Dallas Fort Worth Insurance Lawyer Blog
Insurance usually covers accident that happen or acts of God, negligence, etc., things that are Unintentional. Policies will rarely cover willful or intentional conduct that causes harm.
The above is illustrated in a 2024 opinion from the Eastern District of Texas, Sherman Division. The opinion is styled, Jacksonville, Realty, LLC v. Certain Underwriters At Lloyds.
The Plaintiff, Jacksonville, filed a summary judgement seeks the Court to rule that the policy contract had been broken by the Defendant. The policy at issue is an errors and omissions policy. Miller Title acted as the escrow agent for a real estate transaction between Jacksonville and IBF Retail I, LLC. As part of the transaction, IBF deposited $2,750,000 in earnest money with Miller Title.
Before closing, IBF breached the purchase agreement, and Jacksonville terminated the agreement. Under the agreement, Jacksonville was entitled to the $2,750,000 in earnest money as liquidated damages. But Miller Title refused to pay Jacksonville the escrow funds. Instead, it transferred the money to Benefit Street Partners Realty Partnership, a non-party to the purchase agreement, at the unilateral direction of IBF.
Jacksonville then sued Miller Title for breach of contract.
Jacksonville is entitled to summary judgment on its breach of contract claim if it can show as a matter of law that it can recover as a third-party beneficiary of the Policy and that the Policy provides coverage for Jacksonville’s judgment against Miller Title. Lloyds can defeat summary judgment by, among other ways, presenting specific evidence showing a genuine issue of fact that a Policy exclusion bars coverage.
Lloyd’s asserts two Policy exclusions as affirmative defenses in its answer and opposition to Jacksonville’s summary judgment motion. And, as explained below, Lloyd’s has shown that a genuine issue of material fact exists as to one of these defenses—the Policy’s “Willfulness Exclusion” in § III(l). The Court therefore does not need to address whether Jacksonville is a third-party beneficiary or whether the Policy provides coverage.
The “Willfulness Exclusion” precludes coverage for any claim:
Based on or directly or indirectly arising out of any actual or alleged willful or intentional failure to comply with escrow instructions or underwriting or binding authority.
Jacksonville argues this exclusion does not apply here because Miller Title stated in a letter dated August 23, 2022, that it could not release the earnest money to Jacksonville without exposing itself to liability based on alleged fraud involving IBF. Because Miller Title believed it had no lawful authority to release the escrow funds, Jacksonville contends, Miller Title could not have “willfully” or “intentionally” failed to comply with the escrow agreement.
Lloyd’s asserts, however, that there is at least a fact question regarding whether Miller Title acted willfully or intentionally. Lloyd’s cites evidence showing that Miller Title transferred the escrow funds to Benefit Street in July 2022—at the unilateral request of IBF—and before Miller Title notified Jacksonville of the potential fraud. Lloyd’s argues that, if true, this contradicts Miller Title’s claim about fraud involving IBF. In fact, the evidence suggests that Miller Title no longer held the funds when it wrote the August 23 letter to Jacksonville.
The willfulness of Miller Title’s failure to comply with the escrow instructions is a material fact in determining whether the exclusion in § III(l) applies. Because Lloyd’s presented some evidence creating a dispute about that fact, summary judgment is precluded.