News Brief

DC Insurance Team Secures Judgment on Pleadings for Insurer and Obtains Rescission in Coverage Dispute Regarding a $40 Million Proposed Class Action

August 8, 2013

Laura Steel (Partner-Washington, DC) and Kevin Farrell (Of Counsel-Washington, DC) recently obtained a judgment on behalf of Aspen Specialty Insurance Company in a significant coverage dispute with Prosperity Mortgage Company and one of its former loan officers. The case was venued in the U.S. District Court for the District of Maryland.

Prosperity, a joint venture between one of the largest banks in the country and a large residential real estate brokerage business, was represented by Arent Fox and filed a lawsuit seeking declaratory relief and damages arising out of Aspen Specialty’s decision not to indemnify its policyholder for a putative class action that sought damages of more than $40 million. The underlying action, which was filed in Howard County, Maryland, alleged widespread practices of inflating home estimates, falsifying documents and issuing fraudulent mortgages.

Wilson Elser filed a counterclaim for rescission, along with a motion for judgment on the pleadings based upon material misrepresentations and omissions made in connection with the insurance application, which came to light only after Aspen Specialty issued its first reservation of rights. Aspen Specialty demonstrated that its policyholder was aware of the claim, gave notice to its previous insurer of that claim, and unsuccessfully attempted to settle the claim as part of previous litigation brought concerning the same scheme. The Wilson Elser team also raised several policy defenses, including several exclusions as independent bases to bar coverage.

The federal district court sided with Aspen Specialty and held that that the policyholder’s failure to identify a previous claim in its insurance application rendered the relevant Aspen Specialty insuring contracts void. Adopting Wilson Elser’s position regarding choice of law and the legal standards applicable to rescission, the Court found that Prosperity failed to properly identify the claims previously brought when completing its application for coverage and that Prosperity's failure “constitutes a material misrepresentation, omission or concealment that renders the policies void.” Having obtained rescission of its policy and bond, Aspen Specialty was judicially determined to have no obligation to pay defense or indemnity expenses related to the complex underlying state court litigation. 

The Opinion and Order are available at:  Prosperity Mortg. Co. v. Certain Underwriters at Lloyd's, London, Civil Action No. GLR-12-2004, 2013 U.S. Dist. LEXIS 98286 (D. Md. July 15, 2013)

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