Protective Specialty Insurance Company v. Castle Title Insurance Agency, Inc.

Background

Protective Specialty Insurance Company filed this declaratory-judgment action against Castle Title Insurance Agency, Inc. Protective asked the court to declare that it had no duty to defend or indemnify Castle Title in a 2016 lawsuit filed in New York Supreme Court. The state court later dismissed all claims and cross-claims against Castle Title on June 28, 2019. That made the indemnity issue moot, so the federal court considered only Protective’s duty to defend.

Protective issued Castle Title professional-liability policies for successive periods. Policy 18-01 covered September 10, 2015, through September 10, 2016, and was a claims-made-and-reported policy. The policy defined a “Claim” to include a written subpoena served on an insured as a nonparty to litigation involving professional services provided by the insured. It also defined “Related Claims” as claims arising from connected wrongful acts or circumstances, with all related claims treated as one claim made when the earliest claim was made.

On July 21, 2015, Castle Title received a post-judgment subpoena seeking documents. The subpoena was issued in connection with an earlier foreclosure action and identified the issuer as a judgment creditor. Castle Title was not a party to that foreclosure action, and the claims in that action did not concern Castle Title’s professional services. Castle Title did not report the subpoena to Protective at that time.

In April 2016, Castle Title was named as a defendant in the 2016 lawsuit. The amended complaint alleged that Castle Title negligently or fraudulently delayed recording real-estate documents and asserted conspiracy, fraud, and fraudulent-conveyance claims. Castle Title’s insurance broker notified Protective of the lawsuit on July 19, 2016, during Policy 18-01’s coverage period. Protective acknowledged the notice and reserved its rights.

Parties’ arguments

Protective argued that the 2015 subpoena was a claim under Policy 18-01 and that it was related to the 2016 lawsuit. Under Protective’s theory, both matters would be treated as a single claim first made on July 21, 2015, before Policy 18-01 began. Protective also argued that Castle Title’s application for Policy 18-01 contained a false warranty because Castle Title reported that it knew of no incident or circumstance that might result in a claim.

Castle Title argued that the subpoena was not a claim because it was issued in mortgage-foreclosure enforcement proceedings, not litigation involving Castle Title’s professional services. Castle Title also argued that the subpoena did not require disclosure as a potential claim in the insurance application.

Court’s analysis

The court applied New York contract-interpretation law. It concluded that the policy’s language was unambiguous and that the phrase “involving Professional Services provided by” Castle Title modified “litigation or arbitration,” not the subpoena itself. Thus, the relevant question was whether the litigation in which the subpoena was issued involved Castle Title’s professional services.

The court held that the 2015 subpoena was not a “Claim” under Policy 18-01. It was a post-judgment subpoena issued to enforce a foreclosure judgment. The foreclosure action did not assert claims against Castle Title or allegations about anything Castle Title had done or failed to do, and it did not involve Castle Title’s professional services. Because the subpoena was not a claim, it could not be a related claim with the 2016 lawsuit. Castle Title therefore timely reported the 2016 lawsuit on July 19, 2016, during Policy 18-01’s coverage period, and Protective was required to defend Castle Title in that lawsuit.

The court rejected Protective’s warranty argument. It reasoned that the subpoena was not a claim under the policy and also did not generally qualify as a claim because it merely sought records rather than demanding money or other relief from Castle Title. The court found that Castle Title had no reason, based on the subpoena and the record, to believe that a claim was pending against it when the application was completed.

The court stated that the fourth cause of action, concerning whether alleged damages would constitute an uninsurable loss, was moot because the state court had dismissed all claims and cross-claims against Castle Title. The fifth cause of action, seeking recoupment of defense costs if Protective had no duty to defend, failed because the court found that Protective did have that duty. The opinion also notes that the third cause of action had previously been voluntarily dismissed by stipulation.

Disposition

Judge Cathy Seibel granted Castle Title’s motion for summary judgment and denied Protective’s cross-motion for summary judgment. The court dismissed Protective’s first and second causes of action, treated the fourth cause of action as moot, and dismissed the fifth cause of action. The court directed the clerk to enter judgment for Castle Title, terminate the pending motions, and close the case.