Adrian Lupu v. Loan City LLC

PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
________________

Nos. 17-1944 & 17-2024
________________

ADRIAN LUPU

v.

LOAN CITY, LLC; OCWEN LOAN SERVICING, LLC

OCWEN LOAN SERVICING, LLC,

Third-Party Plaintiff

v.

STEWART TITLE GUARANTY COMPANY,

Third-Party Defendant

Stewart Title Guaranty Company
Appellant (17-1944)

Ocwen Loan Servicing, LLC,
Appellant (17-2024)

________________
 Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil Action No. 2-12-cv-04556)
District Judge: Honorable Cynthia M. Rufe
________________

Argued April 24, 2018

Before: MCKEE, AMBRO, and RESTREPO, Circuit Judges

(Opinion filed: September 10, 2018)

Michael P. Coughlin, Esquire (Argued)
Kaplin Stewart Meloff Reiter & Stein
910 Harvest Drive
P.O. Box 3037
Blue Bell, PA 19422

Counsel for Appellant, Stewart Title Guaranty Co

Kassia Fialkoff, Esquire
Duane Morris LLP
200 South Biscayne Boulevard, Suite 3400
Miami, FL 33312

Brett L. Messinger, Esquire (Argued)
Brian J. Slipakoff, Esquire
Duane Morris
30 South 17th Street
United Plaza
Philadelphia, PA 19103

Counsel for Appellee, Ocwen Loan Servicing LLC

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Joshua L. Thomas, Esquire
225 Wilmington-West Chester Pike
Suite 220
Chadds Ford, PA 19317

Counsel for Appellee, Adrian Lupu

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OPINION
________________

AMBRO, Circuit Judge

What is the duty of a real estate title insurer in
Pennsylvania to defend the insured party (here the successor to
a lender) against claims of the borrower/mortgagor? Its courts,
we predict, would not apply the “in for one, in for all” rule
(known also as the complete defense rule)1—whereby a single
covered claim triggers an obligation for the title insurer to
defend the entire action—to a case about that insurer’s duty to
defend. To identify a covered claim, we apply Pennsylvania’s
rule that potentially covered claims are identified by
“comparing the four corners of the insurance contract to the
four corners of the complaint.” American & Foreign Ins. Co.
v. Jerry’s Sport Center, Inc., 2 A.3d 526, 541 (Pa. 2010).

I. Background

1
The insured in its briefing used the latter term. As both the
District Court and the title insurer refer to the rule by its more
colloquial name, we do as well.

3
 A. Adrian Lupu’s Refinance Loan and Mortgage

Adrian Lupu, at the time a Pennsylvania homeowner,
refinanced his home loan and mortgage with Loan City, LLC.
It soon transferred both to IndyMac Bank, FSB, then they went
to Fannie Mae, next to OneWest Bank, FSB, and finally to the
current holder, Ocwen Loan Servicing, LLC. Stewart Title
Guaranty Company provided title insurance. After defaulting,
Lupu sued to void the instruments evidencing his debt, the
District Court ultimately dismissed his action, and he did not
file an appeal. Lupu is not a party to this dispute about who
must pay the fees and costs of Ocwen incurred in defending his
claims. Nonetheless we need to flesh out the facts underlying
the issues before us.

Lupu’s action challenged, among other things, the use
of the MERS System, a private mortgage registry that allows
its members to avoid the need for cumbersome county-level
public recordation when transferring mortgage interests.
Members do so by designating Mortgage Electronic
Registrations Services, Inc., an entity acting as an
intermediary, as the holder of record for their mortgages.
Although MERS is named as the mortgagee, it does so only as
its members’ nominee and not as the actual owner; the
members retain the beneficial interests in the mortgages. As a
result, the members can transfer mortgage interests among
themselves without the need to record the assignments. The
MERS System tracks those transactions electronically.
Because Loan City used the MERS System, the mortgage on
Lupu’s home and real property identified MERS as the
mortgagee of record. Despite Lupu’s challenge to the validity
of the system, the use of this streamlined recording method is
generally in accord with Pennsylvania law. Montgomery Cty.,
Pa. v. MERSCORP Inc., 795 F.3d 372 (3d Cir. 2015).

4
 If a MERS System member sells a mortgage to a non-
member, the mortgage must quit the MERS System by a direct
mortgage assignment to the buyer. The transfers from Loan
City to IndyMac Bank, and by it to Fannie Mae, all members,
were made on the system with MERS remaining the locally
recorded mortgage holder. But OneWest Bank is not a
member, so it received and recorded a mortgage assignment
from MERS. OneWest, in turn, sold the mortgage to Ocwen
Loan Servicing, also a non-member, by recorded assignment.
The Office of the Recorder of Deeds of Chester County,
Pennsylvania has the documents for these last transactions.

B. The Title Insurance Policy

In connection with Lupu’s refinance transaction,
Stewart Title insured to Loan City, along with its successors
and assignees, the record title of the property (hereafter
referred to as the “Title Policy”). It covered against “loss or
damage” resulting from, among other things:

1. Title to the estate or interest
described in Schedule A being
vested other than as stated therein;
2. Any defect in or lien or
encumbrances to the title;

3. Unmarketability of the title;

* * *

5. The invalidity or unenforceability
of the lien of the insured mortgage
upon the title;

5
 6. The priority of any lien or
encumbrance over the lien of the
insured mortgage;

* * *

9. The invalidity or unenforceability
of any assignment of the Insured
Mortgage, provided the
assignment is shown in Schedule
A, or the failure of the assignment
shown in Schedule A to vest title
to the Insured Mortgage in the
named Insured assignee free and
clear of all liens; [and]

* * *

22. Forgery after Date of Policy of any
assignment, release or
reconveyance (partial or full) of
the Insured Mortgage.

Schedule A, to which coverage provisions (1) and (9) refer,
describes the property as vesting in “ADRIAN LUPU, AS
SOLE OWNER[.]”

For covered claims, the Title Policy requires Stewart
Title to “pay the costs, attorneys’ fees and expenses incurred
in defense of the title or the lien of the Insured Mortgage, as
insured, but only to the extent provided in the Conditions and
Stipulations.” Those Conditions and Stipulations state that
Stewart Title will defend only “those stated causes of action . .
. insured against by this policy[]” and not “those causes of
action which allege matters not insured against by this policy.”

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 C. Lupu’s Lawsuit

After defaulting on his loan obligations, Lupu filed a
pro se Complaint to Quiet Title in the Court of Common Pleas
of Chester County. He named Loan City, MERS, Fannie Mae,
and some John Does as defendants, but he only served Loan
City with the Complaint. When it did not respond, Lupu
moved for and received a default judgment against the entity.
However, Loan City had by then transferred the mortgage to
OneWest Bank by a recorded assignment. After the transfer,
Lupu filed a First Amended Complaint, dropping Fannie Mae
and MERS as defendants and adding OneWest. It removed the
case to federal court (the Eastern District of Pennsylvania)
based on diversity of citizenship.

Once there, Lupu filed a Second Amended Complaint.
Among other things, it alleged that: MERS had been used to
“thwart” and “circumvent” Pennsylvania’s recording laws,
making the loan contract “illegal” and “unenforceable;” the
unrecorded mortgage loan assignments were improper, thus
breaking “the chain of title,” as MERS is merely “an electronic
recording entity” and cannot execute an assignment; Loan City
fraudulently induced him into the mortgage and loan
transaction by failing to inform him that it would transfer the
loan and assign the mortgage; and using MERS (instead of the
local office of the Recorder of Deeds) to track the mortgage
assignments in Pennsylvania was a violation of the
Commonwealth’s compulsory recording laws and constituted
a forgery and fraudulent practice.

OneWest Bank moved for summary judgment, and, in
response, Lupu moved to file a Third Amended Complaint,
which the Court granted in part to allow three claims. The first
sought enforcement against OneWest, as Loan City’s
successor, of the default judgment against Loan City on Lupu’s
initial state-court complaint. The second claim renewed his

7
objections about MERS being used to skirt the recording laws
and the unrecorded transfers breaking the chain of title; in
effect, MERS was not the mortgagee and thus did not have the
legal “capacity to assign the [m]ortgage” to OneWest. The
third claim reasserted Lupu’s contention that the use of MERS
violates Pennsylvania law. OneWest again moved for
summary judgment.

Meanwhile, outside of the Complaint, a new allegation
began taking shape. Lupu, now with counsel, responded to
interrogatories by asserting that “[t]he original Mortgage
. . . signed in front of the Pennsylvania Notary contained
signatures of Adrian Lupu and [his wife]2 and was never
recorded.” Lupu claimed Loan City created mortgage
documents using a different notary that had only his signature.
He filed his own motion for summary judgment, and, to meet
his burden of proof, submitted a certification stating that “the
‘recorded mortgage’ to MERS/OneWest is not the ‘original
mortgage’ . . . Mr. Lupu and his wife signed at closing.”

Considering the Third Amended Complaint, the District
Court denied OneWest Bank/Ocwen Loan Servicing’s
summary judgment motion (the servicer had by then taken the
bank’s interest in the mortgage). The Court explained,
however, that the “only claim remaining in the case” involved
Lupu’s challenge to “the legitimacy of the recorded
mortgage[.]” The lawsuit survived because Lupu’s statement
in the affidavit raised a factual issue by creating the possibility
that Lupu was seeking a “constructive” amendment to the

2
As it turns out, Lupu’s fiancée signed the mortgage though
record title was only in Lupu’s name. In any event, the Title
Policy states Mr. Lupu is the property’s sole owner, and the
refinance note was signed only by him.

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Complaint even though its “language . . . did not specifically
allege that the mortgage was forged[.]”

It didn’t end here. Lupu brought a Fourth Amended
Complaint that added Ocwen and Stewart Title as defendants
and deleted OneWest. In the facts section he made the forgery
allegation to which he had previously referred. He claimed that
Loan City created, notarized, and recorded forged mortgage
documents “using a different notary from Silver Spring[],
[Maryland,] having only Mr. Lupu’s signature,” and that the
original mortgage, therefore, could not have been assigned by
Loan City to MERS or ultimately to Ocwen. Among other
things, Lupu re-asserted his claim that the unrecorded transfers
(using the MERS System) had broken the chain of title. He
also sought money damages and entry of default on the ground
that Loan City did not timely answer the state court complaint
before removal. He sought money damages as well stemming
from his allegations that the assignments of his mortgage to,
among others, Ocwen were voidable because MERS and the
others could not assign it as a result of their lack of authority.
Finally, he claimed the failure to disclose the intent to transfer
his loan was fraud by deception and clouded the title to his
property. Hence Lupu sought, inter alia, an order to quiet title
and to bar Ocwen from asserting any lien on the mortgaged
property.

The District Court found Lupu’s allegations
unsubstantiated and dismissed with prejudice all of his claims.
Lupu v. Loan City, LLC, 244 F. Supp. 3d 455, 463 (E.D. Pa.
2017). Lupu did not appeal the ruling.

D. Ocwen’s Third-Party Complaint Seeking
Insurance Coverage from Stewart Title

And still the matter was not over. After Ocwen moved
for summary judgment on Lupu’s Third Amended Complaint,

9
it sought defense coverage by Stewart Title. Ocwen’s counsel
wrote to Stewart Title that Lupu was pressing a covered claim
“to avoid the mortgage on the basis that it was not executed
and witnessed correctly.” Stewart Title responded that
“Lupu’s arguments concerned the securitization of the note
secured by the insured mortgage and the validity of
assignments of the insured mortgage rather than the execution
and witnessing of the insured mortgage itself.” Ocwen’s
counsel conceded as much, writing, “We took another look at
the Complaint. We agree regarding the allegation of the
Complaint.” However, the lawyer told Stewart Title he
believed, “based on the interrogatories and the recent
communication from the borrower (through counsel) before
our filing of the Motion for Summary Judgment, it is more
likely than not that [the issue of avoiding the mortgage] will be
raised in short order.”

Lupu then submitted an affidavit alleging the initial
lender forged the recorded mortgage, and the Court, while
denying the motion for summary judgment, indicated that the
only issue remaining was that of the mortgage’s legitimacy. In
light of this, Ocwen pressed with greater urgency its demand
to Stewart Title that the insurer provide a defense, cure the
purported title defect, and pay Ocwen for its expenses. But
Stewart Title, in a letter to Ocwen, formally denied the claim
on the ground that, because “Lupu has not yet alleged the
matter in the Complaint,” there were no claims “requiring a
defense by Stewart Title pursuant to the terms and conditions
of the Policy.”

In response, Ocwen filed a Third-Party Complaint
against Stewart Title alleging breach of contract and bad faith
denial of coverage. Stewart Title moved to dismiss, asserting
that in Pennsylvania coverage determinations must be entirely
based on claims within the “four corners” of the complaint, and
the Third Amended Complaint did not allege the mortgage was

10
invalid because of forgery. The District Court denied the
motion, as it believed that at least one of the claims made in the
Third Amended Complaint potentially was covered by the
Title Policy.

Lupu then filed the Fourth Amended Complaint,
making the forgery allegations that he had earlier referenced,
and Ocwen again requested Stewart Title’s defense. This time
Stewart Title agreed to defend Ocwen, but only for the count
that claimed the purported deception and fraud clouded Lupu’s
property’s title.

Stewart Title and Ocwen each moved for summary
judgment. In Ocwen’s cross-motion the company argued that
the Title Policy covers the allegations in the Third and Fourth
Amended Complaints. Alternatively, it asserted that even if
the Title Policy did not cover other counts of the Fourth
Amended Complaint, Stewart Title had a duty to defend
Ocwen until there were no potentially covered claims
remaining in the case.

Considering the cross-motions, the District Court
applied the “four corners” rule and held that Stewart Title had
no duty to defend the claims in the Third Amended Complaint,
but as to the Fourth Amended Complaint applied the “in for
one, in for all” rule to hold that, because the title company had
a duty to defend against one claim, it had a duty under
Pennsylvania law to defend all of the claims in that Complaint.
Lupu, 244 F. Supp. 3d at 465-66.

Stewart Title and Ocwen both appealed. The latter
contests the Court’s application of the “four corners” rule to
conclude Stewart Title had no duty to defend the claims in the
Third Amended Complaint, and Stewart Title challenges the
Court’s application of the “in for one, in for all” rule to find it

11
owed a duty to defend the Fourth Amended Complaint in its
entirety.

II. Standard of Review

As noted, the District Court had diversity jurisdiction 28
U.S.C § 1332. Our jurisdiction is through 28 U.S.C. § 1291.

We review de novo a District Court’s grant of summary
judgment. Nicini v. Morra, 212 F.3d 798, 805 (3d Cir. 2000)
(en banc). It is proper if there is no genuine dispute issue as to
any material fact and the moving party is entitled to judgment
as a matter of law. Shuker v. Smith & Nephew, PLC, 885 F.3d
760, 770 (3d Cir. 2018). “In conducting our review, we view
the record in the light most favorable to [the non-movant] and
draw all reasonable inferences in his favor.” Nicini, 212 F.3d
at 805-06.

We also determine the applicable state law anew.
Meyer v. CUNA Mut. Ins. Co., 648 F.3d 154, 162 (3d. Cir.
2011).
In the absence of a definitive ruling by a state's
highest court, we must predict how that court
would rule if faced with the issue. In so doing,
we must look to decisions of state intermediate
appellate courts, of federal courts interpreting
that state's law, and of other state supreme courts
that have addressed the issue, as well as to
analogous decisions, considered dicta, scholarly
works, and any other reliable data tending
convincingly to show how the highest court in
the state would decide the issue at hand.

Id. at 164 (internal quotations and citations omitted).

III. Discussion

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 A. In Pennsylvania, an insurer’s duty to defend
can be triggered only by an allegation within
the four corners of the complaint.

“[T]he rule everywhere is that the obligation of a
causualty [sic] insurance company to defend an action brought
against the insured is to be determined solely by the allegations
of the complaint in the action[.]” Wilson v. Md. Cas. Co., 105
A.2d 304, 307 (Pa. 1954). With this method, the “question of
whether a claim against an insured is potentially covered is
answered by comparing the four corners of the insurance
contract to the four corners of the complaint.” Jerry's Sport
Center, 2 A.3d at 541. This so-called “four corners” rule is
about administrative ease; it ensures courts can “efficiently
determine an insurer's duty to defend, which results in less
distraction from the merits of the underlying suit.” Water Well
Sols. Serv. Grp., Inc. v. Consol. Ins. Co., 881 N.W.2d 285, 295
(Wis. 2016). It is also based on the terms of the insurance
contract because it does not allow courts to “rewrite the
contractual duty to defend to be triggered whenever any claim
is made rather than only those claims covered under the actual
policy terms.” Id. at 295 n.15 (emphasis in original).

Yet the inflexible application the “four corners” rule
allows an insurer to plead Sergeant Schultz’s “know nothing”
defense, and “thereby successfully ignor[e] true but unpleaded
facts within its knowledge that require it, under the insurance
policy, to conduct the putative insured’s defense.” Associated
Indem. Co. v. Ins. Co. of N. Am., 386 N.E.2d 529, 536 (Ill. App.
Ct. 1979) (footnote omitted). As a consequence, courts in a
majority of states have departed from the “four corners” rule in
cases where the insurer knows or should know the allegations
in the complaint conflict with the facts on the ground. Water
Well Sols., 881 N.W.2d at 304 (Bradley, J., dissenting)
(collecting cases from 31 states recognizing the exception).
The position is that “the insurer cannot use a third party’s

13
pleadings as a shield to avoid its contractual duty to defend its
insured.” Fitzpatrick v. Am. Honda Motor Co., 575 N.E.2d 90,
90 (N.Y. 1991) (citation omitted). After all, these courts
contend, “the duty to defend derives, in the first instance, not
from the complaint drafted by a third party, but rather from the
insurer’s own contract with the insured.” Id. The alternative
approach, it is said, “allows a litigant who is not a party to a
contract of insurance to unilaterally control whether . . . the
policy provides coverage when that litigant has no privity in
the contract.” Water Well Sols., 881 N.W.2d at 304 (Bradley,
dissenting) (quoting Water Well Sols. Serv. Grp. Inc. v. Consol.
Ins. Co., 871 N.W.2d 276, 285 (Wis. Ct. App. 2015) (Reilly,
P.J., dissenting)).

Against the tide of this consensus, the Pennsylvania
Supreme Court in 2006 declined to adopt an exception to the
“four corners” rule. In Kvaerner Metals Div. of Kvaerner U.S.,
Inc. v. Commercial Union Ins. Co., 908 A.2d 888 (Pa. 2006),
the manufacturer of a coke oven battery was sued for breach of
contract and/or breach of warranty because the ovens had
become cracked, displaced, sheared, and shattered. The
manufacturer submitted a claim to its insurer under a
commercial liability policy covering “accidents,” which in
Pennsylvania involve unexpected events. Id. at 898. The
insurer denied coverage for the faulty workmanship-based
claim, the manufacturer sought a declaratory judgment
compelling coverage, and the insurer moved for summary
judgment. Id. at 891-92. In its opposition to the motion, the
manufacturer introduced expert reports opining that heavy
rains caused the damage—making it a would-be “accident.”
Id. at 892-93. On appeal from the trial court, the Pennsylvania
Superior Court found the information from the expert report
established a genuine issue of material fact precluding
summary judgment. Id. at 894.

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 In the Pennsylvania Supreme Court, Kvaerner argued
an exception to the “four corners” rule was more protective of
policyholders, discouraged artful pleading in the modern
“notice” pleading era, and many jurisdictions had adopted it.
Brief for Appellees at 61-62, Kvaerner (Nos. 47 MAP 2004,
48 MAP 2004), 2004 WL 2615701. But the Supreme Court
was not persuaded and held that the Superior Court erred by
looking to the expert reports offered by the putative insured
rather than studying only the complaint. In doing so, the
Supreme Court reaffirmed that the duty to defend is determined
“solely by the allegations of the complaint.” Kvaerner, 908
A.2d at 896 (emphasis in original) (quoting Wilson, 105 A.2d
at 307).

We have repeatedly recognized and applied this well-
established precedent. See, e.g., Ramara, Inc. v. Westfield Ins.
Co., 814 F.3d 660, 673 (3d Cir. 2016); Hanover Ins. Co. v.
Urban Outfitters, Inc., 806 F. 3d 761, 767 (3d Cir. 2016).
Moreover, “Pennsylvania courts have identified no exception
to the time-honored rule . . . in Kvaerner.” Burchick Constr.
Co., Inc., v. Harleysville Preferred Ins. Co., No. 1051 WDA
2012, 2014 WL 10965436, at *8 (Pa. Super. Ct. 2014)
(unpublished). Legal commentators concur. For instance, one
source counts Pennsylvania among the states in which “the
answer is simple—No. Courts are not permitted to consider
extrinsic evidence[.]” Randy Maniloff & Jeffrey Stempel,
General Liability Insurance Coverage: Key Issues In Every
State 69-74, 89 (1st ed. 2011).

Does Kvaerner foreclose reliance on the outside facts
introduced in the underlying litigation by Lupu, the third-party
plaintiff, rather than by the putative insured (Ocwen)? If it
does, that is the end of the matter; if it does not, we must predict
whether it would—and do no more, as to change
Pennsylvania’s existing law transcends our purposes. We
conclude that Kvaerner’s unequivocal holding leaves no room

15
for such a distinction. Indeed, although the Pennsylvania
Supreme Court was invited to make an exception to the “four
corners” rule, it flatly declined, finding “no reason to expand
upon the well-reasoned and long-standing rule that
an insurer’s duty to defend is triggered, if at all, by the factual
averments contained in the complaint itself.” Kvaerner, 908
A.2d at 896. We thus honor its decision to maintain a simple,
bright-line rule.

There is a misfit case—that Ocwen claims is the
controlling law—we must address. Curiously, twenty-some
years before the Pennsylvania Supreme Court decided
Kvaerner, the Superior Court recognized an exception to the
“four corners” rule that fits the case before us. In that case,
Heffernan & Co. v. Hartford Insurance Co. of America, 614
A.2d 295 (Pa. Super. Ct. 1992), Heffernan sought insurance
coverage for a negligent construction claim against it after a
gymnasium roof it built collapsed. Id. at 296. The complaint
alleged only damage to the building, which the policy did not
cover. However, in response to interrogatories, the third-party
plaintiff listed damages to the building’s contents for which
there would be coverage. Id. In a declaratory action following
the insurer’s denial of coverage, the Superior Court held that
the information in the interrogatories triggered the duty to
defend even though the complaint had not yet been amended
to include them. It explained, “Both Heffernan and Hartford
are now on notice that a claim for damage to the contents of
the building will probably be made in the underlying action. If
that occurs, coverage will become clear.” Id. at 298. It said no
more about its holding that knowledge of the likelihood of a
covered claim triggers the duty to defend.

What are we to make of this anomalous case? While we
must “give due regard” to state intermediate appellate courts,
we can be “convinced by other persuasive data that the
[Pennsylvania Supreme Court] would decide otherwise.”

16
Nationwide Mut. Ins. Co. v. Buffetta, 230 F.3d 634, 637 (3d
Cir. 2000) (citation and internal quotation marks omitted).
Accordingly, we will not look to Heffernan as an indication of
how the Supreme Court would decide the case before us today.
The decision stands practically alone in Pennsylvania; to our
knowledge, it is joined only by two unpublished Superior
Court opinions. The Pennsylvania Supreme Court has not
explicitly overturned the case. However, because it never
appended to the “four-corners” rule Heffernan’s exception, it
is not the law in the Commonwealth. As there is a conflict
between Kvaerner and Heffernan, Kvaerner controls, and we
must follow it.

Finally, Ocwen complains of the harsh consequences
that can be wrought by the “four corners” rule, and no doubt a
wooden application leaves would-be insureds in the lurch if a
covered claim is not identifiable in the complaint. But
Pennsylvania courts tolerate this measure of concern in
exchange for a clear rule’s benefit. “Put another way, in
Kvaerner, as in this case, the party seeking insurance was left
at the mercy of the [manner] in which the underlying plaintiff
opted to pursue its claim.” Burchick, 2014 WL 10965436, at
*8. Because the Pennsylvania Supreme Court has consistently
done so for other insureds, we too meet Ocwen’s “prayer for
relief, however sympathetic, with unflinching fidelity to the
traditional rule.” Id.

In sum, per Kvaerner, the seminal case on the issue, we
may not look for a covered claim beyond the four corners of
Lupu’s complaint and how it matches up with the actual terms
of the Title Policy. This dispute centers on the Third and
Fourth Amended Complaints, to which we turn.

17
 B. Stewart Title’s duty to defend arose after
Lupu filed the Fourth Amended Complaint.

Ocwen earlier acknowledged in correspondence with
Stewart Title that there were no covered claims on the face of
the Third Amended Complaint. The company now argues to
the contrary. We agree with the District Court that the Third
Amended Complaint, which challenged the MERS System and
the post-closing mortgage transfers, does not present any claim
under the Title Policy, which generally covers claims that the
original mortgage is invalid or forged.

Ocwen contends the insurance provision covering
“[f]orgeries after the date of Policy of any assignment . . . of
the Insured Mortgage” was triggered by Lupu’s calling the
mortgage, as assigned, “illegitimate,” a “false business
record,” and a “forgery.” But the nature of the factual
allegations and claims, not the precise words used, determines
whether a duty to defend is triggered. Roman Mosaic & Tile
Co. v. Aetna Cas. & Sur. Co., 704 A.2d 665, 668 (Pa. Super.
Ct. 1997). Despite Lupu’s use of those words, the Third
Amended Complaint does not allege a “forgery” of the original
mortgage as the parties could have understood that term.
Rather, Lupu attacked the well-settled law upholding the
practices associated with MERS involvement in the mortgage
market. He contended that only the actual holder (and not
MERS, the placeholder) could execute an assignment. He
challenged the legitimacy of assignments and transfers of the
mortgage by MERS because it only acted as “nominee” and
was never the actual holder of the mortgage. There is no
allegation that an assignment of the mortgage was executed
without proper authority or a genuine signature, so there is no
forgery claim as to the assignment in the Third Amended
Complaint. See Forgery, Black’s Law Dictionary (10th Ed.
2014).

18
 Nor does that Complaint allege a claim that the original
mortgage is invalid, which would be covered by the Title
Policy. Ocwen points to Lupu’s prayer for relief. To remedy
the allegedly broken chain of title, Lupu asked the District
Court to revoke the mortgage and quiet title. Ocwen asks us to
construe this prayer as a claim that the original mortgage itself
was rendered invalid by the subsequent MERS-assignments,
however implausible that scenario is. But in Pennsylvania “the
particular cause of action that a complaint pleads is not
determinative of whether coverage has been triggered. Instead,
it is necessary to look at the factual allegations contained in the
complaint.” Mut. Benefit Ins. Co. v. Haver, 725 A.2d 743, 745
(Pa. 1999). This avoids “the use of artful pleadings designed
to avoid exclusions in liability insurance policies.” Id. A
prayer for relief is not a factual allegation, and Lupu did not
plead any facts alleging the invalidity of the original mortgage,
so no duty to defend arose. To hold otherwise would involve
Stewart Title in defending underlying claims that had nothing
to do with the Title Policy.

The duty to defend arose when Lupu filed the Fourth
Amended Complaint, including there the forgery allegations he
had referred to earlier in response to interrogatories. After
Lupu filed the Fourth Amended Complaint, Stewart Title
agreed to provide a partial defense and retained counsel. What
is left to consider is whether it needed to defend Ocwen against
the entire Complaint.

C. In Pennsylvania, the “in for one, in for all”
rule does not apply to cases involving title
insurance policies.

Does the “in for one, in for all” rule apply to all aspects
of Ocwen’s defense to Lupu’s Fourth Amended Complaint
once Stewart Title agreed to defend Ocwen partially? This
issue turns on the difference between title insurance and

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general liability insurance. “Title insurance is the business of
insuring the record title of real property for persons with some
interest in the estate, including owners, occupiers, and
lenders.” F.T.C. v. Ticor Title Ins. Co., 504 U.S. 621, 625
(1992). It is limited, as the “sole object of title insurance is to
cover possibilities of loss through defects that may cloud or
invalidate titles.” Foehrenbach v. German-Am. Title & Tr. Co.,
66 A. 561, 563 (Pa. 1907). It is backward-looking, as the
insurer can reduce its exposure to loss before the issuance of
the policy by searching the public records. By contrast, general
liability insurance looks forward, as it typically insures against
injury occurring because of a future “accident.” See, e.g.,
Lords Landing Vill. Condo. Council of Unit Owners v. Cont'l
Ins. Co., 520 U.S. 893, 894 (1997); Nationwide Mut. Ins. Co.
v. CPB Int'l, Inc., 562 F.3d 591, 598 (3d Cir. 2009); Kvaerner,
908 A.2d at 897.

“There is no dispute that, on its face, the Title Policy
disclaims a duty . . . to defend non-covered claims.” Ocwen’s
Br. at 25. It limits the duty to defend “to those stated causes of
action . . . insured against by this policy.” Generally, an
insurance policy’s plain meaning controls. Donegal Mut. Ins.
Co. v. Baumhammers, 938 A.2d 286, 290 (Pa. 2007).
However, if the disclaimer of duty is contrary to public policy,
it is not enforceable in Pennsylvania. Nationwide Mut. Ins. Co.
v. Riley, 352 F.3d 804, 807 (3d Cir. 2003); Eichelman v.
Nationwide Ins. Co., 711 A.2d 1006, 1008 (Pa. 1998).

Public policy should seldom be used to upset
contractual expectations. As such, Pennsylvania courts are
“reluctant to invalidate a contractual provision due to public
policy concerns.” Williams, 32 A.3d at 1200. Put another way,
they are “cautious” in light of “the often formless face of public
policy.” Prudential Prop. & Cas. Ins. Co. v. Colbert, 813 A.2d
747, 752 (Pa. 2002). They act “only when a given policy is so
obviously for or against the public health, safety, morals or

20
welfare that there is a virtual unanimity of opinion[.]” Mamlin
v. Genoe, 17 A.2d 407, 409 (Pa. 1941).

“Public policy is . . . ascertained by reference to the laws
and legal precedents and not from general considerations of
supposed public interest.” Hall v. Amica Mut. Ins. Co., 648
A.2d 755, 760 (Pa. 1994) (quoting Muschany v. United States,
324 U.S. 49, 66-67 (1945)). To support its public-policy
argument, Ocwen points to the “in for one, in for all” rule
developed by the common law, which, to repeat, requires an
insurer to defend the insured in the entire lawsuit where one
claim is within the scope of the coverage even though other
claims are not. See Jerry’s Sport Center, 948 A.2d at 845. By
preventing insurers from breaking a case into covered and non-
covered pieces, courts avoid the potential waste and
impracticality of a bifurcated defense.

No published opinion in Pennsylvania has applied the
rule when a title insurance policy is at issue. See Ocwen’s Br.
at 26-27 (not contesting the point). Commonwealth courts
have only mandated a complete defense in cases involving
general liability insurance policies, which “typically promise
to defend the insured in ‘a suit’ or ‘any suit’ seeking damages
for acts, omissions, or occurrences covered by the policy.”
Phila. Indem. Ins. Co. v. Chicago Title Ins. Co., 771 F.3d 391,
398 (7th Cir. 2014) (citation omitted). Those policies refer to
an entire case. By contrast, title insurers promise to defend
only the allegations that “flow from the ‘defect’ in the title.”
Sec. Serv. Inc. v. Transamerica Title Ins. Co., 583 P.2d 1217,
1225 (Wash. App. Ct. 1978). As noted, the policy before us
covers certain “causes of action” and not others, and therefore
expressly contemplates Stewart Title’s partial defense of a
lawsuit.

The Massachusetts Supreme Court (considering a
certified question) and the Seventh Circuit (predicting Illinois

21
law) have concluded that the “in for one, in for all” rule does
not apply to title insurers. They reasoned that the rule’s central
principle—“parsing multiple claims is not feasible”—“is not
implicated to the same extent in the title insurance context as
in the general liability insurance context.” GMAC Mortgage,
LLC, v. First Am. Title Ins. Co., 985 N.E.2d 823, 831 (Mass.
2013); see Phila. Indem. Ins. Co., 771 F.3d at 398. That
reasoning is apt; title insurance is “fundamentally different”
from general liability insurance because (1) the risk covered is
limited, specific, and retrospective, (2) the premium is a
relatively modest one-time charge, and (3) the duration of
coverage is indefinite. GMAC Mortgage, 985 N.E.2d at 828-
29. To wit, “title issues are discrete, [and] they can be
bifurcated fairly easily from related claims.” Id. at 831.

Brushing off the argument that “disastrous
consequences” will follow if parties can contract around the
“in for one, in for all” rule, the Seventh Circuit observed “that’s
just the nature of title insurance; the premiums charged for this
form of insurance reflect the limited scope of the coverage.”
Phila. Indem. Ins. Co., 771 F.3d at 394. Expenses resulting
from unexpected title defects comprise a small portion of title
insurance premiums; the larger share is used to cover the
expense of title research on the insured property. See 11A
Steven Plitt et al., Couch on Insurance § 159:1 (3d ed. 1995).
This system is efficient in our decentralized county-recordation
title system. “Given the remarkably high exposure represented
by policy limits, title insurance premiums are remarkably low.”
Id.

We predict, for the same reasons, that the Pennsylvania
Supreme Court would also create a title-policy exception to the
“in for one, in for all” rule. Given the unique title insurance
context, by doing so it would “consider the language of the
policy and the expectation of the insured so as to give
reasonable meaning to its terms.” Rood v. Commw. Land Title

22
Ins. Co., 936 A.2d 488, 491 (Pa. Super. Ct. 2007) (citation
omitted).

As the issue is undecided by the Pennsylvania Supreme
Court, the District Court reasoned that it must apply the general
rule that “a title insurance policy is subject to the same rules of
construction that govern other insurance policies[.]” Lupu, 244
F. Supp. 3d at 465 (quoting Rood, 936 A.2d at 491, which
noted the rule is “general[]”). But the lack of state-law
authority creating an exception to the “in for one, in for all”
rule does not compel us to define its scope by that general
statement. Federal courts, when sitting in diversity, are no
ostriches. We do and “often must engage in a substantial
amount of conjecture.” Wisniewski v. Johns-Manville Corp.,
759 F.2d 271, 273 (3d Cir. 1985). While Pennsylvania courts
have not addressed this issue, the reasoning applied in out-of-
state cases is sufficient “persuasive data” to convince us of the
direction they would go. Meyer, 648 F.3d at 164.

There is another reason pushing here opposite the “in
for one, in for all” rule. First, title policies are unambiguous
that the parties bargained for partial coverage. The industry-
standard language in the policy comes from the American Land
Title Association, which revised the standard title policy form
in 1987 to limit the insurer’s obligation “only as to those stated
causes of action alleging a defect, lien or encumbrance or other
matter insured against by this policy.” Earlier model-policies
used the term “litigation” instead of “cause of action.” 11A
Plitt et al., Couch on Ins. § 159:1. Given the relatively modest
title insurance premium, if we force Stewart Title to cover
more than it promised, Ocwen will receive a windfall.

Second, the Pennsylvania Department of Insurance
approved the “standard form of policy” before us, which is
“used by all title underwriters in Pennsylvania.” Lupu, 244 F.
Supp. 3d at 465. “No policy, endorsement or other coverage

23
may be issued which varies the terms, conditions, stipulations
or exclusions of a policy unless first approved by [this]
Department.” Manual of the Title Insur. Rating Bureau of Pa.
§ 2.7. Ocwen argues that an executive agency cannot overwrite
the common law, see Ocwen’s Br. at 31 n.11, but we are
looking to the agency to see whether such a rule exists in the
first place, not to overwrite a rule.

D. Remand to determine which claims in the
Fourth Amended Complaint are covered

The District Court, because it applied the “in for one, in
for all” rule, had no occasion to determine which of the claims
in the Fourth Amended Complaint are within the scope of the
Title Policy. Though it may be but one claim, out of caution
we remand to give the Court the opportunity to make the call,
and in any event to determine the amount of legal fees and
expenses Stewart Title is obligated to cover.

IV. Conclusion

Pennsylvania’s Supreme Court tells us that an insurer’s
duty to defend turns on the allegations within the four corners
of a complaint matched against the terms of the insurance
policy. Kvaerner, 908 A.2d at 896. We follow suit here in
holding that Stewart Title’s duty to defend Ocwen against
Lupu’s claims did not exist until the filing of the Fourth
Amended Complaint.

But is Stewart Title bound to defend the entire
Complaint? Its Title Policy states that it would not also defend
non-covered claims in the action. There was at least one
covered claim in the litigation underlying this coverage
dispute, and Stewart Title must defend it (or such other claims
covered by the Title Policy). Beyond that, however, we hold
the parties to their bargain.

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We thus affirm in part, reverse in part, and remand.

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