The United States District Court for the Northern District of Texas recently denied in part and granted in part a title insurance company’s motion to dismiss an insured’s bad faith claims. See Hall CA-NV, LLC v. Old Republic Nat’l Title Ins. Co., 2018 WL 298486 (N.D. Tex. June 14, 2018). In the case, the plaintiff insured loaned money to a non-party to finance a construction project for a resort along the California-Nevada border, and the defendant title insurance company issued title insurance policies with regard to the same. The project eventually ran into issues that resulted in mechanics’ liens. The title insurance company refused to indemnify the insured, and the insured sued the title insurance company for “breach of contract, violations of Chapters 541 and 542 of the Texas Insurance Code, and breach of the duty of good faith and fair dealing.” The title insurance company moved to dismiss the claims under the Texas Insurance Code by arguing that only California or Nevada law should apply and that, even if Texas law applied, Section 542, which involves an insurance company’s bad faith, does not apply to title insurance companies.
The Court denied the motion in part and granted it in part. First, it found that Texas law applied because the title insurance company had failed to point to any substantive differences between Texas law and California or Nevada law. Thus, it denied the motion to the extent it sought to dismiss any claims arising out of Texas law. Second, and more importantly, the Court granted the motion dismissing the claim under Texas Insurance Code § 542, finding that the statute did not apply to title insurance policies. In doing so, it rejected the insured’s argument that, even if a duty to indemnify under a title insurance policy is not covered under the statute, a duty to defend “involve[s] more than title insurance” and should be covered. “Old Republic’s duty to defend Hall is not distinct from the title coverage because the policies only require Old Republic to defend Hall against ‘claim[s] covered by [the policies],’ or in other words, title-related claims.”