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Sunshine v. General Star National Insurance Co.

United States District Court, S.D. Indiana, Indianapolis Division

September 26, 2016

DEBBIE SUNSHINE, SUNLAND APPRAISAL SERVICES, TOWNE MORTGAGE COMPANY, Plaintiffs,
v.
GENERAL STAR NATIONAL INSURANCE COMPANY, NAVIGATORS INSURANCE COMPANY, HERBERT H. LANDY INSURANCE AGENCY INC., Defendants.

          ORDER ON MOTIONS TO DISMISS

          SARAH EVANS BARKER, JUDGE

         This matter is before us on Defendants General Star National Insurance Company's, Navigators Insurance Company's, and Herbert H. Landy Insurance Agency's Motions to Dismiss. [Dkt. Nos. 44, 46, 48.] Defendants seek to dismiss Plaintiffs Debbie Sunshine, Sunland Appraisal Services, and Towne Mortgage Company's Amended Complaint on the grounds that it fails to state a claim upon which relief can be granted. For the following reasons, we GRANT Defendants' Motions to Dismiss.

         Background and Facts

         Plaintiff Sunland Appraisal Services is a real estate appraisal service owned entirely by Plaintiff Debbie Sunshine (“Sunland”). [Amended Complaint (“Am. Compl.”) at ¶ 3.] In late 2008, Sunland was retained by Approved Mortgage Corporation (“Approved”) to perform a Manufactured Home Appraisal Report on behalf of a homeowner who wanted to refinance his mortgage. [Id. at ¶ 7.] Sunland completed the appraisal and submitted it to Approved on December 2, 2008 (the “Appraisal”). [Id. at ¶ 8.] After the refinancing closed, Approved assigned the mortgage to Towne Mortgage, who later assigned it to Federal National Mortgage Association (“FNMA”). [Id. at ¶ 9.] When the borrower subsequently defaulted on the loan, FNMA performed an investigation and concluded that the Appraisal contained misrepresentations and inaccuracies which lead to an inflated appraisal of the property's value. [Id. at ¶ 10.] Towne Mortgage then sued Sunland on November 13, 2013 in the Southern District of Indiana (Cause No. 1:13-cv-1796 (the “Underlying Action”)) to recover its damages as a result of the inaccurate appraisal. [Id. ¶ 12.] Towne Mortgage agreed to repurchase the loan for $85, 365.28, and we entered a stipulated Judgment against Sunshine and Sunland (“Judgment”). [Id. ¶ 26.] The Judgment, by its terms, is enforceable only against Plaintiffs' liability insurers. [Id.]

         On the date Sunland issued the Appraisal, December 2, 2008, Sunland was insured through an errors and omissions professional liability insurance policy from General Star which had a policy period of February 24, 2008 to February 24, 2009 and a retroactive date of February 24, 2006 (the “2008-09 Policy”)[1]. [Id. at ¶ 16.] Sunland purchased another insurance policy from General Star for the policy period of February 24, 2009 to February 24, 2010, which also had a retroactive date of February 24, 2006 (the “2009-10 Policy”). [Id.] At the time the Underlying Action was filed in 2013, Sunland was insured through an errors and omissions insurance policy with Navigators, with a policy period of May 24, 2013 to May 24, 2014 and a retroactivity date of May 24, 2010 (the “Navigators Policy”). [Id. at ¶ 17.] On December 16, 2013, Sunland demanded that General Star and Navigators defend and indemnify it in the Underlying Action. [Id. at ¶ 13.] Both declined and have refused to pay the Judgment. [Id. at ¶¶ 14-15.]

         General Star Policies

         General Star issued the 2008-09 and 2009-10 Policies (collectively, the “General Star Policies”) to Sunshine on a claims-made and reported basis.[2] The Notice page of 2008-09 Policy states:

THIS IS A CLAIMS MADE AND REPORTED FORM
REAL ESTATE APPRAISERS PROFESSIONAL LIABILITY INSURANCE POLICY CLAIMS MADE
THIS REAL ESTATE APPRAISERS PROFESSIONAL LIABILITY POLICY PROVIDES COVERAGE ON A CLAIMS-MADE AND REPORTED BASIS. THE COVERAGE PROVIDED BY THIS POLICY IS LIMITED TO ONLY THOSE CLAIMS[3] WHICH ARISE FROM PROFESSIONAL SERVICES RENDERED AFTER THE RETROACTIVE DATE STATED IN THE DECLARATIONS PAGE AND WHICH ARE FIRST MADE AGAINST THE INSURED AND REPORTED TO U.S. DURING THE POLICY PERIOD OR ANY APPLICABLE EXTENDED REPORTING PERIOD.

[2008-09 Policy (emphasis in original).] Essentially identical language appears on the Notice page of the 2009-10 Policy. [See 2009-10 Policy at p. 2.] Each of the Policies contained a retroactive date of February 24, 2006. [2008-09 Policy at p. 1; 2009-10 Policy at p. 2.]

         The Insuring Agreement of the 2008-09 Policy provides as follows:

The Company will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as Damages for Claims first made against the Insured during the Policy Period and first reported to the Company in writing during the Policy Period or within sixty (60) days thereafter, arising out of any act, error, omission or Personal Injury in the rendering of or failure to render Professional Services by an Insured covered under this policy; provided always that such act, error, omission or Personal Injury happens:
A. during the Policy Period; or
B. prior to the Policy Period provided that:
1. such act, error, omission or Personal Injury happened on or after the Prior Acts Date as indicated on the Declarations Page of this policy; and
2. at the inception of this policy the Insured had no reasonable basis to believe that any Insured had breached a professional duty and no reasonable basis to believe that an act, error or omissions might be expected to result in a Claim or Suit.
The Company shall have the right and duty to defend any Suit against the Insured seeking Damages to which this insurance applies even if any of the allegations of the Suit are groundless, false or fraudulent. However, the Company shall have no duty to defend the Insured against any Suit seeking Damages to which this insurance does not apply.

[2008-09 Policy at p. 4 (emphasis in original).] The Insuring Agreement of the 2009-10 Policy is substantively identical. [2009-10 Policy at p. 4.]

         Navigators Policy

         Navigators issued Real Estate Appraisers Errors and Omissions Insurance Policy No. PH13RAL109044IV to Sunshine (as Named Insured) and to Sunland (by endorsement) for the policy period from May 24, 2013 to May 24, 2014, with a retroactive date of May 24, 2010 (the “Navigators Policy”). [Navigators Policy at p. 1.] The Navigators Policy provides in relevant part:

The Company will pay on behalf of the Named Insured all sums in excess of the deductible that the Named Insured becomes legally obligated to pay as damages and claim expenses as a result of a claim first made against the Named Insured and reported in writing [to Navigators] during the policy period … by reason of an act or omission … in the performance of a professional service by the Named Insured, provided that:
1. No such act or omissions, or related act or omission, was committed prior to the retroactive date [May 24, 2010].

[Id. at p. 2.]

         On July 23, 2015, Plaintiffs filed a complaint against Defendants contending that Defendants breached the Policies and committed several torts in connection with the Underlying Lawsuit. [Dkt. No. 1.] On October 6, 2015, Defendants each filed a Motion to Dismiss the original Complaint on various grounds, including failure to state a claim upon which relief can be granted, much like their currently-pending motions to dismiss. [Dkt. Nos. 28, 30, 32.] In lieu of filing a response to Defendants' Motions to Dismiss, Plaintiffs filed an Amended Complaint. [Dkt. No. 39.]

         In the Amended Complaint, Plaintiffs assert causes of action against Navigators and General Star for Breach of Contract (Count I), Illusory Coverage (Count II), Failure to Act in Good Faith or Engage in Fair Dealing (Count III), and violation of the Crime Victim's Relief Act (Count IV). [Am. Compl. at ¶¶ 30-56.] Plaintiffs also bring the following claims against Defendant Landy: Breach of Contract (Count V), Failure to Act in Good Faith and Engage in Fair Dealing (Count VI), Negligence (Count VII), and violation of the Crime Victim's Relief Act (Count VIII). [Am. Compl. ¶¶ 57-68.] Plaintiffs seek relief in the amount of the Judgment, as well as treble and punitive damages, attorneys' fees, and costs. [Id. at p. 13.] Defendants filed motions seeking dismissal of the Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), on the grounds that it fails to state a claim upon which relief can be granted.

         Standard of Review [4]

         Defendants' 12(b)(6) Motion to Dismiss requires the Court to accept as true all well-pled factual allegations in the Amended Complaint and draw all ensuing inferences in favor of the non-movant. Lake v. Neal, 585 F.3d 1059, 1060 (7th Cir. 2009). Nevertheless, the Amended Complaint must “give the defendant fair notice of what the . . . claim is and the grounds upon which it rests, ” and its “[f]actual allegations [must] raise a right to relief above the speculative level.” Pisciotta v. Old Nat'l Bancorp, 499 F.3d 629, 633 (7th Cir. 2007) (citations omitted). The Amended Complaint must therefore include “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007); see Fed. R. Civ. P. 8(a)(2). A ...


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