Hous. Specialty Ins. Co. v. Fontecilla, 20-20725-Civ-COOKE/GOODMAN

• Court: United States District Courts. 11th Circuit. United States District Courts. 11th Circuit. Southern District of Florida
• Writing for the Court: MARCIA G. COOKE UNITED STATES DISTRICT JUDGE
• Parties: HOUSTON SPECIALTY INSURANCE COMPANY, Plaintiff, v. DANIELA FONTECILLA, an individual; LAW OFFICES OF DANIELA FONTECILLA, P.A., a Florida corporation; and OLD REPUBLIC NATIONAL TITLE INSURANCE COMPANY, a Florida corporation, Defendants.
• Decision Date: 30 September 2021
• Docket Number: 20-20725-Civ-COOKE/GOODMAN

HOUSTON SPECIALTY INSURANCE COMPANY, Plaintiff,
v.
DANIELA FONTECILLA, an individual; LAW OFFICES OF DANIELA FONTECILLA, P.A., a Florida corporation; and OLD REPUBLIC NATIONAL TITLE INSURANCE COMPANY, a Florida corporation, Defendants.

No. 20-20725-Civ-COOKE/GOODMAN

United States District Court, S.D. Florida

September 30, 2021

ORDER DENYING IN PART AND GRANTING IN PART DEFENDANT OLD REPUBLIC NATIONAL TITLE INSURANCE COMPANY'S MOTION FOR SUMMARY JUDGMENT OR, IN THE ALTERNATIVE, MOTION TO DISMISS

MARCIA G. COOKE UNITED STATES DISTRICT JUDGE

THIS MATTER is before the Court on Defendant Old Republic National Title Insurance Company's Motion for Summary Judgment or, In the Alternative, Motion to Dismiss (the “Motion”) (ECF No. 43), filed September 11, 2020. Plaintiff Houston Specialty Insurance Company (“Plaintiff”) filed its response in opposition to the Motion on September 25, 2020. ECF No. 54. And Defendant Old Republic National Title Insurance Company (“Defendant” or “Old Republic”) filed its reply in support of the Motion on October 2, 2020. ECF No. 61. Accordingly, the Motion is ripe for adjudication.

The Court having reviewed the Motion, the briefing related thereto, the record, and the relevant legal authorities finds, for the reasons discussed below, that the Motion should be denied in part and granted in part.

Background

Through this action Plaintiff seeks a declaration of its rights and obligations with respect to providing defense and indemnification for Defendants Daniela Fontecilla (“Fontecilla”) and Defendant Law Offices of Daniela Fontecilla (the “Firm”) in a separate

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state court action (the “Underlying Lawsuit”).^[1] Plaintiff issued a Title Agents, Abstractors And Escrow Agents Errors And Omissions Liability Insurance policy, Policy Number TE01001550-02 (the “Policy”), to Daniela Fontecilla, P.A. and the Law Offices of Daniela Fontecilla P.A., which has a policy period from January 5, 2018 to January 5, 2019. ECF No. 1 at ¶ 11. Plaintiff is defending Fontecilla and the Firm in the Underlying Lawsuit subject to a reservation of rights under the Policy. Id. at ¶ 61.

Plaintiff attached the complaint filed in the Underlying Lawsuit as Exhibit B to its Complaint in this action.^[2] See ECF No. 1-3. In relevant part, Plaintiff summarizes the allegations and claims asserted in the Underlying Lawsuit as follows:

On October 25, 2019, Old Republic filed a lawsuit for damages against Fontecilla and the Firm in the Circuit Court of the Eleventh Judicial Circuit, in and for Miami-Dade County Florida styled Old Republic National Title Ins. Co. v Daniela Fontecilla, Law Offices of Daniela Fontecilla P.A., Case No. 2019-031646-CA-01. ECF No. 1 at ¶ 23. In the Underlying Lawsuit, Old Republic seeks recovery of damages against Fontecilla and the Firm arising out of closings on two loans on February 15, 2018 and March 13, 2018 for which Fontecilla and the Firm acted as the closing and escrow agent and the title policy issuing agent for Old Republic. Id. at ¶ 24. In its Complaint, Old Republic alleges that Fontecilla and the Firm were title policy issuing agents with limited authority to issue title commitment and policies on behalf of Old Republic for loans secured by real property in Florida. Id. at ¶ 25. Old Republic alleges that Fontecilla and the Firm “were not authorized to commit the company to

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risk in excess of $1m by issuing policies over that amount without prior authorization from Old Republic.” Id. at ¶ 26. The Complaint states that Fontecilla and the Firm served as the closing agent for the two loans with a private lender named TCM PP I, LLC (“TCM”) to be secured by real property located in Florida-referred to in Old Republic's Complaint as “the Bacon Loan” and “the V&H Loan”-which closed on February 15, 2018 and March 13, 2018, respectively. Id. at ¶ 27.

Old Republic alleges that Fontecilla and the Firm's duties in connection with the two loans included “obtaining properly executed loan documents by a person with authority to mortgage the subject real properties, verifying the identity of the borrower and mortgagor, and receiving and properly disbursing the loan proceeds.” Id. at ¶ 28. The Complaint states that TCM approved the loans and wired the funds to Fontecilla and the Firm to be held in trust pending further disbursement to the borrower and others. Id. at ¶ 29. Old Republic alleges that Fontecilla and the Firm sent the net borrower proceeds by wire transfers issued to the accounts of “Bacon Properties LLC” and “V&H Ventures LLC” at BB&T Bank, using wiring instructions the purported borrowers provided to the Defendants. Id. at ¶ 30. Old Republic issued the title insurance policies (through Fontecilla and the Firm as the title agents) for the Bacon Loan and the V&H Loan in reliance on the Defendants' performance of their duties as escrow, title and closing agent. Id. at ¶ 31.

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 Bacon and V&H. The real Bacon and V&H never authorized the respective loans nor received any of the loan proceeds. Id. at ¶ 32. Old Republic alleges in the Complaint that the Broward County public records contained recorded information, if such inquiry had been made and pursued, revealing that “Thomas Bacon” had no affiliation with the borrower, and, in fact, was an imposter that had no authority to act for Bacon. Id. at ¶ 33. Similarly, Old Republic alleges that the Broward County public records contained recorded information, if such inquiry had been made and pursued, revealing that the person purporting to act as Benjamin Getler was an imposter and had no authority to act for V&H. Id. at ¶ 34. Old Republic alleges that Fontecilla did not make such inquiries and failed to verify the identities of the persons purporting to act on behalf of the borrowers, although such verification was available prior to closing using reasonable, inexpensive, and readily accessible means. Id. at ¶ 35.

Old Republic further alleges that Fontecilla and the Firm allowed the loan documents to leave their possession, custody and control and to be executed outside of their presence. Id. at ¶ 36. The Complaint states that with respect to the V&H Loan, Fontecilla and the Firm issued a mortgage policy in favor of V&H for $1, 300, 000, which exceeded the authorized limit under their agency agreements with Old Republic, without getting Old Republic's prior approval to do so. Id. at ¶ 37. The Underlying Complaint states that TCM made claims to Old Republic, as the title insurer on the loans, for indemnification of its losses under the loans. Id. at ¶ 38.

With respect to the Bacon Loan, Old Republic paid TCM $700, 607.50 to settle its claim, and for the V&H Loan, Old Republic paid $1, 088, 025.85 to settle the claim. In exchange, TCM assigned all of its rights and claims against Fontecilla and the Firm to Old Republic. Id. at ¶ 39. Old Republic alleges it is now holder of the Bacon

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Note, the V&H Note, and all of TCM's claims against Fontecilla and the Firm with respect to the Bacon Loan and the V&H Loan. Id. at ¶ 40. It also claims it has its own direct rights and claims against the Defendants. Id.

Count I of the Underlying Complaint states a claim for negligence against Fontecilla and the Firm with respect to the Bacon Loan. Id. at ¶ 41. In Count I, Old Republic alleges that as the closing and escrow agent on the Bacon Loan, Fontecilla and the Firm owed a duty of care to ensure the proper execution of the loan documents and disbursement of the loan funds so that the Bacon loan would be enforceable and valid. Id. at ¶ 42. In reliance that the Defendants would faithfully execute their duties, TCM funded the Bacon Loan and Old Republic issued a title insurance policy insuring the Bacon Loan for TCM. Id. at ¶ 43. Old Republic alleges that the Defendants breached their duty of care in part by failing to confirm that the person appearing on behalf of Bacon to execute the Bacon Loan documents was in fact authorized and by improperly disbursing the loan proceeds. Id. at ¶ 44. As a result, TCM was damaged in that it funded the loan and Old Republic was damaged in that it became obligated to pay TCM to satisfy the Bacon Mortgage. Id. at ¶ 45.

Count II for negligence contains similar allegations as Count I with respect to the V&H Loan. Id. at ¶ 46. Counts III and IV of the Complaint are for breach of contract with respect to the Bacon Loan (Count III) and the V&H Loan (Count IV). Id. at ¶ 48.

In Counts III and IV, Old Republic alleges that Fontecilla and the Firm agreed with TCM to serve as the closing, escrow, and title agent for the loans and, as such, owed duties to TCM to ensure the loan documents were properly executed, including that the person executing them was authorized to bind the property owner, and that the loan proceeds were properly disbursed. Id. at ¶ 49. In reliance upon the Defendants faithfully executing their duties, TCM funded the loans and Old Republic issued the title insurance policies insuring the Bacon Loan and the V&H Loan. Id. at ¶ 50. Old Republic alleges Fontecilla and the Firm breached their duties by failing to: retain control over the closing and loan documents, ensure that the loan documents were properly executed, ensure the proper disbursement of the funds. Id. at ¶ 51.

With respect to the V&H Loan, Old Republic further alleges that the Defendants breached their duty to remain within their limit of contractual authority by issuing the V&H mortgagee policy for $1, 300, 000. Id. at ¶ 52.

In Count V of the Underlying Complaint for breach of the agency agreements, Old Republic alleges that the agency agreements

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