Adrian Lupu v. Loan City LLC
903 F.3d 382
3rd Cir.2018Background
- Borrower Adrian Lupu refinanced a Pennsylvania property; loan and mortgage moved from Loan City through MERS-related transfers to Ocwen. Stewart Title issued a lender’s title insurance policy to Loan City and its successors.
- Lupu sued to quiet title and challenged the use of the MERS system, the validity of mortgage assignments, and later alleged forgery of the recorded mortgage documents; successive amended complaints were filed in state and federal court.
- Ocwen (successor holder/servicer) sought defense and indemnity from Stewart Title for costs defending Lupu’s claims; Stewart initially denied coverage, then agreed to defend only some claims after Lupu’s Fourth Amended Complaint added explicit forgery allegations.
- The district court held (1) the insurer’s duty to defend is governed by the “four corners” rule and Stewart Title had no duty to defend earlier complaints, and (2) applied the “in for one, in for all” rule to require Stewart Title to defend the entire Fourth Amended Complaint because one claim was covered.
- The Third Circuit affirmed that the duty to defend is triggered only when the complaint’s allegations, within the four corners, potentially fall within the policy, but held that the “in for one, in for all” rule does not apply to title insurance policies; remanded to identify which Fourth Amended Complaint claims are covered and to quantify fees/expenses.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an insurer may consider extrinsic facts (outside the complaint) to determine duty to defend | Lupu/Ocwen argued extrinsic facts (interrogatory answers, affidavit) showed a likely covered claim and insurer must defend | Stewart argued Pennsylvania law requires duty-to-defend analysis be based solely on the four corners of the complaint | Duty to defend is determined only by comparing the four corners of the complaint to the policy (Kvaerner rule); extrinsic facts cannot trigger duty to defend |
| Whether Stewart Title had a duty to defend based on the Third Amended Complaint | Ocwen argued Third Amended Complaint’s language (labels like “forgery”) and prayer for relief triggered coverage | Stewart argued factual allegations attacked MERS transfers, not the original mortgage or assignment forgery, so no covered claim on face of that complaint | No duty to defend existed as to the Third Amended Complaint; factual allegations there did not allege a covered forgery or invalid original mortgage |
| Whether Stewart Title’s duty to defend arose after the Fourth Amended Complaint | Ocwen argued the Fourth Amended Complaint’s explicit forgery allegation triggered coverage | Stewart agreed to defend some claims after the Fourth Amended Complaint but disputed a duty to defend the entire suit | Duty to defend arose when the Fourth Amended Complaint alleged forgery; Stewart had to defend covered claims arising from that complaint |
| Whether the “in for one, in for all” (complete defense) rule requires a title insurer to defend the entire suit once one claim is covered | Ocwen argued public-policy and common-law precedent require defending the whole action to avoid waste and inconsistent defenses | Stewart argued title insurance policies are limited, backward-looking, and the policy expressly limits defense to covered causes of action | The court predicted Pennsylvania would not apply the complete-defense rule to title insurance; title insurers may limit defense to covered causes of action per the policy language |
Key Cases Cited
- American & Foreign Ins. Co. v. Jerry’s Sport Center, 2 A.3d 526 (Pa. 2010) (articulates the four‑corners comparison for duty to defend)
- Kvaerner Metals Div. v. Commercial Union Ins. Co., 908 A.2d 888 (Pa. 2006) (Pennsylvania Supreme Court rejects exceptions to the four‑corners rule)
- Lupu v. Loan City, LLC, 244 F. Supp. 3d 455 (E.D. Pa. 2017) (district court decision below addressing duty to defend and applying the complete‑defense rule)
- Phila. Indem. Ins. Co. v. Chicago Title Ins. Co., 771 F.3d 391 (7th Cir. 2014) (predicts Illinois law and holds complete‑defense rule need not apply to title insurers)
- GMAC Mortgage, LLC v. First Am. Title Ins. Co., 985 N.E.2d 823 (Mass. 2013) (Massachusetts Supreme Judicial Court holds complete‑defense rule inapplicable to title insurance)