Thursday, September 3, 2015

Massachusetts Appeals Court holds that attorney who conducted negligent title search may be liable to title insurer for breach of contract but not malpractice

Fidelity National Title Insurance Company of New York appointed George Crowley as its agent to issue title insurance.  The agreement provided that if Crowley were grossly negligent by issuing policies for properties with existing liens and encumbrances he would indemnify Fidelity for its loss, including attorney's fees. 

Fidelity alleged that in five instances Crowley issued title insurance in its name despite the existence of title defects, causing Fidelity to incur a loss. 

In Fidelity Nat'l Title Ins. Co. of N.Y. v. Crowley, 2015 WL 4887598 (Mass. App. Ct.) (unpublished), the Massachusetts Appeals Court  held that the contract statute of limitations of six years applied, rather than the legal malpractice/tort statute of limitations of three years.  Although the mortgage lenders would have malpractice claims against Crowley, there was no attorney-client relationship between Fidelity and Crowley.  The agency agreement did not required the issuing party to be an attorney.  (I need to think this one through.  I'm not a real estate attorney so I'm probably missing some subtleties in the difference between Crowley doing a title search for Fidelity and Crowley doing a title search for a mortgage lender.) 

In this case the word "grossly" was typed above the word "negligent," so that unlike other title insurance agency contracts I have seen Crowley can only be liable if he was grossly negligent.  The effect of the contracts without the word "grossly" inserted is that the cost of indemnifying losses from clouds on a titles is effectively transferred from the title insurer to the real estate attorney's malpractice insurer.  (Although here, where the court has held that the suit is not one for malpractice, perhaps there is no coverage under the malpractice policy.  I  have no idea.) 

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