No Coverage for $21 Million in Stolen Escrow Funds

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A condominium project developer won a $21 million judgment against Coastal Title Services Inc., when Coastal misappropriated escrow deposits of prospective condo tenants. Coastal’s attorney failed to notify its insurer of a case against it, and later ended up in prison in connection with the missing funds. The court found the failure to notify the insurer let the insurer off the hook for providing any coverage. 

A developer and Coastal were partners on a condominium project. A prospective tenant sued the developer for its escrowed deposit and the developer in turn sued Coastal. Coastal never appeared or answered the developer’s complaint and a $21 million default judgment was entered against Coastal. The developer then sued Coastal’s insurer for the coverage provided to Coastal and the judge found that coverage was not available because the insurer was never notified of the suit against Coastal. 

The policy required that the insurer be notified of any claim against Coastal during the policy period. The Florida judge found that the insurer was not notified within the policy period and therefore owed no coverage. 

Coastal’s attorney had written to warn the insurer of possible claims against Coastal previously, but the judge found that the letter fell woefully short of providing notice of the claim against Coastal. The letter reported “possible claims” rather than an actual claim against Coastal, and did not even associate the project with the potential claim. The judge also found that coverage was barred by several policy exclusions in addition to Coastal’s failure to notify          

 

Lake Buena VistaVacation Resort, LLC v. Gotham Ins. Co.,
United States District Court, Middle District ofFlorida, Case No: 6:12-cv-1680-Orl-31DAB, October 7, 2013