United States District Court for the District of Maryland grants summary judgment on 3(a) exclusion

Earlier this week, the United States District Court for the District of Maryland granted, in part, summary judgment against a title insurer for failing to provide a defense to an underlying fraud and conspiracy action. In Sharestates Investments, LLC v. WFG National Title Ins. Co., the Court reaffirmed that the duty to defend is significantly broader than the duty to indemnify, and a claim which potentially touches upon an insured’s title may trigger the duty to defend.

In Sharestates, Sharestates placed a deed of trust on a Baltimore parcel owned by an entity controlled by Jean Agbodjogbe. After the parcel was secured by the Sharestates deed of trust, Alia Al-Sabah obtained a judgment against Agbodjogbe holding that he had wrongfully obtained $7.8 million from Al-Sabah under the false promise that various properties, including the disputed parcel, would be titled in Al-Sabah’s name. Subsequent to obtaining the first judgment against Agbodjogbe, Al-Sabah filed a second action against Sharestates alleging conspiracy to obtain a fraudulent mortgage and aiding and abetting Agbodjogbe’s fraudulent conduct.

Sharestates tendered the second suit to its title insurer. WFG denied coverage and refused to provide a defense. After Sharestates filed suit alleging breach of the insurance contract against WFG, Sharestates moved for summary judgment. WFG defended asserting that the claims raised by Al-Sabah sounded in tort and were not against title but, even if they were, exclusion 3(a)—that the claims were created, suffered, assumed, or agreed to by WFG—precluded a claim for defense.

The Court roundly disagreed with WFG and noted that Al-Sabah’s suit alleged she held equitable title to the property stripped of Sharestates’ lien. The Court further noted that WFG’s 3(a) defense was inapplicable. Al-Sabah’s suit against Sharestates did not allege that Sharestates caused the initial change in title to the Property into Agbodjogbe’s wholly-owned entity. Instead, Al-Sabah alleged that Sharestates improperly issued its deed of trust to Agbodjogbe’s wholly-owned entity after title had passed to the entity but Al-Sabah’s adverse claim against the entity—and, thus, Sharestates’ interest in the parcel—stemmed from Agbodjogbe’s initial fraudulent conduct. WFG, the Court concluded, owed a defense obligation until such time as Sharestates was ultimately dismissed from the action.

Jackson & Campbell, P.C. represents title insurers and insureds in Maryland, Virginia, and Washington, D.C. and we strive to keep our clients and other title professionals up to date on various developments in the law. Additionally, we present no-cost in-house updates of the nation’s most noteworthy cases and national trends following the spring and fall American Land Title Association’s Title Counsel meetings.

If you have any questions about this case or laws impacting real estate in and around the Washington, D.C. region, feel free to contact us. Our Real Estate Litigation and Transactions Practice Group is ready to assist.

Chris Glaser