The relationship between a title insurance company and counsel varies by state. Understanding the intricacies of this relationship in general, and specifically within the state laws governing the transaction, is critical to both the success of the deal and for protection under potential future claims.
The following case, heard by the United States District Court for the Eastern District of Michigan, exemplifies the importance of understanding the role of the title insurance company, the retained attorney, and their relationship with each other.
The following article appears on the American Land Title Association (ALTA) website.
The Docket: Federal Court Rules Title Company’s Duty to Mitigate Damages Limited to Retaining Attorney
January 26, 2017
The Docket is a monthly TitleNews Online feature provided by ALTA’s Title Counsel Committee, which reviews significant court rulings and other legal developments, and explains the relevance to the title insurance industry.
Michael R. O’Donnell and Michael P. Crowley, both of the law firm Riker, Danzig, Scherer, Hyland & Perretti LLP, provided today’s review of a recent decision by the United State District Court for the Eastern District of Michigan that addresses the importance of understanding the relationship between a title insurance company and its retained counsel. O’Donnell can be reached at modon[email protected] and Crowley can be reached at [email protected].
Citation: Fid. Nat’l Title Ins. Co. v. Title One, Inc., 2016 WL 3971210 (E.D. Mich. 2016).
Facts: In this case before the United State District Court for the Eastern District of Michigan, a title agent conducted a closing for a property on which there were existing mortgages, including a subordinate mortgage to Warren Bank (Warren). The agent was supposed to satisfy the first mortgage on a property and obtain a subordination from Warren, thus allowing the mortgage of the insured, Dearborn Federal Savings Bank (DFSB), to be the first lien on the property. However, the agent failed to obtain the subordination agreement from Warren, and Warren later initiated a foreclosure. The title insurance company had issued a policy insuring the first-lien position of DFSB’s mortgage. It therefore retained an attorney to represent the DFSB in its priority dispute with Warren. While that action was ongoing, Warren failed and the Federal Deposit Insurance Corporation (FDIC) assumed its assets. Due to an apparent miscommunication between DFSB’s retained attorney and the FDIC regarding the deadline to file a proof of claim, DFSB’s proof of claim was not timely filed and its priority claim was dismissed. The title insurance company then sued the title agent for breach of contract in not obtaining the proper subordination. Although the agent conceded that it had failed to secure the subordination, it argued that the retained attorney’s untimely filing of the proof of claim with the FDIC was imputed to the title insurance company, and that the title insurance company’s action was barred because of its failure to mitigate damages. The parties filed cross-motions for summary judgment, and the court granted the title insurance company’s motion.
Holding: Under Michigan law, because no attorney-client relationship exists between an insurance company and an attorney it retains to represent its insured, the retained attorney’s actions could not be imputed to the insurance company. Therefore, the court held that the title insurance company’s duty to mitigate damages was limited to retaining the attorney and did not extend further. Having done so, the title insurance company was entitled to summary judgment as the title agent’s failure to obtain a subordination agreement was a breach of the agency agreement.
Relevance to the title industry: This decision emphasizes the importance of fully understanding the relationship between the title insurance company and its retained counsel, including the specific state laws regarding imputation. Additionally, it holds that once the title insurance company’s obligations to its insured under the policy were fulfilled, the title agent, settlement agent or attorney at fault cannot use alleged mistakes made by retained counsel to defeat the claim.
Contact ALTA at 202-296-3671 or [email protected].