New York Court Holds Principal of Title Agent Could Not Claim Fraud Against Title Insurer for Guaranty

The Supreme Court of New York, Kings County, recently dismissed a fraud claim brought by the principal of a title agent against a title insurance company, finding that any claim that the insurer misrepresented the terms of the guaranty—and there was no evidence supporting this claim—was irrelevant because the principal reviewed the guaranty before signing.  See Chicago Title Ins. Co. v. Brookwood Title Agency LLC, 2020 WL 5369206 (N.Y. Sup. Ct. Sep. 04, 2020).  In 2006, the defendant title agent issued a lender’s title insurance policy to a lender on behalf of the plaintiff title insurance company.  The agent issued the policy pursuant to a policy-issuing contract between the insurer and the agent, and for which the defendant principal signed a guaranty.  In 2011, the Court voided the mortgage because of a fraud in the prior deed.  After satisfying its obligation to the insured, plaintiff brought this action against the title agent and its principal.  The principal asserted a counterclaim of fraud, claiming that plaintiff misrepresented that the guaranty would be limited any escrow shortages.  Plaintiff then moved to dismiss the counterclaim.

The Court granted the motion and dismissed the counterclaim.  The Court found that there was no evidence of any misrepresentation by the title insurance company, but “notwithstanding any representations that may have been made . . . the guaranty was presumably read by Zilberberg and signed by him. Thus, Zilberberg was afforded an opportunity to review the terms of the guaranty and the extent of its reach. Consequently, Zilberberg cannot establish justifiable reliance when he was giving the ability to read the guaranty.”  The Court further found that the principal only brought the counterclaim after the Court previously ruled that he was liable for plaintiff’s indemnification claim:  “The defendant’s true basis for the counterclaim is the fact this court and the Appellate Division interpreted the guaranty as encompassing the indemnification claims sought here. Whether the defendant believed the guaranty should have been read so broadly and whether the defendant would not have signed such guaranty if it had known of this broad interpretation does not constitute fraud [by the title insurer].”

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