Title Insurer Has Satisfied Its Duty to Indemnify When Insured’s Title Is Established by the Company

Title insurance protects an insured against certain clouds on title as set out in the insuring provisions of the policy. However, where a covered title defect is fully resolved by an insurer, the insurer has satisfied its obligations and owes no further duty or compensation to the insured for that issue. The recent case of Golden First Mortgage Corp. v. Alleyne, Index No. 026405/2009 (Sup. Ct. Nassau Co. Apr. 16, 2020) is critical for real estate practitioners to understand the extent of a title company’s obligation under the policy to indemnify an insured.

In Golden First Mortgage Corp. v. Alleyne, an owner obtained title to a property and was granted a mortgage on it. For unknown reasons, the deed and mortgage were not recorded. When the lender discovered this fact, it commenced an action seeking an equitable mortgage on the property or, in the alternative, to have the seller execute a replacement deed to be recorded and the borrower (insured owner) execute a replacement mortgage.

Rather than submit a claim for coverage to the insurer, the owner filed a third-party complaint against the title insurer seeking damages because she did not have good title to the property. The title company treated the complaint as a notice of claim and provided a defense under a reservation of rights. The Supreme Court stayed the third-party action while the main action proceeded so as not to hold up the remediation of the title defect.

The court ultimately directed that a new deed and mortgage be recorded. Following the recording of the corrective instruments, the title insurer then moved for summary judgment, arguing that recording the new deed cured the owner’s title defect. The court agreed, because “title insurance only provides indemnification for any diminution in value of property sustained because of the defects in the title insured by the policy” and does not cover “consequential damages.” Once the title insurer had successfully established the owner-insured’s title to the property, it had no further obligation to indemnify her under the policy or to pay any loss.

Practitioners should carefully review not only the specific exceptions and schedules of the title policy, which is to be issued or has been issued for the particular transaction, but should also familiarize themselves with the pre-printed title jacket containing the Covered Risks and Conditions in order to make certain they follow the proper procedure when submitting a title claim to avoid unnecessary litigation with their client’s title underwriter.