464 F.Supp.3d 734
E.D. Pa.2020Background
- Underlying plaintiffs (Yanka & Nessa) allege Leithbridge negligently failed to safeguard confidential transaction information, enabling scammers to impersonate a title company and trick them into wiring ~$390,343.61 (conversion of funds).
- Leithbridge seeks defense and indemnity under its Real Estate Professional Errors & Omissions Policy issued by Greenwich; the Policy covers acts or omissions in the performance of real estate services.
- Policy Exclusion D(1) bars coverage for claims “based on or arising out of … the conversion, commingling, defalcation, misappropriation or improper use of funds.”
- Greenwich denied coverage relying on Exclusion D(1); Leithbridge sued for declaratory judgment and both parties filed cross-motions for judgment on the pleadings.
- The court analyzed only the underlying complaint’s allegations and the Policy language and held the Exclusion D(1) applies because the underlying negligence claim depends, but-for, on the conversion (the alleged loss).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Exclusion D(1) bars Greenwich’s duty to defend/indemnify | Leithbridge: underlying claim is negligence for failure to safeguard information, not a claim "based on or arising out of" conversion | Greenwich: underlying negligence claim is necessarily based on the conversion (the plaintiffs’ actual loss) so the exclusion applies | Court: Exclusion D(1) applies; "arising out of" is satisfied by but‑for causation, so no duty to defend or indemnify |
| Whether policy endorsements (Data Compromise, CyberOne) create coverage | Leithbridge did not contest in briefing | Greenwich: endorsements do not create coverage | Court: Leithbridge’s failure to dispute leaves Greenwich’s position undisputed; endorsements do not provide coverage |
Key Cases Cited
- Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888 (Pa. 2006) (insurance‑policy interpretation is a question of law)
- Donegal Mut. Ins. Co. v. Baumhammers, 938 A.2d 286 (Pa. 2007) (clear policy language controls; ambiguities construed for insured)
- General Refractories Co. v. First State Ins. Co., 855 F.3d 152 (3d Cir. 2017) ("arising out of" requires but‑for causation)
- Manufacturers Cas. Ins. Co. v. Goodville Mut. Cas. Co., 170 A.2d 571 (Pa. 1961) (but‑for causation principle for "arising out of")
- Madison Constr. Co. v. Harleysville Mut. Ins. Co., 735 A.2d 100 (Pa. 1999) (underlying negligence claims held to "arise out of" pollutant release despite plaintiffs pleading negligence theories)
- General Accident Ins. Co. of Am. v. Allen, 692 A.2d 1089 (Pa. 1997) (duty to defend is triggered if any complaint allegation falls within coverage)
- Mutual Ben. Ins. Co. v. Haver, 725 A.2d 743 (Pa. 1999) (courts look to factual allegations in underlying complaint, not labels)
- Kinney‑Lindstrom v. Med. Care Availability & Reduction of Error Fund, 73 A.3d 543 (Pa. 2013) (elements of negligence include actual loss or damages)