Missouri Federal Court Denies Title Coverage Based on Exclusion 3(a)

The United States District Court for the Eastern District of Missouri recently held that a title insurance company was entitled to summary judgment on an insured’s coverage action because the insured created the alleged title defect.  See Howard v. Fid. Nat. Title Ins. Co., 2015 WL 5021768, at *9 (E.D. Mo. Aug. 24, 2015).  In the case, the insured purchased a property despite the fact that he knew that there was a prior deed of trust on the property.  At the closing, the prior deed of trust was ostensibly released, however the individual who signed the release did not have any authority to sign it on behalf of the holder of the deed of trust.  Moreover, the signatory had previously worked with the insured on a real estate transaction, and the release was notarized by an employee of the insured’s limited liability company.  The insured later filed a claim against the title insurer when it was discovered that the deed of trust was never released, and sued the title insurer when the claim was denied.  The title insurer moved for summary judgment on a number of grounds, including the argument that the claim was barred by Exclusion 3(a) of the policy, which excludes coverage for defects “created, suffered, assumed or agreed to by the insured claimant.”  The Court granted the motion, holding that “based upon the circumstances” of the closing, the insured purchased the property with the knowledge that the deed of trust was not actually discharged.  “Despite that knowledge, Plaintiff proceeded with the transaction, thereby ‘creating’ the result of which he now complains.”

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