrity had knowledge of prior to policy inception.

The policy defined " Related Claims" as " collectively all Claims involving the same Wrongful Act or Wrongful Acts which are logically or causally connected by any reason of any common fact, circumstance, situation, transaction event or decision." The policy imputed to a group of Related Claims the earliest notice date or claim-made date for any one of the Related Claims.

Finally, the policy disavowed any intention to create third-party beneficiaries and did not identify Fidelity as an additional insured entity. The policy application asked for the names of title-insurance firms for whom Integrity sold policies, and one of the companies Integrity disclosed was a predecessor to Fidelity. The policy, however, provided that no third party had the right to join an action by Integrity against Lexington and no third party had the right to sue Lexington on the policy. Finally, the policy provided that benefits were to be paid directly to parties injured by Integrity's wrongful acts and not to Integrity itself.

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B. The Transactions

Integrity performed title searches and issued title commitments on certain lakefront property as well as certain new home developments. The lakefront property at issue was sold to a first family, the Talleys, in October 2005. Integrity performed a title search and issued a title commitment to the Talleys at that time. The Talleys subsequently sold a portion of that property to a second family, the Gassens, in November 2006. Integrity performed a separate title search and provided other services to the Gassens in October and November 2006.

As to both the Talley and the Gassen title searches, Integrity failed to discover that a power company had obtained title through condemnation of land surrounding the lake up to an elevation contour of 665 feet. The title commitments Integrity issued for the Talleys and the Gassens purported to cover lakefront property from the 660-foot elevation contour and higher, thus erroneously characterizing the land actually conveyed to the Talleys and Gassens. Integrity also failed to identify other interests in the property held by additional third parties. When issuing title commitments to the Talleys and the Gassens, Integrity also sold to both families title-insurance policies underwritten by Fidelity. In this regard, Integrity was acting as Fidelity's agent. Fidelity eventually incurred substantial attorneys fees and expenses and paid substantial sums to the Talleys and Gassens due to the infirmities with their titles.

Later, from January 2007 through August 2008, Integrity issued title commitments and title-insurance policies covering fifty-nine different properties in residential developments being built by a firm named Bower & Bailey. In the title-insurance policies for the Bower & Bailey properties, Integrity failed to include exclusions from coverage for later-filed mechanics liens. In addition, before issuing title commitments, Integrity failed to investigate whether subcontractors had been paid. Further, Integrity acted as a disbursing agent for certain aspects of the development of these properties, was responsible for releasing some funds to contractors, and failed to obtain lien waivers prior to releasing those funds.

Bower & Bailey eventually failed, leaving subcontractors unpaid and leading to subcontractors' lawsuits and mechanics liens. Fidelity asserts that it paid over $1.5 million to satisfy claims and liens related to the Bower & Bailey developments and incurred hundreds of thousands of dollars in attorneys fees.

C. The Underlying Lawsuits and the Provision of Notice to Lexington

1. Bower & Bailey/Contemporary Flooring Litigation

On March 17, 2008, one of the unpaid subcontractors for the Bower & Bailey properties, Contemporary Flooring and Design, Inc. (" Contemporary Flooring" ), filed a lawsuit in Missouri state court against eighty-one defendants, including two parties identified as " Integrity Disbursing, LLC, Trustee" and " Integrity Land Title, Trustee" (the " Contemporary Flooring litigation" ). Contemporary Flooring presented separate claims in its complaint identifying separate parcels of property and naming different defendants as relevant to each parcel. The claims against Integrity named Integrity as a defendant only as the trustee of deeds of trust and sought determinations of priority of title as...

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