A Delaware court recently dismissed a bad faith claim against a title insurance company after holding that Michigan law applied to the dispute over a property in Michigan, and that Michigan does not recognize a claim for bad faith breach of an insurance contract. The Court further dismissed the action as against the insurer’s parent company, who was not a party to the policy. See Buhl Bldg., L.L.C. v. Commonwealth Land Title Ins. Co., 2019 WL 3916615 (Del. Super. Ct. Aug. 19, 2019). In the case, Commonwealth Land Title Insurance Company (“Commonwealth”) issued an owner’s title insurance policy to the owner of a skyscraper in Detroit in 1998. In 2016, the insured owner entered into an agreement to sell the property, but the sale fell through because the potential purchaser’s title insurance company refused to insure the property due to a discrepancy in the legal description. Although Commonwealth and its parent company, Fidelity National Financial, Inc. (“FNF”) tried to resolve the issue with the potential purchaser’s title insurance company, they were not successful. The insured, a Delaware company, then brought this breach of contract and bad faith action in Delaware against Commonwealth and FNF. Defendants then brought a motion seeking an order (i) applying Michigan law to the action; (ii) dismissing the bad faith claim; and (iii) dismissing FNF.
The Court granted the motion in its entirety. First, the Court found that Michigan law applies because the reasonable expectations of the parties was that Michigan law would apply. In addition to the property itself being in Michigan, the insured “paid its premiums from Michigan, Commonwealth referenced land records in Michigan, and the parties formed the Contract using Michigan forms.” Second, the Court dismissed the insured’s bad faith and punitive damages claims, because Michigan (unlike Delaware) “does not recognize claims for bad faith breach of insurance contracts and punitive damages.” Finally, the Court dismissed FNF from the action, finding that FNF was not a party to the title insurance policy and could not be found liable without piercing the corporate veil, which could only be done in a chancery court in Delaware.