United States District Court, D. Maryland
CORNERSTONE TITLE & ESCROW, INC. et al.
EVANSTON INSURANCE COMPANY
WILLIAM M. NICKERSON, Senior District Judge
This case, which is before this Court on remand from the Fourth Circuit Court of Appeals, concerns the obligations of Defendant Evanston Insurance Company ("Evanston") to Plaintiffs, Cornerstone Title & Escrow, Inc. ("Cornerstone") and Sean Adetula, under a professional liability insurance policy. This Court previously entered summary judgment in favor of Evanston as to its duty to defend and its duty to indemnify Cornerstone on the basis that at least two policy exclusions eliminated Defendant's obligation to provide coverage for the litigation underlying this dispute. The Court did not reach the applicability of two additional exclusions. On appeal, the Fourth Circuit reversed, instructing this Court to enter partial summary judgment in favor of Plaintiffs on the issue of the duty to defend as to those exclusions, vacate its previous entry of summary judgment in favor of Evanston as to its duty to indemnify, and consider the remaining two exclusions briefed by the parties in their cross-motions for summary judgment. Having determined that no hearing is necessary, Local Rule 105.6, the Court will now do so.
I. FACTUAL AND PROCEDURAL BACKGROUND
In 2008, the Maryland Attorney General sued Cornerstone and ten other defendants for roles played in a foreclosure rescue scheme in the Circuit Court for Baltimore County. See Second Amended Complaint ("SAC") in Consumer Protection Division v. Michael K. Lewis, Case No. 24-C-07-007811, ECF No. 1-5. In this scheme, various individuals (referred to collectively as the "Lewis Defendants") marketed foreclosure-consulting services to homeowners at risk of losing their homes. The Lewis Defendants would convince the homeowners to enter into sale-leaseback agreements, through which the homeowner would sell his or her home to the Lewis Defendants and rent it back, with the hope and intention of rebuilding his or her credit and repurchasing the property in the future.
In reality, the Lewis Defendants would return to the homeowners very little of the equity they had built up in their homes. Instead, the Lewis Defendants would inform the homeowners that unspecified fees and charges consumed whatever equity they had in their homes, and convince them to sign the settlement checks over to the Lewis Defendants. The Lewis Defendants would then charge the homeowners monthly rent exceeding their original mortgage payments, "driving the homeowner out of her home and ending any chance for her to repurchase it in the future." Cornerstone Title & Escrow, Inc. v. Evanston Ins. Co., No. 13-1318, 2014 WL 631098, at *2, ___ F.Appx. ___, ___ (4th Cir. Feb. 19, 2014). Through this scheme, homeowners lost "both the title to their homes and the vast majority of equity they had built up in their homes." SAC ¶ 16. Although the primary perpetrators of the scheme were the Lewis Defendants, the SAC details thirteen transactions in which Cornerstone allegedly acted as settlement agent. The SAC asserts that Cornerstone acted improperly by delivering the settlement checks to the Lewis Defendants rather than the homeowners in the first instance, as well as in failing to disclose this action to the homeowners. See SAC ¶ 96. Although the conduct alleged against Cornerstone directly was limited to its behavior with respect to the settlement checks, the SAC charges Cornerstone with violations of the Protection of Homeowners in Foreclosure Act, Md. Code Ann., Real Prop. §§ 7-301, et seq. ("PHIFA"), and the Maryland Consumer Protection Act, Md. Code Ann., Com. Law, §§ 13-101, et seq. ("CPA"). To the extent that the allegations are not asserted directly against Cornerstone, the Attorney General sought to hold Cornerstone jointly and severally liable for the actions of the other defendants, asserting that Cornerstone provided substantial assistance in the foreclosure rescue scheme. See, e.g., SAC ¶¶ 22 ("[A]t settlement, with the aid and assistance of Defendants Thomas and Cornerstone, the Lewis Defendants prevent the homeowners from receiving all the funds due to them."); 69 ("Each of the Foreclosure Rescue Defendants is jointly and severally liable for the violations of PHIFA alleged herein."). Cornerstone eventually entered into a settlement agreement by which it agreed to pay $100, 100 in restitution, while maintaining that it was not responsible for the conduct alleged. See ECF No. 1-6 (Consent Order).
Cornerstone filed the present action, alleging that Evanston owed it a duty to defend and a duty to indemnify in the underlying action pursuant to its professional liability insurance policy, EO-831073, which covered the period beginning October 1, 2007, to October 1, 2008 ("the Policy"). In relevant part, the Policy provides that Evanston will pay "the amount of Damages and Claims Expenses... because of any (a) act, error or omission in Professional Services rendered... or (b) Personal Injury committed [by Cornerstone], " and "investigate, defend and settle any Claim to which coverage under this policy applies." ECF No. 14-3 at 7-8. Evanston argues, however, that it did not owe a duty to defend the underlying action because of the applicability of the following provisions, which exclude from coverage claims made against the insured:
(a) based upon or arising out of any dishonest, deliberately fraudulent, malicious, willful or knowingly wrongful act or omission committed by or at the direction of the Insured.
(n) based upon or arising out of the Insured gaining any profit or advantage to which the Insured is not legally entitled.
(x) based upon or arising out of the actual or alleged theft, conversion, misappropriation, disappearance, or any actual or alleged insufficiency in the amount of any escrow funds, monies, monetary proceeds, or any other assets, securities, negotiable instruments, or any other things of value; this Exclusion shall apply in any and all circumstances, and shall apply irrespective of which individual party, or entity actually or allegedly committed or caused in whole or part the theft, conversion, misappropriation, disappearance, or the actual or alleged insufficiency in amount.
(cc) based upon or arising out of the Real Estate Settlement Procedures Act (RESPA) or any similar state or local legislation.
Id. at 5-6, 10.
Upon considering the Policy initially, this Court determined that exclusions (n) and (x) applied to bar coverage, reasoning that "[t]he only reasonable reading of the SAC is that Cornerstone wrongfully denied the homeowners proceeds from the sale of their homes to which they were entitled." ECF No. 19 at 17. Focusing on the SAC as a whole, the Court determined that it "only alleged conduct that meets exclusions of the policy - (n) and (x), at minimum[.]" Id . Having determined that the conduct in the underlying action fell within the bounds of exclusions (n) and (x), the Court did not reach consideration of exclusions (a) and (cc), and ultimately entered judgment in favor of Evanston as to both the duty to defend and the duty to indemnify. See ECF Nos. 20, 21. Cornerstone appealed.
The Fourth Circuit reversed, determining that this Court erred in focusing on the "gravamen" of the Complaint instead of parsing the individual allegations pursued by the Attorney General against Cornerstone. Specifically, as to exclusion (n), the Court determined that the SAC "did not allege that any particular profit' or advantage' inured to Cornerstone's benefit, as exclusion (n) requires." Cornerstone, 2014 WL 631098, at *5.
As to exclusion (x), the Fourth Circuit rejected Evanston's assertion that Cornerstone's misdirection of settlement checks amounted to conversion, but stated that even if it did, Evanston's duty to defend would nonetheless be triggered because "other allegations in the Attorney General's complaint are not within the ambit of that exclusion[.]" Id. at *8. Noting again the allegations of nondisclosure and that the "underlying complaint attempts to impose liability on Cornerstone for acts of its co-defendants that have no connection at all to misdirected checks, " the Fourth Circuit determined that ...