Michigan Federal Court Holds Title Insurance Company Had No Duty to Mitigate Damages Beyond Retaining Attorney for Insured

The United States District Court for the Eastern District of Michigan recently held that the title insurance company’s duty to mitigate damages was limited to retaining counsel for its insured, and that the attorney’s failure to file a timely proof of claim with the Federal Deposit Insurance Corporation (“FDIC”) was not imputed.  See Fid. Nat’l Title Ins. Co. v. Title One, Inc., 2016 WL 3971210 (E.D. Mich. 2016).  There, a title agent conducted a closing in which it was supposed to pay off one prior mortgage and obtain a subordination from another.  It failed to obtain the subordination agreement, and the prior mortgagee later initiated a foreclosure.  The title insurance company had issued a policy insuring the first-lien position of the insured’s mortgage, so it retained an attorney to represent the insured.  While the parties disputed their respective priorities, the prior lender failed and the FDIC assumed its assets.  Due to an apparent miscommunication between the retained attorney and the FDIC, the insured’s proof of claim was not timely filed and the insured’s priority claim was dismissed.  The title insurance company then sued the title agent for breach of contract in not obtaining the proper subordination.  Although the agent conceded that it had failed to secure the subordination, it argued that the untimely filing of the proof of claim was imputed to the title insurance company, and its action was barred because of its failure to mitigate damages.  The parties filed cross-motions for summary judgment, and the court granted the title insurance company’s motion.  Under Michigan law, because no attorney-client relationship exists between an insurance company and an attorney representing its insured, the retained attorney’s actions may not be imputed to the insurance company.  Therefore, the title insurance company’s duty to mitigate damages was limited to retaining the attorney.  Having done so, the title insurance company had proven its breach of contract claim.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Michael Crowley at mcrowley@riker.com.