Free Opening Brief in Support - District Court of Delaware - Delaware

Case 1:08-cv-00144-SLR

Document 23

Filed 07/15/2008

Page 1 of 8

IN THE UNITED STATES DISTRICT COURT DISTRICT OF DELAWARE ST. PAUL MERCURY INSURANCE COMPANY, Plaintiff, v. GREEN PARK FINANCIAL, LP, and WOODLARK PROPERTIES III, LP, WOODLARK ENTERPRISES, III, INC., Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) )

Case No. 08-144 (SLR)

ST. PAUL MERCURY INSURANCE COMPANY'S MEMORANDUM IN SUPPORT OF ITS MOTION FOR SUMMARY JUDGMENT This motion asks the Court to decide that a "financial professional services" exclusion endorsement on a general liability policy applies to exclude a claim arising out of the insured loaning money secured by a mortgage. services" as including straightforward. St. Paul Mercury Insurance Company ("St. Paul") issued a primary general liability policy and an umbrella policy on which Green Park Financial, LP ("Green Park") was a named insured. The primary policy and the umbrella policy each contain a financial professional services exclusion endorsement. The endorsement expressly bars coverage for bodily injury that results from the performance of or failure to perform any financial activity or service, expressly including, as set forth above, "lending, leasing or mortgage operations." Green Park financed Woodlark Properties III, LP's purchase of an apartment complex in Huntington, West Virginia. On January 13, 2007, a fire occurred on the property, and the injured The endorsement defines "financial professional The case is that

"lending, leasing, or mortgage operations."

{08110\0\00425451.DOCv1 }

WM1A 905386v1 07/15/08

Case 1:08-cv-00144-SLR

Document 23

Filed 07/15/2008

Page 2 of 8

parties filed suit against Woodlark Properties III, LP, Woodlark Enterprises III, Inc., (collectively, "Woodlark") and Woodlark's employee, the complex's property manager, Alex Vence ("Vence"). Woodlark and Vence then filed a third-party complaint against Green Park, alleging that during the lending process, Green Park was negligent in its recommendation of a building inspector and an appraiser. The financial professional services exclusion endorsement unambiguously bars coverage for this claim. As a result, there is no potential for coverage, and St. Paul is entitled to summary judgment that it owes no defense or indemnity obligation to Green Park. UNDISPUTED FACTS St. Paul issued to Walker & Dunlop, Inc. a general liability ("the Primary Policy") and an umbrella policy ("the Excess Policy") (collectively, "the Policies"), each numbered FS06803591, effective June 1, 2006 to June 1, 2007, on which Green Park is a named insured. (Certified copies of the Policies are attached hereto as Exhibit A). The Policies each include an

endorsement entitled "Financial Professional Services Exclusion Endorsement" (hereinafter "financial professional services exclusion") that provides: Financial professional services. We won't cover injury or damage or medical expenses that result from the performance of or failure to perform any financial professional service. Financial professional service means any financial activity or service, including any of the following activities or services: · · · · · · · Advisory or fiduciary services. Lending, leasing, or mortgage operations. Debiting, crediting, or accounting services. Maintaining financial accounts or records. Offering, selling, financing, or administering any insurance product. Collecting, refunding, or failing to refund premiums, interest, fees, or other charges for any insurance product. Acting as an assignee for the benefit of creditors.
{08110/0/00425451.DOCv1 }

2

WM1A 905386v1 07/15/08

Case 1:08-cv-00144-SLR

Document 23

Filed 07/15/2008

Page 3 of 8

· · · ·

Credit checking or reporting. Tax planning, withholding, or advisory operations. Escrow, electronic funds transfer, or trust operations. The issuance or sale of bank or certified checks, letters of credit, money orders, or travelers checks.

(Exhibit A, Form G0529, Ed. 6-04, Form E0226, Ed. 6-04). Eight lawsuits were brought against Woodlark and Alex Vence seeking to recover damages because of serious injuries, including deaths, that occurred as a result of a fire on January 13, 2007 at an apartment building owned by Woodlark and managed by Vence ("Underlying Action"). (See Woodlark's third-party complaint attached hereto as Exhibit B, at ¶ 4-5). Woodlark and Vence filed a third-party complaint against Green Park seeking indemnity and/or contribution if they are held liable for damages. (Exhibit B). The third-party complaint alleges that Green Park "participated in the financing of the purchase by Defendant, Woodlark Properties III, LP, of the apartment complex referred to above and, in so doing, recommended building inspectors and retained appraisers during the lending process." (Exhibit B at ¶ 9) (emphasis supplied). Woodlark's and Vence's only cause of action against Green Park alleges that Green Park was "negligent and careless and failed to exercise reasonable care with respect to its retention of building inspectors and appraisers." (Exhibit B at ¶ 15). STANDARD FOR SUMMARY JUDGMENT Federal Rule of Civil Procedure 56(c) provides that a party is entitled to summary judgment if "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." "Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial." Ford v. Unum Life

{08110/0/00425451.DOCv1 }

3

WM1A 905386v1 07/15/08

Case 1:08-cv-00144-SLR

Document 23

Filed 07/15/2008

Page 4 of 8

Ins. Co. of America, 465 F. Supp. 2d 324 (D.Del. 2006) (quoting Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)). Interpretation of an insurance contract is a question of law for the court. Reliance Ins. Co. v. Moessner, 121 F.3d 895, 900 (3d Cir. 1997). Accordingly, if there are no facts in the complaint that would support the inclusion of a claim within the policy's coverage, summary judgment is appropriate. Essex Ins. Co. v. Kennedy, 60 Fed. Appx. 367 (3d Cir. 2003). ARGUMENT I. Maryland Law Governs the Interpretation of the Policies Green Park correctly states in its motion to dismiss that Maryland law governs the Policies. Because Woodlark did not address the issue in its motion, St. Paul will briefly address the issue here. Delaware has adopted the Second Restatement's "most significant relationship test" for determining which state's law to apply. Liggett Group, Inc. v. Affiliated FM Ins. Co., 788 A.2d 134, 137 (Del. Super. 2001). Choice of law questions involving insurance contracts are resolved by an analysis of the contacts set forth in Restatement (Second) Conflict of Laws Section 188 and Section 193. Id. Section 188 provides that the following contacts should be taken into account when determining which state has the "most significant contacts" with a contract dispute: (a) the place of contracting, (b) the place of negotiation of the contract, (c) the place of performance, (d) the location of the subject matter of the contract, and (e) the domicile, residence, nationality, place of incorporation and place of business of the parties. Second Restatement § 188. The Policies were sold to a Maryland-headquartered entity- Walker & Dunlop, Inc.- in Maryland, through a Maryland broker. Items (a), (b), and (e), therefore, point to Maryland.
{08110/0/00425451.DOCv1 }

4

WM1A 905386v1 07/15/08

Case 1:08-cv-00144-SLR

Document 23

Filed 07/15/2008

Page 5 of 8

Application of item (c) is not as clear when dealing with a general liability policy, but performance is arguably the place where the premium was paid. In this case, the premium was paid to a Maryland broker (see Exhibit A), so item (c) points toward Maryland as well. Section 193 provides specific guidance for applying item (d) to liability insurance contracts. That section states that the court should apply the "local law of the state which the parties understood was to be the principal location of the insured risk during the term of the policy, unless with respect to the particular issue, some other state has a more significant relationship..." Liggett Group at 137. Maryland was the principal location of Walker & Dunlop, Inc.'s and Green Park's risk during the policy term. According to its website, Green Park conducts business in 43 states and the District of Columbia. Its corporate headquarters, however, are located in Bethesda,

Maryland. This court has previously held that when a general liability policy covers risks located in multiple states, the principal location of the insured risk is the policyholder's principal place of business during the policy period. Liggett Group at 138. Maryland, where Green Park maintained its principal place of business, and where it purchased the Policies, was therefore the principal location of the insured risk. The Third Circuit recognizes that in an insurance coverage action, as opposed to the underlying action giving rise to the coverage dispute, a court is primarily concerned with the insurance contract. Hammersmith v. TIG Ins. Co., 480 F.3d 220, 235 (3d Cir. 2007). A state holds an important regulatory interest in insurance contracts delivered within its borders to its citizens. Id. at 232. Although the fire that is the subject of the Underlying Action occurred in West Virginia, the Policies that are the subject of the coverage litigation were issued through a

{08110/0/00425451.DOCv1 }

5

WM1A 905386v1 07/15/08

Case 1:08-cv-00144-SLR

Document 23

Filed 07/15/2008

Page 6 of 8

Maryland insurance broker to Walker & Dunlop, Inc. in Maryland. (Exhibit A). Maryland plainly has the most significant relationship to this dispute. Because Maryland was the principal location of the risk and has the most significant relationship to the Policies, Maryland state law governs the interpretation of the Policies. II. The Policies Do Not Provide Coverage for Green Park's Liability in the Underlying Action A. Maryland Principles of Insurance Contract Interpretation

Under Maryland law, when deciding the issue of coverage under an insurance policy, the primary principle of construction is to apply the terms of the insurance contract in accordance with the terms' usual, ordinary, and accepted meaning. Bausch & Lomb, Inc. v. Utica Mut. Ins. Co., 625 A.2d 1021, 1031 (Md. 1993); Nationwide Mut. Ins. Co. v. Scherr, 647 A.2d 1297 (1994), cert. denied, 652 A.2d 670 (1995). This "is the meaning that a reasonably prudent layperson would give to the term." Scherr at 1300. Maryland does not follow the rule that insurance policies should, as a matter of course, be construed against the insurer. Clendenin Bros. v. U.S. Fire Ins. Co., 889 A.2d 387, 394 (Md. 2006). Instead, ordinary principles of contract interpretation apply. Dutta v. State Farm Ins. Co., 769 A.2d 948, 957 (Md. 2001). If no ambiguity in the terms of the insurance contract exists, a court has no alternative but to enforce those terms. Id. B. The Duty to Defend Standard

Maryland courts adhere to the "potentiality for coverage" rule when determining an insurer's duty to defend its insured: The obligation of an insurer to defend its insured . . . is determined by the allegations in the tort actions. If the plaintiffs in the tort suits allege a claim covered by the policy, the insurer has a duty to defend. Even if a tort plaintiff does not allege facts which clearly bring the claim within or without the policy coverage, the insurer
{08110/0/00425451.DOCv1 }

6

WM1A 905386v1 07/15/08

Case 1:08-cv-00144-SLR

Document 23

Filed 07/15/2008

Page 7 of 8

still must defend if there is a potentiality that the claim could be covered by the policy. Brohawn v. Transamerica Ins. Co., 276 Md. 396, 407-08, 347 A.2d 842, 850 (1975). The Court of Appeals established a two-part test for determining if an insurer has a duty to defend: (1) what is the coverage under the insurance policy? (2) do the allegations in the tort action potentially bring the tort claim within the policy's coverage? The first question focuses upon the language and requirement of the policy, and the second question focuses on the allegations of the tort suit. St. Paul Fire & Marine Ins. Co. v. Pryseski, 438 A.2d 282, 285 (Md. 1981). In light of the financial professional services exclusion in the Policies, there is no potential that the Underlying Action will give rise to coverage under the Policies. Therefore, St. Paul has no duty to defend Green Park. C. Application of the Financial Professional Services Exclusion

The plain terms of the Policies unambiguously exclude coverage for the bodily injury alleged in the Underlying Action. The Policies do not apply to injury "that result[s] from the performance of or failure to perform any financial professional service." (Exhibit A). The

Policies define "financial professional service" as "any financial activity or service, including. . . lending, leasing, or mortgage operations..." (Exhibit A). A reasonably prudent layperson would read these terms to mean that Green Park is not covered for bodily injury resulting from its lending and mortgage operations. The third-party complaint in the Underlying Action makes clear that Green Park's only connection to the tragic fire was that it loaned money to Woodlark, secured by a mortgage, to purchase the apartment buildings where the fire occurred. (Exhibit B at ¶ 9). Green Park's alleged liability stems from its recommendation of a building inspector and appraiser as part of the lending process. (Exhibit B at ¶ 9). There is simply no allegation in the Underlying Action that
{08110/0/00425451.DOCv1 }

7

WM1A 905386v1 07/15/08

Case 1:08-cv-00144-SLR

Document 23

Filed 07/15/2008

Page 8 of 8

Green Park's alleged liability resulted from anything other than its lending and mortgage operations. When the terms of the Policies are given their usual and ordinary meaning, there is no potential that coverage exists for Green Park's liability, and St. Paul has no duty to defend it in the Underlying Action. The duty to defend is broader than the duty to indemnify. Utica Mut. Ins. Co. v. Miller, 746 A.2d 935, 939 (Md. 2000). Thus, where there is no duty to defend, there can be no duty to indemnify. NaturalLawn of America v. Erie Ins. Exchange, Civil No. JFM-06-0828, 2007 WL 2332315 at *2 (D. Md. Aug. 13, 2007) (applying Maryland law). Because St. Paul has no duty to defend Green Park in the Underlying Action, it also has no duty to indemnify it for any liability it incurs in the Underlying Action. CONCLUSION For the reasons set forth above, there is no potential for coverage under the Policies. Summary judgment is therefore appropriate against Defendants. FOX ROTHSCHILD LLP /s/ Neal J. Levitsky, Esquire Neal J. Levitsky, Esquire (No. 2092) Seth A. Niederman, Esquire (No. 4588) 919 N. Market Street, Suite 1300 Wilmington, DE 19801 (302) 622-4200 Attorneys for Plaintiff, St. Paul Mercury Insurance Company OF COUNSEL: Lee H. Ogburn, Esquire Kramon & Graham, P.A. One South Street, Suite 2600 Baltimore, MD 21202-3201 (410) 752-6030 Dated: July 15, 2008

{08110/0/00425451.DOCv1 }

8

WM1A 905386v1 07/15/08

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 1 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 2 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 3 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 4 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 5 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 6 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 7 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 8 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 9 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 10 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 11 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 12 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 13 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 14 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 15 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 16 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 17 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 18 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 19 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 20 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 21 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 22 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 23 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 24 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 25 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 26 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 27 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 28 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 29 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 30 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 31 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 32 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 33 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 34 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 35 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 36 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 37 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 38 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 39 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 40 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 41 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 42 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 43 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 44 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 45 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 46 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 47 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 48 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 49 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 50 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 51 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 52 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 53 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 54 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 55 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 56 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 57 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 58 of 59

Case 1:08-cv-00144-SLR

Document 23-2

Filed 07/15/2008

Page 59 of 59

Case 1:08-cv-00144-SLR

Document 23-3

Filed 07/15/2008

Page 1 of 23

Case 1:08-cv-00144-SLR

Document 23-3

Filed 07/15/2008

Page 2 of 23

Case 1:08-cv-00144-SLR

Document 23-3

Filed 07/15/2008

Page 3 of 23

Case 1:08-cv-00144-SLR

Document 23-3

Filed 07/15/2008

Page 4 of 23

Case 1:08-cv-00144-SLR

Document 23-3

Filed 07/15/2008

Page 5 of 23

Case 1:08-cv-00144-SLR

Document 23-3

Filed 07/15/2008

Page 6 of 23

Case 1:08-cv-00144-SLR

Document 23-3

Filed 07/15/2008

Page 7 of 23

Case 1:08-cv-00144-SLR

Document 23-3

Filed 07/15/2008

Page 8 of 23

Case 1:08-cv-00144-SLR

Document 23-3

Filed 07/15/2008

Page 9 of 23

Case 1:08-cv-00144-SLR

Document 23-3

Filed 07/15/2008

Page 10 of 23

Case 1:08-cv-00144-SLR

Document 23-3

Filed 07/15/2008

Page 11 of 23

Case 1:08-cv-00144-SLR

Document 23-3

Filed 07/15/2008

Page 12 of 23

Case 1:08-cv-00144-SLR

Document 23-3

Filed 07/15/2008

Page 13 of 23

Case 1:08-cv-00144-SLR

Document 23-3

Filed 07/15/2008

Page 14 of 23

Case 1:08-cv-00144-SLR

Document 23-3

Filed 07/15/2008

Page 15 of 23

Case 1:08-cv-00144-SLR

Document 23-3

Filed 07/15/2008

Page 16 of 23

Case 1:08-cv-00144-SLR

Document 23-3

Filed 07/15/2008

Page 17 of 23

Case 1:08-cv-00144-SLR

Document 23-3

Filed 07/15/2008

Page 18 of 23

Case 1:08-cv-00144-SLR

Document 23-3

Filed 07/15/2008

Page 19 of 23

Case 1:08-cv-00144-SLR

Document 23-3

Filed 07/15/2008

Page 20 of 23

Case 1:08-cv-00144-SLR

Document 23-3

Filed 07/15/2008

Page 21 of 23

Case 1:08-cv-00144-SLR

Document 23-3

Filed 07/15/2008

Page 22 of 23

Case 1:08-cv-00144-SLR

Document 23-3

Filed 07/15/2008

Page 23 of 23

Case 1:08-cv-00144-SLR

Document 23-4

Filed 07/15/2008

Page 1 of 1

CERTIFICATE OF SERVICE The undersigned hereby certifies that a copy of the attached pleading was served this 15th day of July, 2008, on the following individuals by CM/ECF electronic filing: David J. Baldwin, Esquire Potter Anderson & Corroon, LLP John Anthony Macconi, Jr., Esquire Daniel P. Bennett, Esquire Mintzer Sarowitz Zeris Ledva & Meyers, LLP /s/ Neal J. Levitsky Neal J. Levitsky, Esquire (No. 2092)

WM1A 905355v1 07/15/08