A national bank filed suit against a title agent’s insurance provider for failing to provide coverage to the agency arising out of a lawsuit filed by the bank against the title agency and others to recover losses as a result of a mortgage fraud scheme.
The case is JPMorgan Chase Bank NA v. Scottsdale Insurance Co. (U.S. District Court for the District of New Jersey, No. 17-2797).
JPMorgan Chase Bank filed suit against Scottsdale Insurance Co. for failing to provide coverage to Rapid Abstract, LLC for liabilities arising out of a lawsuit filed by Chase against Rapid and other defendants in New Jersey state court. In the underlying case, Chase sought to recover losses it suffered as a result of a criminal enterprise.
In the enterprise, Silvano Tropeano, Frederick Tropeano, John Kosta and Krista Selig, through Hawthorne Capital, diverted funds provided by Chase instead of applying the funds to refinance residential mortgages. Rapid had provided title services to Hawthorne Capital through New Jersey Title Insurance Co. Lisa Palermo is the president of Rapid.
Scottsdale issued a policy to Rapid and Rapid Abstract Agency LLC, covering the period between Sept. 15, 2010, and Sept. 15, 2011. On Sept. 16, 2010, Chase filed the underlying action. Palermo and Rapid were served with the complaint six days later. The complaint alleged claims of tortious interfence with contract, violations of NJRICO, civil conspiracy, liability based on respondeat superior, negligent misrepresentation and breach of contract.
On Jan. 20, 2011, Palermo emailed Rapid’s insurance agent, IPA Risk Management requesting cancelation of coverage. Scottsdale issued Endorsement No. 11 to the Rapid policy, canceling coverage as of Jan. 21, 2011. The Endorsement also excluded coverage based on any claim alleging, based upon, arising out of, attributable to, directly or indirectly resulting from, in consequences of or in any way involving Rapid Abstract LLC. The Rapid policy was cancelled effective March 14, 2011.
On May 4, 2011, Rapid and Palermo provided Scottsdale written notice of, and sought coverage for, Chase’s suit. Scottsdale denied coverage May 26, 2011, citing Endorsement 11, an exclusion for claims involving fraud and other provisions of Rapid’s policy.
Chase filed a second amended complaint Nov. 19, 2012, asserting causes of action against Palermo, Rapid and NJ title for breach of contract, fraud, tortious interference with contract, violations of NJRICO, civil conspiracy, liability based on respondeat superior and several counts of negligence. The parties settled Dec. 14, 2015, with Chase agreeing to reduce its claim of damages to $1.6 million and Rapid agreeing to the entry of a consent final judgment against it in the amount of $1.6 million. Chase also agreed to not execute on the consent judgment as long as Rapid remained financially unable to satisfy a significant part of the consent judgment. Rapid agreed to assign to Chase any and all claims Rapid had against Scottsdale. The consent judgment was entered Jan. 5, 2016.
Chase filed the current suit against Scottsdale on March 3, 2017, seeking a declaratory judgment against the insurer. The parties filed cross-motions for summary judgment. Scottsdale argued that it was entitled to summary judgment because Endorsement 11 precludes Rapid from obtaining coverage for the action and thus Chase is precluded from recovering the $1.6 million in the consent judgment. It also argued that it is entitled to summary judgment because Rapid breached the notice provision because Rapid did not notify Scottsdale as soon as practicable of the underlying suit.
Chase argued that in the denial letter, Scottsdale did not assert that notice of the action was untimely and that Endorsement No. 11 does not bar coverage because it reflects the insured’s desire to discontinue professional services coverage from Jan. 21, 2011.
U.S. District Judge Michael Shipp granted Scottsdale’s motion and denied Chase’s motion. It noted first that Rapid’s notice to Scottsdale was timely because the policy’s notice provision defined reasonable notice as notice within 60 days of termination.
“Here, the notice provision shares a similar construction as the notice provisions in Gazis I and Hermann Services, Inc.,” Shipp stated. “Specifically, the notice provision states that notice is to be given to Scottsdale ‘as soon as practicable, but in no event later than 60 days after the expiration of the policy period.’ Pursuant to Gazis II and Hermann Services, Inc., the notice provision requires Rapid to provide notice within 60 days of the expiration of the Rapid policy. Scottsdale has not provided the court with any precedent or facts suggesting that the court should deviate from this persuasive authority.
“The court finds that the notice provision required Rapid to provide notice of the underlying action within 60 days of the expiration of the Rapid policy,” he continued. “The Rapid policy was canceled on March 14, 2011, and Rapid provided written notice of the underlying action on May 4, 2011 — 51 days later. Rapid’s written notice to Scottsdale on May 4, 2011, accordingly, satisfied the notice provision.”
Shipp then had to determine whether endorsement No. 11 barred Chase’s claim.
“The plain language of Endorsement No. 11 unequivocally excludes coverage for Rapid for the underlying action,” he stated. “This language is presumptively valid and should be given effect. There is no reasonable argument that the language is not ‘specific, plain, clear, or prominent.’ Thus, the question is whether the application of Endorsement No. 11 would violate public policy. The New Jersey Supreme Court’s guidance in Templo Fuente assists in resolving this inquiry.
“The Templo Fuente court stated that ‘courts have taken special consideration of the fact that the policy holders [of occurrence policies] were consumers unlikely to be conversant with all the fine print of their policies’ and ‘found that strict adherence to the terms of the notice provisions would result too harshly against [such insureds.]’ However, ‘[t]hose equitable concerns based on the nature of the parties do not control in [the] analysis of’ a provision in a ‘claims made’ policy ‘where the policyholders ‘are particularly knowledgeable insureds, purchasing their insurance requirements through sophisticated brokers[.]’ Thus, the Templo Fuente court ‘decline[d] plaintiffs’ invitation to read the insurance policy at issue as a contract of adhesion, or ‘engage in a strained construction to support the imposition of liability’ or write a better policy for the insured than the one purchased.’
“Here, Palermo and Rapid were not unsophisticated consumers unaware of the requirements of the Rapid policy,” Shipp stated. “Instead, the record reflects that Palermo and Rapid were sophisticated parties utilizing a third party to secure insurance coverage. For example, Palermo worked with two other title insurance companies prior to forming Rapid, and she secured an insurance producer’s license in order to conduct Rapid’s business. Additionally, Palermo and Rapid used IPA Risk Management as their insurance broker to secure the Rapid policy and to cancel it. Like the Templo Fuente court, the court declines to read the Rapid policy as a contract of adhesion or engage in a strained reading of Endorsement No. 11. Doing otherwise would result in the court writing a better policy for Rapid than the one Rapid purchased. Simply put, Palermo requested a cancellation of coverage for Rapid as of a certain date and Palermo received exactly what she asked for, and it was embodied in Endorsement No. 11. New Jersey’s ‘jurisprudence has never afforded a sophisticated insured the right to deviate from the clear terms of a ‘claims made’ policy.’ The court, accordingly, finds that Endorsement No. 11 bars coverage for the underlying action. Scottsdale, therefore, had no duty to defend or provide coverage for Rapid in the underlying action. Thus, the court also finds that JPMC’s arguments in support of its motion for summary judgment, that Scottsdale breached the Rapid policy by wrongfully denying coverage for the underlying action, are without merit.”