In Fidelity National Title Ins. Co. of New York v. OHIC Ins. Co., Nos. A05A1179, A05A1180, 2005 WL 1792197 (Ga. App. July 29, 2005), a Georgia appeals court held that a title insurance company's claims against an attorney “arose out of the conversion, misappropriation, and commingling of client funds.”

 

Renee Snead was an attorney who conducted real estate closings and was an approved attorney for Fidelity National Title Insurance Company. She carried professional liability insurance through OHIC Insurance Company.

 

Fidelity issued an Insured Closing Services Protection (ICSP) letter, at Snead's request, to Century Mortgage Corporation. Funds were wired to Snead's trust account to discharge a lien held by the seller's lender, but it was not discharged. Fidelity also issued an ICSP, again at Snead's request, to Equifirst Corporation, but the closing did not take place. Funds wired to Snead for the closing were not returned. Both Century and Equifirst brought claims against Fidelity, who paid for the losses.

 

Fidelity sued Snead for reimbursement of its losses. The account in which the funds should have gone was empty as an employee had stolen most of them, and some paid for the firm's expenses. Snead denied wrongdoing and said she did not participate in misappropriating the funds.

 

Snead's insurer, OHIC, denied coverage based on an exclusion stating that the policy did not cover “claims based upon or arising out of conversion, misappropriation, or improper commingling of client funds.” OHIC said that the exclusion applies whether or not Snead personally participated in any of those activities.

 

The court agreed. While Fidelity argued that two other exclusions gave back coverage if the insured did not participate in the wrongful acts, the court said that exceptions in the other two exclusions referred to misconduct that was broader than that addressed in the exclusion for “claims based upon or arising out of conversion, misappropriation, or improper commingling of client funds.”

 

Thus, the court held that “Fidelity's claims against Snead 'arose out of' the conversion, misappropriation, and commingling of client funds, because the funds were not used for their intended purposes and because but for these actions, there could be no claim against Snead.”