No Coverage For $20.8M Default Judgment Against Insured, Federal Judge Rules

by Tara Arick on October 10, 2013 · 0 comments

in Contract Law

A Florida federal court entered judgment in favor of an insurer on Oct. 8 in a lawsuit seeking coverage for a $ 20.8 million default judgment entered against an insured, finding that the insured failed to satisfy its claims-reporting obligation under a title agent’s professional liability insurance policy (Lake Buena Vista Vacation Resort L.C. v. Gotham Insurance Co., No: 6:12-cv-1680-Orl-31DAB, M.D. Fla.;¬†2013 U.S. Dist. LEXIS 144729).

Lake Buena Vista Vacation Resort L.C. (LBV) and Coastal Title Services Inc. collaborated to develop the condominium project San Marco Resort.

On June 30, 2008, Andrew and Susan Mathew sued Coastal, one of its principals Ira Hatch and LBV for breach of contract, conspiracy and unjust enrichment. The Mathews sought the return of two deposits of $ 27,000 total that they had made in connection with the San Marco Resort project. LBV cross-claimed for breach of fiduciary duty against Hatch and breach of contract against Coastal.

$ 15.6M Judgment

On Sept. 21, 2011, a judgment of $ 15.6 million in damages and $ 5.2 million in prejudgment interest, as well as all of Coastal’s property, was awarded in favor of LBV. On April 30, 2013, an amended default judgment was entered against Coastal.

LBV then sued Gotham Insurance Co. in the Ninth Judicial Circuit Court in and for Orange County, seeking recovery of the judgment under a “Title Agent’s Professional Liability Insurance Policy” that Gotham issued to Coastal.

The insurer removed the case to the U.S. District Court for the Middle District of Florida and moved for summary judgment.

‘Woefully Short’

Gotham argued that there is no coverage for LBV’s cross-claim against Coastal because notice of the claim was not provided before the policy’s Oct. 3, 2007, cancellation date.

Judge Gregory A. Presnell agreed, noting that an October 2007 letter written by Hatch “falls woefully short of providing notice of LBV’s cross-claim.”

“Among other failings, the Hatch Letter does not report an actual claim; it reports a ‘possible claim.’ It does not identify LBV, the Mathews or anyone else as the entity or individual who might make a claim against Coastal. It does not even associate the San Marco Resort project with the potential claim. It does not describe the amount of money at issue or, except in the vaguest possible terms, describe the circumstances giving rise to the potential claim. Moreover, there is no evidence in the record that Hatch even knew by October 4, 2007 – the date of the Hatch Letter – that LBV intended to pursue Coastal in connection with the failure of the San Marco Resort project. Even assuming Hatch knew this, however, the Hatch Letter did not provide the required notice to Gotham,” he said.

The judge also rejected LBV’s contention that Gotham received timely notice of the underlying suit and LBV’s cross-claim because LBV served a subpoena for deposition duces tecum on Gotham on Sept. 30, 2010.

“Even assuming that the subpoena did provide the requisite notice, which Gotham denies, it was received years outside the policy period and therefore could not bring LBV’s cross-claim within the coverage provided by the Policy,” the judge said.

The judge also dismissed LBV’s argument that Gotham is estopped from arguing that the Hatch letter was not a valid report of a claim.

“LBV has provided no evidence (or even an argument) that Coastal changed its position in any way in response to Gotham’s use of the term ‘this claim’ or assigning of a claim number in response to the Hatch Letter. Accordingly, equitable estoppel cannot apply here,” he noted.

Policy Exclusions

Gotham also argued that several policy exclusions bar coverage for LBV’s cross-claim, including exclusion I for acts, errors or omissions committed with dishonest, fraudulent, criminal or malicious purpose, exclusion V for damages from conversion, misappropriation, commingling or defalcation of funds, exclusion VII for breach of any express contract (other than those regarding the state of a title) and exclusion XXV for any willful or intentional failure by Coastal or Coastal employees to comply with escrow instructions.

The judge agreed.

“The theft of the escrow funds was the core of the allegations set forth in the cross-claim, despite LBV’s current effort to reinterpret that document. The exclusions therefore apply,” he said, granting the insurer’s motion for summary judgment.

Counsel

Daniel J. O’Malley and David H. Simmons of DeBeaubien, Knight, Simmons, Mantzaris & Neal in Orlando represent Lake Buena Vista.

Brian W. Bennett of Page, Eichenblatt & Bennett in Orlando, Christina R. Salem and Christopher R. Carroll of Carroll, McNulty & Kull in Basking Ridge, N.J., and Michael J. Tricarico of Carroll, McNulty & Kull in New York represent Gotham.

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