New York Appellate Court Denies Title Coverage Based on Exclusion 3(a)

The Second Department of New York’s Appellate Division recently affirmed a lower court’s decision to deny an insured lender’s motion for summary judgment and to grant a title insurance company’s summary judgment motion because the insured had created the defect at issue.  See Plaza Home Mortg., Inc. v. Fid. Nat. Title Ins. Co., 2016 WL 7444886 (2d Dept. Dec. 28, 2016).  In the case, the insured lender loaned money to borrowers and, in exchange, received a mortgage on the borrowers’ property.  The title insurance company issued a policy to the lender insuring the first-lien position of the mortgage.  During the closing, however, the lender wired the proceeds to the borrowers’ counsel with instructions to perform certain closing duties, including paying off the prior mortgage on the property.  After discovering that the prior mortgage was not paid off and that its mortgage was not the first lien on the property, the insured filed a claim with the title insurance company.  The insurer denied the claim, stating that the claim was barred under Exclusion 3(a) of the title insurance policy, which excludes from coverage any loss “created, suffered, assumed or agreed to by the Insured Claimant.”  The insured then initiated the lawsuit.  The parties cross-moved for summary judgment, and the Supreme Court denied the insured’s motion and granted the insurer’s.  In doing so, it held that, by wiring funds to the borrowers’ attorney and asking the attorney to perform certain duties, the insured had designated the attorney as its settlement agent.  Therefore, “the act of the settlement agent in misappropriating the funds he had been directed to use to pay off a prior mortgage was properly imputed to the [insured], and therefore, the [insured] created the loss at issue.”

For a copy of the decision, please contact Michael O’Donnell at or Michael Crowley at