The United States Bankruptcy Court for the District of New Mexico recently found that a title insurance company was not liable for the alleged negligent acts of the title agent in failing to discharge a mortgage. See Lamey v. Las Cruces Abstract and Title Co., et al., 2020 WL 1884189 (Bankr. D.N.M. Apr. 15, 2020). In the case, the insured plaintiffs brought an action against a title agent and a title insurance company based on the agent’s failure to discharge a mortgage. Although plaintiffs did not allege that the title insurance company itself was negligent, they claimed that the company should be held liable under an agency theory of liability for the agent’s actions as title agent and escrow agent. The title insurance company moved for summary judgment on these claims.
The Court granted the summary judgment motion. First, the Court predicted how New Mexico state courts would rule and held that the insured could not sue the title insurance company in tort for the agent’s alleged negligence, “[T]itle insurance is heavily regulated in New Mexico. The laws and regulations extend to the form of contract that may be used and the premiums insurers are allowed to charge. The regulatory regime appears designed to protect both insurers and insureds. Allowing insureds to bring tort claims against insurers in addition to contract claims would disrupt the regulatory and pricing scheme enacted by the legislature.” Second, the Court found that the title agent was not the title insurance company’s agent for escrow services. Plaintiffs claimed that they relied on the title policy, title commitment, and invoice as proof that the agent was acting on behalf of the title insurance company. The Court found that the policy and invoice were created after the closing, and that the commitment alone was insufficient. “The title commitment, title policy, and invoice are reeds entirely too slender to support Plaintiffs’ argument. Were the Court to hold otherwise, every title insurer doing business in New Mexico would be vicariously liable for the negligence of their local title companies when they (as so often happens) don their other hat and provide escrow services for a fee.”