Subpoena Not a 'Claim' When Issued in Litigation Not Involving Insured’s Professional Services
Applying New York law, the United States District Court for the Southern District of New York has held that, because a subpoena duces tecum previously issued to the insured by a post-judgment creditor of a non-insured entity was not a “Claim” against the insured, the subpoena and a later-filed lawsuit against the insured could not qualify as “Related Claims” deemed first made when the subpoena was issued. Protective Specialty Ins. Co. v. Castle Title Ins. Agency, Inc., 2020 WL 550700 (S.D.N.Y. Feb. 3, 2020). The court also held that the “warranty exclusion” in the application for the policy (in which the insured warranted that it was “not aware of any incident or circumstance which may result in a claim”) did not bar coverage for the lawsuit, even though the insured failed to disclose the subpoena in the application.
Beginning in 2012, a bank’s assignee secured judgments in two foreclosure actions involving several mortgages that the bank had issued to a non-insured entity. In July 2015, the assignee served the insured title insurance agency with a post-judgment subpoena for documents necessary to establish the rights and interests in the foreclosed properties. The insured did not provide notice of the subpoena to the insurer under its claims made and reported professional liability policy then in effect. In April 2016, during the subsequent policy period, the bank’s assignee filed a lawsuit against the insured agency for negligent and fraudulent delay in submitting real estate documents involving the foreclosed properties for recording by the County Clerk. The insured provided notice of the lawsuit to the insurer under its renewal policy.
The insurer denied coverage for the lawsuit on the basis that the insured failed to timely report (under the prior policy) the subpoena, which, together with the lawsuit, constituted a “Related Claim” first made during the prior policy. The policy defined “Claim” to include “a written demand by subpoena upon an Insured as a non-party to litigation or arbitration involving Professional Services provided by such Insured.” The insurer argued that the subpoena was a Claim because it involved Professional Services that the insured had rendered in connection with the foreclosed properties. Notwithstanding that the subpoena and lawsuit may be “logically and causally connected,” the court disagreed, interpreting the phrase “involving Professional Services provided by such Insured” as necessarily modifying “litigation or arbitration” rather than “subpoena.” According to the court, the post-judgment subpoena issued to the insured by a judgment creditor of a separate entity was not a Claim because it “was for the purpose of enforcing the judgment, not questioning [the insured’s] professional services.”
In a footnote to the opinion, the court further observed that, even if the subpoena was a “Claim,” the policy’s Related Claim provision still was not triggered, where (1) “Related Claims” was defined with reference to Claims arising out of one or more related “Wrongful Acts,” and (2) the subpoena did not allege any “Wrongful Acts.”
Finally, the court held that the “warranty exclusion” in the application for the policy did not bar coverage for the lawsuit because the undisclosed subpoena was not a “claim,” construed by the court to mean a demand by a third party against the insured for money damages or other relief owed). The court further observed that the subpoena also “did not begin to suggest that [the insured] owed anybody anything.”