The Trusted Adviser February 2011 | Volume 4 • Number 1



Title Insurance

Fidelity Nat Title Ins Co v Mussman, 930 NE2d 1160 (Ind Ct App 2010).

Facts:In 1997, Fidelity National Title Insurance (Fidelity) entered in an issuing agency agreement with ITC, which authorized ITC to countersign and issue title insurance for Fidelity in Indiana. Intercounty Title Company (ITC) provided title insurance, acted as closing agent, and acted as the escrow agent for the Mussmans, who had contracted to sell real estate for $1.6 million to Floramo Partners, Ltd. On December 30, 1999, ITC issued title insurance policies, underwritten by Fidelity, to Floramo and its mortgagee. In March 2000, Fidelity grew suspicious of ITC's practices and eventually terminated its agreement with ITC over irregularities in ITC's escrow account. On April 30, 2000, the Mussmans negotiated a $1.6 million check written on ITC's escrow account, but it was returned for insufficient funds. The funds were stolen by ITC owner Lawrence Capriotti, who was convicted of several counts of fraud in May 2006.

The Mussmans brought suit against Fidelity, alleging negligence and that Fidelity was liable for ITC's conduct according to the principles of respondeat superior and Section 261 of the Restatement (Second) of Agency. The trial court entered summary judgment in favor of Mussmans. Fidelity appealed.

Holding:Reversed and remanded. On appeal, Fidelity maintained that ITC was not its agent for closing or escrow services because Fidelity's agency agreement with ITC pertained only to the issuance of title insurance. The court of appeals found that Fidelity's liability turned upon ITC's authority as an agent under either actual or apparent authority. On the question of apparent authority, the court found and the Mussmans conceded that, there was no conduct or communication by Fidelity that there was an agency relationship between Fidelity and ITC. Thus ITC did not have apparent authority to conduct escrow or closing services on Fidelity's behalf.

Regarding actual authority, the appeals court first looked to the language of the agency agreement. The agreement provided that Fidelity appointed ITC solely to issue title insurance policies and assurances. It further provided that Fidelity had the right to examine financial records related to the issuance of title insurance, ITC's escrow account was subject to audit by Fidelity, ITC could not receive escrow or closing funds in the name of Fidelity, and ITC was required to indemnify Fidelity from a loss arising from escrow or other non-title assurance operations. The court looked toProctor v Metropolitan Money Store Corp, 579 F Supp 2d 724 (D Md 2008), where the general rule was laid out that an issuing title insurance agent may wear "two hats," one as an agent to sell the insurance, and the other to conduct closings on his or her own behalf. In such a situation a title insurer cannot be held liable for an agent's participation in closings or provision of escrow.

The court of appeals concluded that, as in Proctor, Fidelity's power to audit ITC did not convert ITC's designated limited agency into a broader general agency in which Fidelity has vicarious liability as the principal. Instead, the court found that the primary purpose of general escrow account requirements, including access for audits and indemnification, was to minimize the risk of loss under title insurance policies and allegations of vicarious liability. Assuming the agreement and conduct of the parties did imply actual authority, actual authority focuses on the belief of the agent and the Mussmans acknowledged that there was no evidence showing ITC believed it had authority to conduct escrow services on behalf of Fidelity. Thus the court found that the trial court erred, and the court held that Fidelity was entitled to summary judgment.






THE TRUSTED ADVISER is published by Attorneys’ Title Guaranty Fund, Inc., P.O. Box 9136, Champaign, IL 61826-9136. Inquiries may be made directly to Mary Beth McCarthy, Corporate Communications Manager. ATG®, ATG® plus logo, are marks of Attorneys’ Title Guaranty Fund, Inc. and are registered in the U.S. Patent and Trademark Office. The contents of the The Trusted Adviser © Attorneys' Title Guaranty Fund, Inc.

[Last update: 1-21-11]