Tuesday, May 17, 2016

Mass. Appeals Court finds title attorney liable to title insurance company

Stewart Title Guaranty Company, a title insurer, retained Attorney Robert Kelley to issue title insurance policies to owners and lenders in connection with real estate transactions.

Stewart sued Kelley for negligence and sought indemnity with respect to several  closings.  In Stewart Title Guaranty Co. v. Kelley, 89 Mass. App. Ct. 1121, 2016 WL 1741537 (unpublished), the Massachusetts Appeals Court held that Kelley was liable for breaching the standard of care at least with respect to two of those closings. 

In the first, Kelley issued a title insurance policy even though the property was encumbered by a prior mortgage and two attachments that were recorded in the Plymouth Country Registry of Deeds.  Kelley's defense was that he hired a reputable title examiner for the title review.  The court adopted Stewart's argument that "while a shortcoming in the performance of the examiner may create rights of Kelley against the examiner, the examiner's good reputation is not a defense to an action for negligence by Stewart against Kelley." 

(That discussion illustrates the fact that indemnity clauses in contracts by which title insurers retain attorneys to issue title policies have the effect of transferring risk from the title policy to the attorney's malpractice policy.) 

The court also held that expert testimony was not required on the issues of negligence, because the claimed legal malpractice was so gross or obvious that laypeople could rely on their common knowledge or experience to recognize it from the facts.

In another closing, Kelley mailed sufficient funds to close out a previous line of credit with Citizens Bank so that a different mortgage would be the senior mortgage on the property.  His file did not contain a standard letter instructing the lender to close the line of credit.   Citizens did not close out the line of credit and the borrower thereafter withdrew additional funds, resulting in a loss to Stewart. 

The court held that Kelley's failure to send the letter or to keep a copy of it deprived Stewart of the material it needed to establish that the credit line was  closed and thereby to extinguish the Citizens claim. The court again held that no expert testimony was necessary to prove negligence in that instance.