Property v. Bowles Rice, LLP

Decision Date31 July 2018
Docket NumberCIVIL ACTION NO. 1:18CV29
CourtU.S. District Court — Northern District of West Virginia
PartiesALPS PROPERTY & CASUALTY INSURANCE COMPANY, Plaintiff, v. BOWLES RICE, LLP; and FIRST AMERICAN TITLE INSURANCE COMPANY, Defendants.

(Judge Keeley)

MEMORANDUM OPINION AND ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 24]

In November 2016, First American Title Insurance Company ("First American") filed suit against Bowles Rice, LLP ("Bowles Rice"), a law firm with offices, among others, in Charleston and Morgantown, West Virginia. First American's complaint alleges that Bowles Rice breached several agency agreements in connection with the issuance of a $775 million title insurance policy ("Underlying Case"). Pursuant to a Lawyers Professional Liability Insurance Policy ("the Policy"), ALPS Property & Casualty Insurance Company ("ALPS") has defended Bowles Rice against First American's allegations in the Underlying Case since its inception.

ALPS now seeks a declaration that coverage for the Underlying Case is subject to the $5 million per claim limit of the Policy, rather than the $10 million aggregate limit. Pursuant to the language of the Policy, only one claim is at issue if First American's allegations constitute one "demand for money or services" or multiple demands "arising out of the same, related or continuing professional services."

Although the parties dispute many matters in the Underlying Case, the Court concludes that no material factual disputes affect its determination of the coverage issues in this action. Even accepting as true all of First American's allegations in the Underlying Case and related litigation, ALPS is entitled to a declaration that the plain language of its Policy provides only $5 million in coverage due to the "each Claim" limit.

I. FACTUAL AND PROCEDURAL BACKGROUND1

The Court recites the factual and procedural background in the light most favorable to Bowles Rice and First American. Mellen v. Bunting, 327 F.3d 355, 363 (4th Cir. 2003). The relevant facts find their genesis in the execution of a contract nearly 25 years ago. In 1994, First American and Bowles Rice entered into a Limited Agency Agreement in which First American appointed the Bowles Rice office in Charleston to act as its agent throughout West Virginia ("the 1994 Agency Agreement") (Dkt. No. 1-3 at 1). Carl Andrews, a partner at the office in Charleston, executed the agreement on Bowles Rice's behalf. Id. at 7. When the parties amended theagreement in 2003 to cover Kentucky as well as West Virginia, Charles Dollison ("Dollison"), another partner in the Charleston office, executed the addendum for Bowles Rice. Id. at 8. In relevant part, the 1994 Agency Agreement granted Bowles Rice authority to solicit, originate, and execute First American's title commitments and policies, and to underwrite associated risks up to $500,000 without First American's approval. Id. at 1.

In 2006, First American and Bowles Rice entered into a separate Agency Agreement in which First American appointed the Bowles Rice office in Morgantown, West Virginia, to act as its agent throughout the state ("the 2006 Agency Agreement") (Dkt. No. 1-4 at 1). Charles Wilson ("Wilson"), a partner in the firm's Morgantown office, executed that agreement for Bowles Rice. Id. at 12. Much like the 1994 Agency Agreement, the 2006 Agency Agreement gave Bowles Rice the authority to "sign, countersign, and issue commitments, title guaranties and insurance policies, endorsements and other forms of title evidence authorized by First American." Id. at 1. It also limited Bowles Rice's authority to insure risks above $500,000 unless it first received approval from First American. Id. at 5. Both the 1994 and 2006 Agency Agreementsrequired Bowles Rice to carry at least $1 million of liability insurance (Dkt. Nos. 1-3 at 4; 14 at 3).2

In the mid-2000s, Bowles Rice began providing legal work for Longview Power, LLC ("Longview") in connection with its construction of a $2 billion coal-fired power plant on the border of Monongalia County, West Virginia, and Greene County, Pennsylvania (Dkt. Nos. 27-1 at 7; 27-2 at 8). During the initial stages of the project, sometime prior to 2006, Bowles Rice attorney and partner Leonard Knee ("Knee") began working to obtain the necessary environmental permits and approvals on Longview's behalf (Dkt. No. 27-3 at 4). In December 2006, Dollison, also a partner, became involved in the project to assist with "real estate and related issues," including the issuance of title insurance policies as First American's agent (Dkt. No. 27-1 at 7).

As the project progressed, Longview and Bowles Rice worked to obtain financing for a significant portion of the power plant construction costs. That financing ultimately was secured, in part, by a credit line deed of trust in favor of Union Bank of California, N.A. ("Union Bank"), which was recorded in MonongaliaCounty, West Virginia, on February 28, 2007 (Dkt. No. 1-1 at 3; 1-5 at 5). Dollison brought First American into the transaction for the purpose of issuing four title insurance policies to insure the priority of Union Bank's deed of trust (Dkt. No. 27-1 at 7).

As Longview's efforts to finance the project drew to a close, on February 13, 2007, several parties filed suit in this Court against Longview and its contractors, alleging that they were constructing the power plant without a valid permit required by the Clean Air Act ("the Jamison litigation") (Civil No. 1:07cv20, Dkt. No. 1). Knee responded to the Jamison litigation on behalf of Longview and, together with the contractors, advised the Court that construction activities had commenced, including "preliminary site establishment activities such as clearing and grubbing of vegetation, grading for placement of construction offices and an access road, [and] placement of stone base material on the access road and parking area" (Civil No. 1:07cv20, Dkt. No. 12-2 at 9). Around the same time, Dollison and Knee were involved in preparing an opinion letter for Union Bank, representing that the actions taken by Longview constituted "commencing construction" for purposes of the Clean Air Act permit (Dkt. No. 27-1 at 15).

When Union Bank's financing closed on February 28, 2007, First American issued "[a]n owner's policy and lender's policy for WestVirginia and an owner's policy and a lender's policy for the Pennsylvania properties" (Dkt. No. 27-1 at 8-9). At issue in the Underlying Case is the $775 million lender's policy for West Virginia, effective March 9, 2007, which Dollison signed on behalf of First American ("Lender's Title Policy") (Dkt. No. 1-5).3 At Union Bank's request, Bowles Rice sought coverage from First American for mechanic's lien risks (Dkt. No. 27-1 at 10), as a consequence of which First American authorized inclusion of the following endorsement in the Lender's Title Policy:

The Company hereby insures the owner of the indebtedness secured by the mortgage referred to in paragraph 4 of Schedule A against loss which the insured shall sustain by reason of the establishment of priority over the lien of the insured mortgage upon the estate or interest referred to in Schedule A of any statutory lien for labor or material arising out of any work of improvement under construction or completed at Date of Policy.

(Dkt. No. 1-5 at 51). First American reinsured portions of its liability for the Lender's Title Policy with Old Republic Title Insurance Company ("Old Republic") and Stewart Title Insurance Company ("Stewart") (Dkt. Nos. 1-1 at 3; 27-1).

The mechanic's lien endorsement has potentially significant implications in the Underlying Case because mechanic's liens attach "as of the date such labor, material, machinery or other necessary equipment shall have begun to be furnished." W. Va. Code § 38-2-17. In the Underlying Case, First American alleges that Bowles Rice violated the 1994 and 2006 Agency Agreements when it sought the mechanic's lien endorsement without informing First American of its knowledge that "[c]onstruction had commenced on the Power Plant prior to the recording of the Credit Line Deed of Trust on February 28, 2007," thus "jeopardizing the priority of the Credit Line Deed of Trust" (Dkt. No. 1-1 at 6).

Several years after First American issued the Lender's Title Policy with the mechanic's lien endorsement, while construction of the Longview facility was ongoing, Bowles Rice also assisted with financing for the construction of a water treatment system on Longview's property by Dunkard Creek Water Treatment Systems, LLC ("Dunkard Creek") (Dkt. No. 27 at 10). In 2009, First American issued title insurance policies in the amount of $130 million regarding an easement to Dunkard Creek (Dkt. No. 27-2 at 11). Although Wilson was not involved in title searches or issuing the title insurance policies for the Dunkard Creek project, he advised First American and Longview regarding a mechanic's lien that hadbeen filed by Longview's contractors. Id. at 11-12. Wilson recommended that Longview pay the amount of the lien into escrow as a way to satisfy the risk that First American would incur by issuing title insurance policies for the Dunkard Creek project while mechanic's liens on the property were pending. Id. at 12. First American argues in the pending action that this violated the 2007 Agency Agreement because Wilson never advised it of Bowles Rice's actual knowledge that construction had commenced on the Longview site before Union Bank's financing closed in February 2007 (Dkt. No. 27 at 11-12). Notably, First American makes no such allegation in the Underlying Case (Dkt. No. 1-1).

The Court has previously recognized that "few parties involved with construction of the power plant escaped the project unscathed" (Civil No. 1:16cv219, Dkt. No. 128 at 2). Eventually, disputes arose among Longview and its contractors, and the contractors filed mechanic's liens totaling in excess of $335 million in February 2012 (Dkt....

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