The United States District Court for the Northern District of Illinois issued a judgment on September 24, 2015, giving Wentzel Law a huge victory in a complex insurance coverage litigation.

Wentzel Law represented Coastal Funding, LLC, a private lender who supplied short-term loans to investors engaged in real estate “short sale” transactions.  Between June 2008 and October 2008, Coastal Funding wired funds to the escrow account of Chicago Abstract Title Agency (“CATA”) in connection with 32 short sale transactions that CATA portrayed as legitimate transactions.  In truth, the transactions were bogus and an employee of CATA who engineered the fraudulent transactions diverted the monies to himself and three co-conspirators.  Two other lenders also fell victim to the scheme.

Coastal Funding filed suit against CATA and its principal, First American Title Insurance Company (“First American”), in the Circuit Court of Cook County in December 2008.  Soon thereafter, CATA was administratively dissolved leaving no assets available to satisfy a judgment.  First American denied responsibility for CATA’s fraud based on a provision in its agency contract stating that CATA was not First American’s agent for purposes of conducting escrows or closings.

CATA tendered the lawsuit to its liability insurance carrier, Title Industry Assurance Company (“TIAC”).  TIAC rejected the tender and refused to defend CATA, asserting that the claims arose from the employee’s intentional fraud and thus were excluded under the policy’s “intentional acts” exclusion.  The other lenders victimized by the scheme dismissed their claims against CATA, concluding that there was no insurance available to pay the claims.

Wentzel Law took a more aggressive and creative approach.  Observing that TIAC’s policy contained language requiring each insured’s conduct to be analyzed separately for purposes of coverage, Wentzel Law asserted direct liability claims against CATA based on its independent duties and conduct.  These direct liability claims included negligent supervision of CATA’s escrow bank account, negligent supervision of employees conducting transactions on the account, and common law negligence based on duties imposed by the Illinois Title Insurance Act.  Wentzel Law then obtained default judgments against CATA on several Counts of the complaint including breach of escrow contract and breach of fiduciary duty, which do not require proof of intentional conduct.  Later, Wentzel Law also moved for summary judgment on its claims for negligence against CATA.

On the eve of the summary judgment hearing, TIAC finally appointed defense counsel to represent CATA.  TIAC contemporaneously also filed a complaint for declaratory judgment in the United States District Court for the Northern District of Illinois, seeking a declaration that Coastal Funding’s claims were not covered by TIAC’s policy and therefore TIAC had no duty to defend.  Wentzel Law, on behalf of Coastal Funding, filed a counterclaim seeking a declaration that TIAC had a duty to defend, breached that duty, and was estopped from asserting any and all policy defenses to coverage.

On September 24, 2015, the district court granted summary judgment to Coastal Funding and against TIAC.  The court found that Coastal Funding’s direct liability claims against CATA based on independent duties and conduct were potentially covered by the policy.  As a result, the district court concluded, the insurer had a duty to defend CATA against all of Coastal Funding’s claims, even those based on intentional conduct.  The district court further concluded that TIAC’s appointment of defense counsel to represent CATA was untimely as a matter of law.  Lastly, the district court found that because TIAC breached its duty to defend, it was estopped from asserting any and all policy defenses to coverage.  A copy of the district court’s opinion may be found here.