The United States Court of Appeals for the Tenth Circuit recently held that a title agent was responsible for the entirety of a title insurance company’s loss after the agent removed an exception from a policy without the company’s consent. See Fid. Nat'l Title Ins. Co. v. Pitkin Cty. Title, Inc., 2019 WL 315328 (10th Cir. Jan. 23, 2019). Fidelity National Title Insurance Company (“Fidelity”) underwrote title insurance policies issued by Pitkin County Title, Inc. (“Pitkin”) pursuant to an agency agreement between the parties. Under this agreement, Pitkin was prohibited from exposing Fidelity to any additional risks without Fidelity’s prior written approval. Although the policy forms Fidelity provided to Pitkin excluded coverage for “[e]asements, or claims of easements, not shown by the public records,” Pitkin deleted that exception in a policy. The insured owners under that policy later brought a claim based on an unrecorded easement on their property. After Fidelity offered partial coverage, the owners sued. Fidelity then brought a third-party action against Pitkin, claiming both negligence and breach of the agency agreement. Fidelity later agreed to dismiss the negligence claim and moved for summary judgment on its breach of contract claim. The trial court granted Fidelity’s motion, holding that Pitkin breached the agency agreement and was responsible for the entirety of Fidelity’s loss.
On appeal, the Tenth Circuit affirmed. Under the agency agreement, Pitkin was responsible for only the first $5,000 of any loss incurred by Fidelity as a result of any problems arising from policies issued by Pitkin, but was responsible for the entire loss for any matter arising from Pitkin’s “negligent, willful or reckless conduct[.]” Pitkin argued that Fidelity’s voluntary dismissal of its negligence claim precluded the trial court from finding that it had engaged in negligent, willful or reckless conduct under the agency agreement, as well as that the economic loss doctrine barred any finding of negligence under the contract, and that Fidelity was only entitled to $5,000. The Court disagreed. First, it found that the economic loss rule operates to bar tort claims, and Pitkin’s argument that it should be applied to express contractual provision would be “a dubious application” of the rule. Second, the Court found that the agency agreement expressly defined “negligent, willful or reckless conduct” as “[f]ailure . . . to comply with the terms and conditions of this Agreement or with the manuals, underwriting bulletins and/or instructions given to [Pitkin] by [Fidelity].” Thus, because Pitkin’s action fell into this definition, Pitkin was liable for Fidelity’s entire loss regardless of whether Fidelity voluntarily dismissed its negligence claim.