Lexington Ins. Co. v. Integrity Land Title Co.

Decision Date13 February 2012
Docket NumberCase No. 4:10cv2143 TCM.
Citation852 F.Supp.2d 1119
PartiesLEXINGTON INSURANCE CO., Plaintiff, v. INTEGRITY LAND TITLE CO., INC., and Integrity Disbursing, L.L.C., Defendants, v. Fidelity National Title, Inc., as successor by merger to Lawyers Title Insurance Corporation and Commonwealth Land Title Insurance Co., Intervenor Defendant.
CourtU.S. District Court — Eastern District of Missouri

OPINION TEXT STARTS HERE

James L. Stockberger, Armstrong Teasdale, LLP, St. Louis, MO, for Plaintiff.

Matthew T. Schelp, Matthew P. Diehr, Jensen and Bartlett, LLC, St. Louis, MO, for Defendants.

Trenton K. Bond, William L. Sauerwein, John Hein, Anne J. Kelly, Sauerwein Simon, P.C., Clayton, MO, for Intervenor Defendant.

MEMORANDUM AND ORDER

THOMAS C. MUMMERT, III, United States Magistrate Judge.

This insurance dispute is before the Court 1 on opposing motions for summary judgment: one filed by plaintiff, Lexington Insurance Company (Lexington); one filed by the intervenor, Fidelity National Title, Inc. (Fidelity), as successor by merger to Lawyers Title Insurance Corporation (Lawyers Title) and Commonwealth Land Title Insurance Company (Commonwealth); and one filed by Integrity Land Title Co., Inc. (Integrity Land), and Integrity Disbursing, L.L.C. (Integrity Disbursing), adopting the motion and supporting memorandum of Fidelity.

Background

This action began with the filing of a two-count complaint for declaratory judgment against Integrity Land and Integrity Disbursing asking that the Court find that Lexington (1) has no duty to defend or cover Integrity Land “for claims made and damages sought” in (a) an action filed by Contemporary Flooring and Design, Inc. (“Contemporary Flooring”) arising from the nonpayment of work it performed pursuant to contracts with Bower & Bailey, LLC (“Bower & Bailey”) and (b) an action filed by Commonwealth arising out of title insurance policies it issued for residential sales transactions, and (2) has no duty to defend or cover Integrity Land for claims made in (a) litigation brought by David and Rebecca Talley arising from Integrity Land's role in connection with the sale of real property, (b) litigation brought by Gary and Esther Gassen arising from Integrity Land's role in connection with the sale of real property, and (c) litigation brought by Lawyers Title for indemnification and breach of an agency agreement arising from the Talley and Gassen claims.

In its complaint in intervention, Fidelity seeks the opposite—a declaratory judgment that Lexington does have a duty to cover the claims against Integrity Land and Integrity Disbursing in the litigation cited by Lexington. Fidelity alleged in its complaint that it has a legally protectable interest in Lexington's suit [a]s a third-party beneficiary to the [errors and omissions] policy.” (Int. Compl. ¶ 44, ECF No. 22.)

The underlying litigation, the Lexington policies, and Lexington's decision regarding coverage for the litigation under those policies are described below.

The Litigation: Tally and Gassen Claims. In October 2005, David and Rebecca Talley (“the Talleys”) purchased real estate in the Silver Moon Resort at the Lake of the Ozarks. (Compl. Ex. C at 4, 16–30, ECF No. 1–3.) The real estate was to be conveyed in two parcels. ( Id. at 3.) Integrity Land prepared the title commitments and, acting as agent for Lawyers Title, issued the title insurance policies for each parcel. ( Id.) The title insurance policies included in the legal description of each parcel that the property lay “above the 660 contour of the Lake of the Ozarks.” ( Id. at 36, 43–44.) Condemnation judgments entered in 1931 established Ameren Union Electric as the owner of the land up to the 665 foot contour line of the Lake. ( Id. at 5.) The title commitments did not disclose this ownership. ( Id.) Nor did the title commitments disclose the claim of another group in a portion of the second parcel. ( Id. at 6.)

In December 2008, the Talleys filed a six-count action in the Morgan County Circuit Court 2 against the sellers of the two parcels, Lawyers Title, and Integrity Land. ( Id. at 2.) Integrity Land was named in two counts, one for negligence and one for negligent misrepresentation; Lawyers Title was named in one count, for vexatious breach of insurance contract. ( Id. at 11–15.) Lexington denied coverage and defense to Integrity Land on the grounds that the alleged wrongful acts had occurred before the retroactive date of the policy. (Master Stat. of Uncontroverted Material Facts Ex. N, ECF No. 49–8.)

In October 2006, Gary and Esther Gassen purchased from the Talleys a tract of land in the Silver Moon Resort. (Compl. Ex. D at 2–3, ECF No. 1–4.) Integrity Land issued the title commitment and, acting as Lawyers Title's agent, title insurance policy; Lawyers Title underwrote the policy. ( Id. at 2.) The title commitment did not disclose Ameren's ownership in the portion of the property up to the 665 foot contour line of the Lake. ( Id. at 3.) In August 2009, the Gassens filed a six-count action in Morgan County Circuit Court against the Talleys, Integrity Land, and Lawyers Title. Integrity Land was named in two counts, one for negligence and one for negligent misrepresentation; Lawyers Title was named in two counts, one for breach of insurance contract and one for vexatious breach of insurance contract. ( Id. at 6–11.)

Eight months later, in April 2010, Bruce Bartlett, wrote Nancy Volonakis, a claims examiner for Lexington, on behalf of Integrity Land and requested that Lexington provide coverage for Integrity Land in the Gassens' suit. (Master Stat. of Uncontroverted Material Facts Ex. 0, ECF No. 49–9.) The Gassens' suit had been consolidated with the Talleys' suit and was set for trial in three weeks.3See Gassen v. Talley, Case No. 09MG–CC00066 (Mo.Cir.Ct. Nov. 2, 2009) (found at https:// www. courts. mo. gov/ casenet/ cases/ search Dockets. do (last visited Jan. 23, 2012); Fidelity Stat. of Uncontroverted Material Facts ¶ 245). Attached to the letter was a copy of the Gassens' petition. (Master Stat. of Uncontroverted Material Facts Ex. 0, ECF No. 49–9.) Bartlett explained that the Gassens' claim was related to one by the Talleys “in that the Gassen property was subdivided from the Talley property.” ( Id. at 1.) The Talley claim, Lexington's file number 683–251727, had been denied because the “alleged wrongful acts occurred during the dates of 10/14/05 through 10/31/05 and the Lexington policy was not in effect until May 23, 2006.4 ( Id.) The alleged wrongful acts at issue in the Gassens' claim were after the policy's effective date: specifically, October 27, 2006, the date of the title search, through November 10, 2006, the closing date. ( Id.) Bartlett did not recall Integrity Land receiving notice of the Gassen claim until the suit was filed. (Master Stat. of Uncontroverted Material Facts Ex. J, Bartlett Dep. at 75,5 ECF No. 49–4.)

Bartlett testified in his deposition that the title search performed when the Talleys purchased the property was updated for the Gassen purchase. ( Id. at 84–85.) Otherwise, the Talley and Gassen title searches and commitments were separate transactions subject to separate charges; separate policies were issued. ( Id. at 84–85.) Mark Dickhute, the corporate representative of Fidelity, testified in his deposition that underwriting standards did not allow title searchers “to use a previous owner search as a starter. [T]hey're supposed to begin anew.” (Master Stat. of Uncontroverted Material Facts Ex. I, Dickhute Dep. at 95, ECF No. 49–3.) It was a common practice, however, for them to rely on what is characterized as a “starter policy.” ( Id.) A subsequent search cost as much as the first search. ( Id.)

Bartlett wrote again nine days later, on April 16. (Master Stat. of Uncontroverted Material Facts Ex. Q, ECF No. 49–11.) He advised Volonakis that a continued silence by Lexington on the Gassen's claim would be construed as a denial of coverage and defense. ( Id.)

In reply, Lexington's retained counsel wrote Bartlett denying coverage and defense. (Master Stat. of Uncontroverted Material Facts Ex. S, ECF No. 49–13.) The grounds for the denial were that the Gassen claim was not made until August 2009—one month after the policy period ended on July 15, 2009. ( Id. at 4.) Additionally, counsel disagreed that the Gassen claim and Talley claim were related, having “ar[isen] out of two different lawsuits alleging two separate real estate transactions that involve two separate and distinct Wrongful Acts.” ( Id. at 4.) Also, aside from the relation-back question, notice of the Gassen claim was not made as soon as practicable, a requirement under the policy, and such notice, three weeks before trial, did not satisfy Integrity Land's burden under the policy to cooperate. ( Id. at 6.)

A few months later, in June, Lawyers Title, the Talleys, and the Gassens filed suit in St. Louis County Circuit Court against Integrity Land and Lexington (“the Lawyers Title suit”). (Compl. Ex. E, ECF No. 1–5.) Integrity Land was alleged to have “failed to locate, identify and expressly except from coverage the Condemnation Judgments in the Talley Policies and the Gassen Policy.” ( Id. at 5.) Pursuant to their agency agreement, Lawyers Title had made a demand on Integrity Land for indemnification of the Talley and Gassen claims. ( Id. at 6.) In June 2009, Lexington, Integrity Land's errors and omissions insurance carrier, had denied coverage for the indemnification demand. ( Id.) Lawyers Title thereafter entered into two settlement agreements: one with the Talleys and one with the Gassens for $410,000.00. ( Id. at 6–7.) Included in the ten-count suit were Lawyers Title's third-party beneficiary claims against Lexington for reimbursement of the monies it paid in settlement of the Talleys' and Gassens' claims (Counts III and VI, respectively). ( Id. at 10–12, 15–17.)

The next month, Bartlett wrote Volonakis requesting that Lexington provide coverage and a...

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