Philadelphia Indemnity Ins. Co. v. Allied Mortgage and Financial Corp. S.D. Florida, May 9, 2011
U.S. District Judge Adalberto Jordan refused to toss a lawsuit filed by plaintiff insurer against defendant policyholder to free insurer from providing coverage to the insolvent company in investor actions. The underlying action involved a state claim by investors seeking damage over defendant’s mishandling of investments and loans. Specifically, the investors alleged negligent misrepresentations.
Plaintiff issued an insurance policy to defendant providing professional liability coverage in connection with the company’s mortgage broker and banker service from 2006 to 2010. The policy also provided coverage for the company’s officers and directors. The policy provides that plaintiff is responsible for any damages resulting from, or expenses incurred in defense of, any claims or legal actions brought against defendant related to its provision of mortgage broker/banker services.
The company then became insolvent and refused to honor certain promissory notes. In 2010, defendant was sued in state court by separate groups of investors, with allegations of negligent misrepresentation, negligent operation, breach of fiduciary duty, action on promissory notes, violations of Florida’s Securities and Investor Protection Act and unjust enrichment. Defendant then turned to plaintiff for coverage and reimbursement of defense costs related to these investment actions. Although plaintiff provided defendant with defense in those matters, it did so under a full reservation of rights. The plaintiff then instituted this declaratory judgment action.
The district judge rejected defendant’s contention that the current federal declaratory judgment suit should be dismissed because the underlying investor action seeking damages in state court was a parallel proceeding. The judge found that the action is not parallel because the state court action against defendant and its officers relate to claims by investors that have lost money due to defendant’s insolvency, and the plaintiff here is not a party to those investor actions. In addition, plaintiff in this declaratory judgment action is seeking a declaration regarding its policy obligations as to defendant and its officers and directors in the state court actions. Therefore, the judge concluded, the two actions involve fundamentally distinct issues and different parties and the declaratory judgment action should not be dismissed.
The judge also rejected defendant’s argument that the declaratory judgment action was premature finding that insurer’s duty to defend became ripe when the state court complaints were filed against defendant and its officers and directors. Although the judge found the issue as to the duty to defend was ripe, he did stay the issue as to indemnification, holding that such a duty cannot be determined until the state court proceeding has concluded.
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