Protective Specialty Ins. Co. v. Castle Title Ins. Agency, Inc.
| Decision Date | 03 February 2020 |
| Docket Number | 17-CV-8965 (CS) |
| Citation | 437 F.Supp.3d 316 |
| Parties | PROTECTIVE SPECIALTY INSURANCE COMPANY, Plaintiff, v. CASTLE TITLE INSURANCE AGENCY, INC., Defendant. |
| Court | U.S. District Court — Southern District of New York |
Phyllis A. Ingram, Greg M. Steinberg, White and Williams LLP, New York, New York, Counsel for Plaintiff
Laura-Michelle Horgan, Rita Lenane-Massey, Barton LLP, New York, New York, Counsel for Defendant
On November 16, 2017, Plaintiff Protective Specialty Insurance Company ("Protective") initiated this action seeking a declaratory judgment that it has no duty to defend Defendant Castle Title Insurance Agency, Inc. ("Castle Title"), in a 2016 action commenced in the Supreme Court of the State of New York in Westchester County (the "2016 Lawsuit"). (Doc. 1 ("Compl.").)1 Before the Court are the parties' cross motions for summary judgment. (Docs. 58, 66.) For the following reasons, Defendant's motion is GRANTED and Plaintiff's motion is DENIED.
The following facts are based on the parties' Local Civil Rule 56.1 statements, replies, and supporting materials, and are undisputed except as noted.2
From 2014 to 2017, Protective issued to Castle Title three consecutive professional liability insurance policies. Prior to the expiration of Policy 18-00 on September 10, 2015, Castle Title applied to Protective for a second year of coverage. (P's 56.1 Resp. ¶ 14.) On September 9, 2015, Ronald Rauschenbach, president and owner of Castle Title, completed a "Title Agents, Abstractor/Searchers and Escrow/Closing Agents Application" through American Insurance Professionals LLC ("AIP") to obtain Policy 18-01. The AIP Application contains a section entitled "Loss/Claim Information" that asks several questions, including:
38. Is the Applicant or any other person proposed for insurance aware of any incident or circumstance which MAY RESULT in a CLAIM being made against the Applicant or any past or present owners, partners, officers, directors, employees or predecessors in business?
(AIP Application at 6 (emphasis in original).) Rauschenbach selected "No" in response to this question. (Id. ) The AIP Application also stated, "Please be advised that any proceedings, claims, incidents and/or circumstances identified in responses to question number ... 38 will be excluded from any coverage resulting from this application." (Id. (emphasis omitted).) Further, the AIP Application contained a "Supplemental Claim / Incident / Circumstance Information Sheet" on which Rauschenbach certified that he had not had any claims in the past five years. (Id. at 9.)
(Id. § III(U) (emphasis omitted).) A "Wrongful Act" includes "a negligent act, error or omission or Personal Injury committed by an Insured or any natural person for whose Wrongful Acts the Insured is legally responsible solely in the rendering or failing to render Professional Services for a client for a fee or other compensation." (Id. § III(Y) (emphasis omitted).) Under the policy, "[a]ll Related Claims shall be deemed a single Claim, and such Claim shall be considered first made on the date the earliest such Related Claim is first made against an Insured, regardless of whether such date is before or during the Policy Period." (Id. § V(C) (emphasis omitted).)
On August 20, 2010, Sovereign Bank filed two foreclosure actions in New York Supreme Court in Westchester County. (P's 56.1 Resp. ¶¶ 30, 35; see id. ¶¶ 29-47.) In the first action ("Foreclosure Action 1"), Sovereign Bank sought to foreclose on a mortgage it had granted to Fox Island Properties, LLC, that was in default. (Id. ¶ 30; see Doc. 61-17.)3 The sole cause of action alleged by Sovereign Bank was for "foreclosure of mortgage," and the relief sought by Sovereign Bank was a judgment of foreclosure and sale of the property secured by a note held by Sovereign Bank. (P's 56.1 Resp. ¶ 31; see Doc. 61-17 ¶¶ 38-43.) In the second foreclosure action ("Foreclosure Action 2"), Sovereign Bank sought to reform a mortgage to correct a property description and foreclose on several mortgages granted to Fox Island Properties that were in default. (P's 56.1 Resp. ¶ 35; see Doc. 80-19.)4 The sole causes of action alleged by Sovereign Bank were "foreclosure of mortgage" and "reformation of property description in mortgage." (P's 56.1 Resp. ¶ 36; Doc. 80-19 ¶¶ 39-50.) Castle Title was not a party to Foreclosure Action 1 or Foreclosure Action 2 (collectively, the "Foreclosure Actions"), (P's 56.1 Resp. ¶¶ 32, 37), and the claims alleged in the Foreclosure Actions did not involve any professional services provided by Castle Title, (id. ¶ 39).
In 2011, during the course of the Foreclosure Actions, Sovereign Bank assigned its interest in the debt to SR Holdings I, LLC ("SR Holdings"), and SR Holdings was substituted into the actions as plaintiff. (Id. ¶ 33.) On September 24, 2012, a final judgment of deficiency in the amount of $2,836,459.42 was issued to SR Holdings in Foreclosure Action 1, (id. ¶ 34), and on January 7, 2013, a final judgment of deficiency in the amount of $1,618,929.82 was issued to SR Holdings in Foreclosure Action 2, (id. ¶ 38).
On March 21, 2013, SR Holdings filed a lawsuit in the Westchester County Supreme Court (the "2013 Lawsuit") against certain defendants in the Foreclosure Actions and others, seeking to set aside certain conveyances and to declare them null and void on the basis that they were made to avoid payment of the judgment issued in Foreclosure Action 1.5 (D's 56.1 Resp. ¶ 13; Doc. 80-23 at 54.) Castle Title was not a party to the 2013 Lawsuit. (D's 56.1 Resp. ¶ 14.) On September 11, 2015, SR Holdings filed a motion for leave to amend the complaint in the 2013 Lawsuit to add Castle Title as a defendant, (Doc. 80-24 ¶¶ 2, 11, 23), which was denied on October 28, 2015, (see Doc. 80-26). On November 7, 2016, the 2013 Lawsuit was dismissed without prejudice for failure to name all necessary parties. (See Doc. 80-27 at 6:3-5.) There is no evidence that Castle Title was aware of the 2013 Lawsuit at the time.6
On July 21, 2015, Castle Title was served with a post-judgment judicial subpoena duces tecum. The 2015 Subpoena bore the caption of Foreclosure Action 1 and was issued by SR Holdings as judgment creditor in the amount of $2,836,459.42, together with unpaid interest from September 24, 2012. (See 2015 Subpoena at 1-2.) SR Holdings sought documents from Castle Title as title agent and asserted that these documents were "material and necessary to determine the bona fides of the various transfers, mortgages, mortgage debts and interest in the properties, to establish the chain of encumbrances and the chain of title and to determine the equity values of the properties." (Id. at 2.)
Castle Title did not timely comply with its obligation to produce documents in response to the 2015 Subpoena, (P's 56.1 Resp. ¶ 43), and on October 8, 2015, SR Holdings filed a motion to compel, (Compl. Ex. D). The motion to compel stated that the 2015 Subpoena was "issued to aid in the enforcement of the judgment" obtained in "[t]he above entitled mortgage foreclosure action" – i.e. , Foreclosure Action 1. (Id. Ex. D at 4,11.)7 In the motion to compel, SR Holdings argued that as "Judgment Creditor," it was "entitled to the documents requested" in the 2015 Subpoena. (Id. Ex. D at 4.) The motion was unopposed. (Id. Ex. E at 2.) On October 7, 2015, New York Supreme Court Justice Mary H. Smith issued a Decision and Order directing Castle Title, as a non-party, to comply with "a subpoena issued ... to aid in the enforcement of a judgment." (Id. Ex. E at 2.) On October 27, 2015, SR Holdings filed a motion for contempt based on Castle Title's failure to comply with the 2015 Subpoena and Justice Smith's Order. (Id. Ex. F at 1-2.) On December 15, 2015, Justice Smith granted the contempt motion, (id. Ex. G at 2), and on April 21, 2016, after Castle Title complied, (see Doc. 80-18 at 71), she vacated it, (Doc. 80-33).
On April 1, 2016, SR Holdings named Castle Title as a defendant in the 2016 Lawsuit filed in Westchester County Supreme Court.8 (D's 56.1 Resp. ¶ 43; see Doc. 80-34.) On November 14, 2016, SR Holdings amended the complaint in the 2016 Lawsuit. The amended complaint alleged that Castle Title "negligently and/or fraudulently delayed" in submitting real estate documents for recording by the County Clerk. SR Holdings also asserted general claims for conspiracy, fraud, and fraudulent conveyance against all de...
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