D.C. Federal Court Holds Insured Not Entitled to Defense in Forged Deed Lawsuit After Insured Conveyed Property

The United States District Court for the District of Columbia recently held that an insured was not entitled to a defense in a lawsuit alleging a forged deed after it conveyed the property, and when the underlying complaint alleges that the insured was involved in wrongful conduct.  See Sec. Title Guarantee Corp. of Baltimore v. 915 Decatur St NW, LLC, 2019 WL 6728449 (D.D.C. Dec. 11, 2019), as amended (Mar. 23, 2020).  In the case, the insured defendant purportedly purchased a property in 2016.  That same day, the insured sold the property to another entity.  The plaintiff title insurance company issued a title insurance policy to the insured.  In 2017, the prior owner of the property brought a lawsuit against the insured and the subsequent purchaser, alleging that her signature on the deed to the insured was forged.  The insured submitted a claim to the title insurer, and the insurer denied the claim.  The insurer then brought this action seeking a declaratory judgment that the insured was not entitled to coverage under the policy, and the parties cross-moved for summary judgment.

The Court granted the title insurer’s motion in part and denied the insured’s motion.  Under the policy, the insured had coverage “only so long as” it retained an interest in the property, held an obligation secured by a purchase money mortgage, or would be liable due to warranties in the transfer of title.  The Court found that most of the claims made by the prior owner, including claims of fraud or negligence, were not covered because they related to the insured’s actions before it purchased the property.  Therefore, they were not “losses or damages that were effectively incurred during the coverage period when [the insured] owned the property” and not covered by the policy.  The Court further found that there were no warranties in the insured’s deed to the other entity that would allow coverage to continue for these claims.  The Court found that only two of the prior owner’s claims fell within the coverage period:  “trespass for mesne profits,” which was about the money the insured received for the sale of the property, and conversion.  Nonetheless, the Court held that these two claims, among others, are excluded under the policy’s Exclusion 3(a), which bars claims “created, suffered, assumed or agreed to” by the insured.  Using the “eight corners” rule, the Court held that coverage was determined by comparing the allegations of the complaint with the policy language.  Because the prior owner’s claims all centered on the allegation that the insured was actively involved in the allegedly fraudulent transfer of the Property, Exclusion 3(a) barred coverage.  Finally, the Court denied the title insurer’s argument that it had no duty to indemnify the insured, finding that the motion was premature.  The Court found that, although there is not coverage right now based on the claims in the complaint, the development of facts in the underlying litigation might ultimately result in a covered loss.  “While the facts as alleged in the Complaint are such that [the insurer] has no duty to defend the suit, it is less clear that it will, under no circumstances, have no duty to indemnify any losses.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Michael Crowley at mcrowley@riker.com, or Anthony Lombardo at alombardo@riker.com.