United States District Court, N.D. West Virginia
MEMORANDUM OPINION AND ORDER GRANTING PLAINTIFF'S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 24]
M. KEELEY UNITED STATES DISTRICT JUDGE.
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
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.
FACTUAL AND PROCEDURAL BACKGROUND
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 the agreement 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.
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 Agreements required Bowles Rice
to carry at least $1 million of liability insurance (Dkt.
Nos. 1-3 at 4; 14 at 3).
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).
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 Monongalia County, 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).
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).
Union Bank's financing closed on February 28, 2007, First
American issued “[a]n owner's policy and
lender's policy for West Virginia 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). 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).
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).
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 had been 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).
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.
Nos. 1-1 at 4; 1-6 at 5-6; 27-4 at 34). The contractors
claimed their liens held priority over Union Bank's deed
of trust because construction had commenced on Longview's
property prior to the closing of Union Bank's financing
on February 28, 2007. As a result of the mechanic's
liens, in April 2013, Union Bank made a claim on First
American under the Lender's Title Policy issued for the
West Virginia property (Dkt. Nos. 1-5; 1-7 at 6, 9; 1-9 at
1). Longview then filed for Chapter 11 bankruptcy protection
in August 2013 in the District of Delaware (“Bankruptcy
Court”) (Dt. No. 1-7 at 4).
after the contractors filed their mechanic's liens,
“a majority of [Longview's] indebtedness was
transferred to a successor group known as the
‘Backstoppers, '” who claimed “to hold
approximately 65% of the indebtedness . . . for which Union
Bank act[ed] as collateral agent” (Dkt. No. 1-6 at
4-5). On November 21, 2013, the Bankruptcy Court entered an
order allowing the Backstoppers to provide debtor in
possession financing for Longview. Id. at 8.
Following on this, Longview filed an adversary proceeding
against the contractors on December 11, 2013, in which it
sought a determination regarding the “maximum potential
extent” of the mechanic's liens. Id. On
March 6, 2014, at the parties' request, the Bankruptcy
Court ordered Longview, the contractors, and the Backstoppers
to participate in mediation. Id. at
several mediation sessions, on May 10, 2014, Longview sought
approval from the Bankruptcy Court of an amended plan that 1)
vested jurisdiction in the Bankruptcy Court to decide what
was covered under the Lender's Title Policy, 2) assigned
the proceeds of the Lender's Title Policy from Union Bank
to a trust for Longview's benefit, and 3) provided those
proceeds to satisfy the contractors' mechanic's lien
claims. Id. at 9. Confirmation of the plan was
contingent upon Longview obtaining a determination by the
Bankruptcy Court that the Lender's Title Policy proceeds
were “available for assignment and distribution in
accordance with the Plan” (Bankr. D. Del., No.
13-12211, Dkt. No. 1184 at 7).
16, 2014, First American sought declaratory relief in
California state court regarding its obligations under the
Lender's Title Policy (Dkt. No. 1-6). Shortly thereafter,
on May 23, 2014, Longview filed another adversary proceeding
in the Bankruptcy Court, this time against First American,
seeking a declaration that the contractors'
mechanic's liens were covered by the Lender's Title
Policy (Bankr. D. Del., No. 13-12211, Dkt. No. 1184).
Significantly, the Lender's Title Policy was the only
insurance policy at issue in either litigation. Id.
at 4-5. On June 19, 2014, the Bankruptcy Court stayed First
American's California state court action (Bankr. D. Del.,
No. 13-12211, Dkt. No. 1296). First American then filed its own
adversary proceeding against Longview in September 2014,
seeking a declaration from the Bankruptcy Court that the
contractors' mechanic's liens did not have priority
over Union Bank's deed of trust (Dkt. No. 1-7). On
October 20, 2014, the Bankruptcy Court scheduled
Longview's adversary proceeding for trial on January 20,
2015 (Bankr. D. Del., No. 14-50369, Dkt. No. 91).
in December 2014, First American settled its obligations
related to Union Bank's deed of trust - and secured the
cancellation of all eight insurance policies connected to the
Longview project (Dkt. No. 37-1 at 10-11) - by contributing
$41 million as part of a global settlement in the Bankruptcy
Court (Bankr. D. Del., No. 13-12211, Dkt. No. 1665). The
parties noted in their settlement agreement that the
adversary proceedings, as well as First American's
California state court action, had “resulted in
numerous contested hearings, discovery, and substantial
motion practice before both the Bankruptcy Court and the
District Court” (Dkt. No. 37-1 at 5).
American then sought to recoup a portion of this loss through
its reinsurance carriers, but Old Republic and Stewart
contested their liability due to alleged omissions by Bowles
Rice, First American's agent (Dkt. No. 1-1 at 4). As in
the adversary proceedings, the Lender's Title Policy
issued to Union Bank for the West Virginia property was the
only title insurance policy at issue in the reinsurance
litigation (Dkt. Nos. 1-9 at 1; 1-11 at 14). During 2015 and
2016, First American settled its reinsurance claims for less
than the face value of those policies (Dkt. No. 27 at 14).
in November 2016, First American filed the Underlying Case
against Bowles Rice in this Court, seeking indemnification
for the full $41 million it had paid as part of the Longview
global settlement in Bankruptcy Court (Civil No. 1:16cv219,
Dkt. No. 1). First American contends that, pursuant to the
1994 and 2006 Agencies Agreements, Bowles Rice must indemnify
it for the amount of the loss it incurred under the
Lender's Title Policy as a consequence of Bowles
Rice's failure to advise it that construction had
commenced on Longview's property prior to the execution
of Union Bank's deed of trust (Dkt. No. 1-1).
Rice has vigorously contested liability in the Underlying
Case. It contends that it has no duty to indemnify First
American, and that First American had valid defenses to
liability and should not have settled the claim. There are
pending motions for summary judgment in that case (Civil No.
1:16cv219, Dkt. Nos. 168; 170), which is scheduled for trial
beginning on August 20, 2018 (Civil No. 1:16cv219, Dkt. No.
February 12, 2018, ALPS filed suit against First American and
Bowles Rice, seeking a declaration that the Underlying Case
triggers only $5 million in coverage under its Policy because
it constitutes only one claim against Bowles Rice, rather
than the $10 million aggregate limit for two claims (Dkt. No.
1). The parties' cross-motions for summary judgment are
fully briefed and ripe for review (Dkt. Nos. 22; 24; 33).
STANDARD OF REVIEW
judgment is appropriate where the “depositions,
documents, electronically stored information, affidavits or
declarations, stipulations (including those made for purposes
of the motion only), admissions, interrogatory answers, or
other materials” establish that “there is no
genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed.R.Civ.P.
56(a), (c)(1)(A). “When cross-motions for summary
judgment are submitted to a district court, . . . the facts
relevant to each must be viewed in the light most favorable
to the non-movant.” Mellen, 327 F.3d at 363;
see also Providence Square Assocs., L.L.C. v. G.D.F.,
Inc., 211 F.3d 846, 850 (4th Cir. 2000). The Court must
avoid weighing the evidence or determining its truth and
limit its inquiry solely to a determination of whether
genuine issues of triable fact exist. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 249 (1986).
moving party bears the initial burden of informing the Court
of the basis for the motion and of establishing the
nonexistence of genuine issues of fact. Celotex Corp. v.
Catrett, 477 U.S. 317, 323 (1986). Once the moving party
has made the necessary showing, the non-moving party
“must set forth specific facts showing that there is a
genuine issue for trial.” Anderson, 477 U.S.
at 256 (internal quotation marks and citation omitted). The
“mere existence of a scintilla of evidence”
favoring the non-moving party will not prevent the entry of
summary judgment; the evidence must be such that a rational
trier of fact could find for the nonmoving party.
Id. at 248-52. Nor can the non-movant “create
a genuine issue of material fact through mere speculation or
the building of one inference upon another.”
Runnebaum v. NationsBank of Md., N.A., 123 F.3d 156,
164 (4th Cir. 1997).
federal court exercising diversity jurisdiction is obliged to
apply the substantive law of the state in which it
sits.” Volvo Constr. Equip. N. Am. v. CLM Equip.
Co., Inc., 386 F.3d 581, 599-600 (4th Cir. 2004) (citing
Erie R.R. Co. v. Tompkins, 304 U.S. 64, 79 (1938)).
The Court must therefore apply West Virginia law. See
Beckley Mech., Inc. v. Erie Ins. & Cas. Co., 374
Fed.Appx. 381, 383 n.1 (4th Cir. 2010) (unpublished decision)
(citing Erie, 304 U.S. 64). Generally, there are two
duties that arise from an insurance policy: the duty to
defend and the duty to indemnify.
insurance company has a duty to defend an action against its
insured if the claim stated in the underlying complaint
could, without amendment, impose liability for risks the
policy covers.” Bowyer v. Hi-Lad, Inc., 609
S.E.2d 895, 912 ( W.Va. 2004). “[A]n insurer's duty
to defend is tested by whether the allegations in the
plaintiff's complaint are reasonably susceptible of an
interpretation that the claim may be covered by the terms of
the insurance policy.” Aetna Cas. & Sur. Co. v.
Pitrolo, 342 S.E.2d 156, 160 ( W.Va. 1986). If any of
the claims against the insured might trigger coverage, the
insurer must defend against all the claims. Horace Mann
Ins. Co. v. Leeber, 376 S.E.2d 581, 584 (1988) (citing
Donnelly v. Transp. Ins. Co., 589 F.2d 761, 765 (4th
Cir. 1978)). Therefore, “it is generally recognized
that the duty to defend an insured may be broader than the
obligation to pay under a particular policy.” Butts
v. Royal Vendors, Inc., 504 S.E.2d 911, 914 ( W.Va.
1998) (quoting Silk v. Flat Top Constr., Inc., 453
S.E.2d 356 ( W.Va. 1994)).
duty to indemnify, by contrast, refers to an insurer's
responsibility to pay a monetary award when its insured has
become liable for a covered claim.” Perdue Farms,
Inc. v. Travelers Cas. & Sur. Co. of Am., 48 F.3d
252, 257-58 (4th Cir. 2006). The duty is only triggered by
“claims that actually fall within the terms of
the policy.” State ex rel. Nationwide Mut. Ins. Co.
v. Wilson, 778 S.E.2d 677, 682 ( W.Va. 2015) (emphasis
in original) (quoting 3 Jeffrey E. Thomas, New Appleman on
Insurance Law Library Edition § 18-1 (LexisNexis)). The