Mountain Lakes Abstract Co. v. Certain Underwriters at Lloyd's

605 F.Supp.3d 645

MOUNTAIN LAKES ABSTRACT CO. INC., Thomas W. Fiers, Jennifer J. Fiers, Robert Casper, and Scott M. Marinelli, Plaintiffs

v.CERTAIN UNDERWRITERS AT LLOYD'S, LONDON, Defendant

CIVIL ACTION NO. 3:20-CV-1484

United States District Court, M.D. Pennsylvania.

Signed June 1, 2022

Gerald John Hanchulak, Hanchulak Law Offices PC, Clarks Summit, PA, Howard A. Rothenberg, Herlands Rothenberg & Levine, Scranton, PA, Joseph Robert Rydzewski, Spall, Rydzewski & Anderson, P.C., Hawley, PA, for Plaintiff Mountain Lakes Abstract Co. Inc.

Gerald John Hanchulak, Hanchulak Law Offices PC, Clarks Summit, PA, Joseph Robert Rydzewski, Spall, Rydzewski & Anderson, P.C., Hawley, PA, for Plaintiffs Thomas W. Fiers, Jennifer J. Fiers.

Gerald John Hanchulak, Hanchulak Law Offices PC, Clarks Summit, PA, Howard A. Rothenberg, Herlands Rothenberg & Levine, Scranton, PA, for Plaintiff Scott M. Marinelli.

Scott F. Bertschi, Pro Hac Vice, Timothy Larsen, Clyde & Co. US LLP, Atlanta, GA, William J. McPartland, Marshall Dennehey, Moosic, PA, for Defendant.

MEMORANDUM

Christopher C. Conner, United States District Judge

This is a dispute over insurance coverage brought by plaintiffs Mountain Lakes Abstract Co., Inc., Thomas W. Fiers, Jennifer J. Fiers, Robert Casper, and Scott M. Marinelli (collectively "Mountain Lakes") against Certain Underwriters at Lloyd's, London ("Underwriters"), seeking damages and declaratory relief. Underwriters assert five counterclaims against Mountain Lakes. Underwriters now move for judgment on the pleadings. We will grant Underwriters’ motion.

I. Factual Background & Procedural History

Mountain Lakes Abstract Co., Inc., is a title insurance company located in Pocono Pines, Pennsylvania. (See Doc. 1 ¶¶ 2, 12). The individual defendants are shareholders in Mountain Lakes. (See id. ¶¶ 3-6, 13). Underwriters issued Mountain Lakes an "Errors & Omissions Liability Insurance Policy," Certificate No. AMS-0141103, covering the period between November 19, 2017, and November 19, 2018. (See id. ¶¶ 8, 14; Doc. 1-1 at 5).

Under Mountain Lakes’ policy, Underwriters promise to pay, sans the deductible, all "Damages and Claims Expenses resulting from Claims first made against [Mountain Lakes] during the Policy Period ... as a result of a Wrongful Act by [Mountain Lakes]" up to $1,000,000 per claim and up to $2,000,000 in the aggregate. (See Doc. 1-1 at 5, 7). The policy defines "Claim" as "a demand for money or services," (see id. at 9), and "Wrongful Act" as "[a]ny negligent act, error or omission committed by [Mountain Lakes], arising solely from the performance of Professional Services for others for a fee or commission," (see id. at 13). However, should the claim result from a "negligent act, error, or omission in failing to identify, disclose and/or prevent theft, conversion, commingling, embezzlement or misappropriation[,]" the policy's coverage is limited to only $100,000 per claim and in the aggregate ("wrongful acts limitation"). (See id. ) The policy requires that Mountain Lakes provide timely notice to Underwriters’ agent, Lancer Claims Services ("Lancer"), of any claims against it. (See id. at 6; see also Doc. 1 ¶ 29).

The policy also enumerates 37 exclusions relieving Underwriters from the obligation to defend and indemnify Mountain Lakes under certain conditions. (See Doc. 1-1 at 14-17). Most pertinent to the instant litigation is an exclusion we will refer to as the "criminal acts exclusion." The criminal acts exclusion bars coverage for claims involving "[a]ny intentional wrongdoing, fraud, dishonesty, or malicious Wrongful Acts by [Mountain Lakes], if a judgment or other final adjudication adverse to [Mountain Lakes] establishes such conduct, or if [Mountain Lakes] admits to such conduct." (See id. at 14). Additionally, if Mountain Lakes’ criminal conduct is "established as a matter of fact in a civil, arbitration, criminal or other proceeding," the criminal acts exclusion requires Mountain Lakes to "reimburse [Underwriters] for Claims Expenses." (See id. )

First American Title Insurance Company ("First American") filed a civil complaint against Mountain Lakes in the Monroe County Court of Common Pleas on November 6, 2018, alleging that Marinelli, acting as a closing agent for Mountain Lakes, misappropriated funds related to a real estate transaction transferring a property located at 252 Depponers Road in Blakeslee, Pennsylvania. (See Doc. 1-2; see also Doc. 1 ¶¶ 15-19). Specifically, First American alleged Mountain Lakes, which was responsible for recording the deed and related mortgage for the property, passed a fraudulent check for $11,316 to the recorder of deeds for Monroe County. (See id. ¶¶ 19-21). Mountain Lakes allegedly wrote the check to draw on a nonexistent bank account. (See Doc. 1-2 ¶¶ 48-49). In response to the fraudulent check, the recorder sought to strike the deed, purportedly forcing First American to pay the $11,316 to protect itself against liability. (See id. ¶ 22). The complaint also alleged that Marinelli and Mountain Lakes’ misappropriation extended to "other transactions." (See id. ¶ 23). The complaint did not specify the other transactions, but averred Marinelli and Mountain Lakes collected money "at closings" from buyers, sellers, and lenders to pay recording fees, taxes, and insurance premiums, yet never remitted the funds. (See Doc. 1-2 ¶¶ 31, 38, 41, 55). First American also alleged Marinelli had been arrested and was facing criminal charges related to the fraudulent check. (See id. ¶ 54).

First American filed an amended complaint on May 31, 2019, averring additional facts concerning a series of fraudulent real estate transactions through which Mountain Lakes obtained $287,001.50 from a mortgage lender and for which First American faced liability. (See Doc. 1-4 ¶¶ 31, 60-67). The following month, Marinelli pled guilty in the Monroe County Court of Common Pleas to knowingly passing a bad check while acting as a principal for Mountain Lakes and was sentenced to between four and twelve months’ imprisonment. (See Docs. 10-4, 10-5). First American filed a second amended complaint on September 25, 2019, (see Doc. 1 ¶ 34), adding details related to Marinelli's conviction and Mountain Lakes’ alleged misappropriation of funds, and advancing two additional causes of action, (see Doc. 1-5 ¶¶ 65, 118-129).

Mountain Lakes alleges it "timely" informed Underwriters of First American's complaint pursuant to the terms of the policy. (See Doc. 1 ¶ 28). Lancer sent Mountain Lakes a reservation-of-rights letter on January 30, 2019. (See id. ¶¶ 29-30; see also Doc. 1-3 at 1). In the letter, Lancer and Underwriters agree to provide Mountain Lakes with a legal defense but inform Mountain Lakes that "[i]t has been reported ... you have been arrested and charged with fraud and theft related to local real estate closings" and that "[i]t [is] alleged that you misappropriated funds in the subject transaction which relates to the complaint, as well as others." (See Doc. 1-3 at 1-2, 8-9). Consequently, the letter apprises Mountain Lakes the claim falls within the wrongful acts limitation and "the maximum amount that can be paid out for the Complaint in indemnity and expense is $100,000." (See id. at 2; see also Doc. 1 ¶ 40). The letter also cautions Mountain Lakes that, "based upon the allegations, there are provisions of the Policy that may apply to limit or preclude coverage," and identifies eight exclusions potentially applying to the claim, including the criminal acts exclusion. (See Doc. 1-3 at 2-7). Mountain Lakes alleges neither Lancer nor Underwriters engaged in any investigation of First American's claim other than examining the complaint before sending the letter. (See Doc. 1 ¶¶ 30, 41). Mountain Lakes alleges it timely submitted First American's amended and second amended complaints to Underwriters. (See id. ¶¶ 31, 34, 42). Neither Underwriters nor Lancer sent Mountain Lakes any additional correspondence until August 5, 2020, (see id. ¶¶ 35, 41), when Underwriters’ coverage counsel informed Mountain Lakes by letter that the "additional information" provided by Mountain Lakes did not change Underwriters’ position regarding coverage, (see Doc. 1-6; see also Doc. 1 ¶ 35).

Mountain Lakes filed the instant suit on August 19, 2020. Underwriters answered Mountain Lakes’ complaint, denying all claims and asserting five counterclaims. Underwriters now move for judgment on the pleadings as to Mountain Lakes’ causes of action and four of the five counterclaims. The motion is fully briefed and ripe for disposition.

II. Legal Standards

A. Judgment on the Pleadings

A motion for judgment on the pleadings is the procedural hybrid of a motion to dismiss and a motion for summary judgment. See Westport Ins. Corp. v. Black, Davis & Shue Agency, Inc., 513 F. Supp. 2d 157, 162 (M.D. Pa. 2007). Rule 12(c) of the Federal Rules of Civil Procedure provides: "After the pleadings are closed—but early enough not to delay trial—a party may move for judgment on the pleadings." FED. R. CIV. P. 12(c). To succeed on a Rule 12(c) motion, the movant must clearly establish that no material issue of fact remains to be resolved and that the movant "is entitled to judgment as a matter of law." Sikirica v. Nationwide Ins. Co., 416 F.3d 214, 220 (3d Cir. 2005) ; see 5C CHARLES ALAN WRIGHT ET AL ., FEDERAL PRACTICE AND PROCEDURE § 1368 (3d ed. 2015). A Rule 12(c) motion for judgment on the pleadings is decided under a standard similar to a Rule 12(b)(6) motion to dismiss. See Zimmerman v. Corbett, 873 F.3d 414, 417 (3d Cir. 2017). That is, judgment on the pleadings should be granted only when, accepting as true the facts alleged by the nonmovant and drawing "all reasonable inferences" in that party's favor, the movant is entitled to judgment as a matter of law. See id. (citation omitted).

B. Declaratory Judgment

Mountain Lakes and Underwriters seek, inter alia , declaratory relief. The Declaratory Judgment Act provides that "any court of...