In a choice authorized for publication, the United States Court of Appeals for the Tenth Circuit just recently reversed a District Court and discovered that a title insurance provider did not have a task to safeguard an insured lending institution in an action declaring that the customer’s conveyance of deeds of trust to the loan provider was deceptive. See Banner Bank v. First Am. Title Ins. Co., 2019 WL 924792 (10th Cir. Feb. 26, 2019). In the event, the insured bank supplied loans to a customer who carried out deeds of trust from 2 of his LLCs to the bank as security. The title insurer, first American, released policies in connection with these deals. The SEC later on submitted an enforcement action versus the debtor and his business, declaring that he utilized his organisations to run a Ponzi plan. A Receiver was designated to represent the debtor’s lenders, and the Receiver brought an action versus the bank challenging the deeds of trust and declaring that neither LLC got “fairly comparable worth” for the deeds of trust. The bank sent a claim to first American, who rejected the claim under policy exemption 6, which omits” [a] ny claim, by factor of operation of federal insolvency, state insolvency, or comparable lenders’ rights laws, that the deal developing the lien … is (a) a deceitful conveyance or deceitful transfer, or (b) a preferential transfer for any factor not mentioned in Covered Threat 13(b) of this policy.” The bank ultimately settled with the Receiver and brought this action versus first American for breach of agreement and breach of the indicated covenant of great faith and reasonable dealing in stopping working to protect and stopping working to indemnify. After the celebrations cross-moved for summary judgment, the District Court approved the bank’s movement, discovering that first American had a responsibility to indemnify and protect under the policy. The District Court likewise granted the bank about $290,000 in lawyers’ costs.
On appeal, the Tenth Circuit reversed. The Court used the “8 corners” guideline in analyzing the responsibility to protect, which needs it to take a look at the 4 corners of the policy and the 4 corners of the grievance. It discovered that the Receiver’s problem looked for just “to prevent … [ the] transfer of the deeds of trust as a deceptive conveyance … [which] the claims in the problem are that [the debtor] was running a wide-scale Ponzi plan, and the transfer of the deeds remained in furtherance of it and to defraud his lender.” Based upon this reading of the problem, the policy left out protection and first American might not be responsible for failure to safeguard. The Court rejected the bank’s claim that the problem likewise might be checked out as challenging the debtor’s permission to communicate these deeds of trust on the business’ behalf. Second, the Court discovered that first American did not have a responsibility to indemnify since this responsibility is narrower than the task to safeguard. In doing so, it declined the bank’s argument that the settlement contract in between the bank and Receiver showed that the Receiver’s action was covered under the policy. “The task to safeguard is wider than the responsibility to indemnify, however the task to safeguard is identified from the face of the Receiver’s grievance. If the Receiver’s problem was inadequate to develop a task to safeguard, how could the settlement arrangement later on develop liability for indemnification? The Bank’s position reverses the typical timeline, and it would successfully enable the responsibility to protect to connect retroactively.” Third, the Court discovered that due to the fact that first American had no task to indemnify or protect, it might not have actually breached the task of great faith and reasonable dealing by rejecting the bank and examining’s claim. The Court reversed the holding for lawyers and damages’ charges, and bought that the District Court leave its previous orders and go into judgment in favor of first American.