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Home > Underwriting > Title News > Fifteen Volume Three

SERIES: Fifteen VOLUME: Three DATED: March, 2000

~ UNDERWRITER RECOVERS LOSS FROM AGENT FOR POLICY ERROR ~

A recently decided case (Fidelity National Title Insurance Company of New York v. First New York Title & Abstract LTD, Appellate Division, Second Department, decided March 2, 2000) examined the relationship between a title insurance underwriter and its agent and found an obligation on the part of the agent to indemnify its underwriter for losses caused by its negligence in the issuance of the underwriter's policy.

The Court in the Fidelity case sets forth its facts as follows:

"The plaintiff Fidelity National Title Insurance Company of New York, entered into an Agency Agreement with the defendant, First New York Title & Abstract Ltd., to solicit and originate applications for title insurance, prepare abstracts of title, examine title to real estate, prepare and issue binders and reports of title, and issue policies of title insurance in New York State. On December 30, 1992, the defendant issued, on the plaintiff's behalf, a title report for real property located in Garden City, New York. The title report was prepared for an application for mortgage title insurance to be issued to the plaintiff's insureds, Willi Vollerthun and Melinda E. Vollerthun, in connection with a mortgage given by the fee owner of that property to the Vollerthuns in return for a $50,000 loan. Schedule B to the title report erroneously stated that three prior mortgages on the property held by Long Island Savings Bank (hereinafter LISB) had been consolidated to form a single first lien in the sum of $140,000. The report should have stated that only the second and third mortgages were consolidated to form a lien of $140,000 and that the first mortgage in the sum of $80,000 constituted a separate lien. Based on the error in the title report, the defendant issued a title insurance policy to the Vollerthuns, insuring their mortgage in the lien status of a second mortgage when in reality, they held a tertiary position behind the $140,000 mortgage and the $80,000 mortgage held by LISB. LISB eventually foreclosed on its mortgages and satisfied the first mortgage and partially satisfied the second consolidated mortgage. Had the Vollerthuns' mortgage been subject only to the consolidated mortgage of $140,000, they would have recovered approximately $37,000 from the surplus that was realized from the foreclosure sale of the property. However, as a result of their tertiary position, they recovered nothing from the sale.

The Vollerthuns made a claim with the plaintiff, which was settled after the foreclosure sale for approximately $20,000. Thereafter, the plaintiff commenced this suit, under the terms of the Agency Agreement with the defendant. The complaint alleged that the defendant was obligated to indemnify the plaintiff for the losses it incurred as a result of the defendant's alleged 'breach of its agency contract in, inter alia, failing to exercise due diligence and reasonable care in abstracting and examining title to the subject property, in negligently reporting the state of such title, in improperly insuring the Vollerthun mortgage, and in failing to keep in place errors and omissions coverage to indemnify [the plaintiff] for such loss'."

The lower court denied the plaintiff's motion for summary judgment but the Appellate Division reversed that decision and held that:

"The plaintiff established a prima facie case of its entitlement to summary judgment and the defendant has filed to raise a triable issue of fact requiring a trial.

Contrary to the defendant's contention, it was obligated under the terms of the Agency Agreement to indemnify the plaintiff for the amount the plaintiff paid to settle the claim asserted against it by the Vollerthuns. 'When an indemnitor has notice of the claim against it, the general rule is that the indemnitor will be bound by any reasonable good faith settlement the indemnitee might thereafter make...' [citation omitted]. In the instant case, there was ample evidence in the record that the defendant received such notice, that the plaintiff could have been held liable if it had proceeded to trail... . Therefore, the defendant was obligated to indemnify the plaintiff for the settlement amount..."

~ SERVICE OF PROCESS UPON A LIMITED LIABILITY COMPANY ~

Chapter 341 of The Laws of 1999 has amended the Civil Practice Law and Rules and New York Limited Liability Company Law to expand and clarify the various authorized methods for completion of personal service on limited liability companies. CPLR Section 311-a now contains a complete inventory of the permissible methods of serving process on a limited liability company. All methods of personal service formerly set forth in Section 303(a) of the Limited Liability Company Law have been transferred to the CPLR and now also includes a provision for service upon any agent authorized by appointment to receive process and any other person designated by a limited liability company to receive process.

CPLR Section 311-a (Personal Service on Limited Liability Companies) provides as follows:

"(a) Service of process on any domestic or foreign limited liability company shall be made by delivering a copy personally to (i) any member of the limited liability company in this state, if the management of the limited liability company is vested in its members, (ii) any manager of the limited liability company in this state, if the management of the limited liability company is vested in one or more managers, (iii) to any other agent authorized by appointment to receive process, or (iv) to any other person designated by the limited liability company to receive process, in the manner provided by law for service of a summons as if such person was a defendant. Service of process upon a limited liability company may also be made pursuant to article three of the limited liability company law [i.e. service of process upon the secretary of state as agent].

(b) If service is impracticable under subdivision (a) of this section, it may be made in such manner as the court, upon motion without notice, directs."


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