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ALPS Property & Casualty Insurance Co. v. Bowles Rice, LLP

United States District Court, N.D. West Virginia

July 31, 2018




         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.


         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 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.

         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 Agreements required 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 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).

         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 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).[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 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).

         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. 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).

         Sometime 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 8-9.[4]

         After 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).[5]

         On May 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).[6] 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).

         Ultimately, 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).

         First 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).

         Thereafter, 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).

         Bowles 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. 25).

         On 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).


         Summary 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).

         The 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).


         “A 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.

         “An 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)).

         “The 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 ยง 18-1 (LexisNexis)). The ...

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