A title insurance company busted in its attempt to recover losses stemming from thefts to support a gambling problem in
Proctor v.Whitlark and Whitlark, Inc., App. Case No. 2012-205510, 2013 WL 2017335 (S.C. Ct. App. May 15, 2013).
Lauren Proctor gambled on video poker machines at the defendants’ restaurants from 1999 through 2005. Proctor alleged she lost $1000 to $5000 per week from gambling during that time while the defendants provided her cash advances on credit cards and free food and alcohol. Proctor was employed by State Title, which provided real estate closing services to an attorney, and was owned by Proctor’s mother. Proctor began forging her mother’s name on checks, and stealing money from the attorney’s trust account to play video poker. As a result, the trust account contained insufficient funds to satisfy the mortgages on several properties at closing. Trans-Union, State Title’s title insurance company, paid approximately $550,000 in claims arising from the shortages.
Video machine gambling was legal when Proctor starting playing; however, in July 2000, the machines became illegal. Defendants’ restaurants continued to operate the machines until after a 2005 FBI sting operation. In 2007, Proctor pled guilty to mail fraud, agreeing to pay restitution of approximately $565,000 to Trans-Union and $195,000 to the attorney.
Proctor and Trans-Union brought suit to recover the losses resulting from Proctor’s gambling. The circuit court found Trans-Union theory of standing was too attenuated to allow it to bring the action against these defendants.
Trans-Union’s insureds were the lenders and the purchasers in the real estate transactions, not the attorney or the title company. As part of the title insurance, Trans-Union insured against loss from theft by its authorized title agent, State Title, including Proctor.
The circuit court held the facts were insufficient to establish the standing necessary for Trans-Union to sue these defendants directly. The defendants’ wrongdoing was removed from Trans-Union’s losses by several steps, including others’ (Proctor’s) criminal and sanctionable acts. The court relied in part on
Exparte Government Employee’s Insurance Co., 373 S.C. 132, 644 S.E.2d 699 (2007). In that case, a UIM carrier wanted to intervene in a family court action to determine if a common law marriage existed. The Supreme Court held the UIM carrier lacked standing. The court recognized that although the carrier had an interest in whether a common law marriage existed, in that it would affect its burden of proof in resolving a related claim for insurance benefits, this financial interest was too peripheral and conjectural to confer standing.
Similarly, the circuit court reasoned that Trans-Union was subrogated to the rights of its insured, not the attorney or the title company employing Proctor. Trans-Union had the right to seek to recover the money it paid from the person who caused the loss and had brought an action against Proctor and the attorney and obtained judgments against both of them. If Proctor was successful in the present action and recovered money, Trans-Union may be able to have its judgment paid from those funds. The court concluded, however, that Trans-Union had no direct cause of action against these defendants, not even a claim for indemnification. That Trans-Union sued Proctor for its losses demonstrated that it could protect its interest by other means.
With regard to Proctor’s claims, the circuit court found that the doctrine of in pari delicto has been abrogated in South Carolina with regards to gambling losses, and granted Proctor’s motion for partial summary judgment, on liability, against the defendants.
