New York’s Fourth Department Holds Title Insurer Not Liable for Attorneys’ Fees in Action Brought by Insured Against Neighbor

New York’s Appellate Division, Fourth Department, recently dismissed an action brought by an insured property owner against its title insurer, finding that the title insurer was not obligated to bring an action against the insured’s neighbor over a disputed portion of property, and therefore that the insurer was not obligated to pay the insured’s attorneys’ fees when the insured brought the action against the neighbor.  See Irma Straus Realty Corp. v. Old Republic Nat'l Title Ins. Co., 2020 WL 3160232 (N.Y. App. Div. June 12, 2020).  In the case, the defendant title insurer issued a title insurance policy to the plaintiff property owners.  Plaintiffs later learned that a neighboring property owner was using a portion of plaintiffs’ insured property.  Plaintiffs provided the neighbor with notice, but the neighbor claimed that it was the rightful owner of this disputed portion.  Plaintiffs then provided defendant with notice of this issue and, when defendant declined to bring an action, plaintiffs sued the neighbor for quiet title.  Plaintiffs subsequently brought this action against defendant alleging breach of contract and seeking an order that defendant pay plaintiffs’ attorneys’ fees and costs incurred in the action against the neighbor.  Defendant filed a motion to dismiss, and the trial court denied the motion.

On appeal, the Fourth Department reversed the trial court and granted defendant’s motion to dismiss.  Plaintiffs brought this action pursuant to Section 5(b) of the policy, which states that defendant “shall have the right . . . to institute and prosecute any action or proceeding or to do any other act that in its opinion may be necessary or desirable to establish the Title, as insured, or to prevent or reduce loss or damage to the Insured.”  However, the Fourth Department found that “Defendant’s ‘right’ to prosecute an action is not equivalent to an ‘obligation’” and that the policy “did not require defendant to prosecute the action against the [neighboring] property owner.”  Accordingly, the Court found that plaintiffs were not entitled to their attorneys’ fees in their action.

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.