In Murphy v. Commonwealth Land Title Ins. Co., No. 20-CV-2793, LEXIS 144866 (E.D.N.Y. Aug. 12, 2022), the United States District Court for the Eastern District of New York (“the Court”) granted Defendant Commonwealth Land Title Insurance Co. (“Commonwealth” or “Defendant”) summary judgment, affirming as correct Defendant’s denial of a tender based upon policy exclusions and the lack of any manner of special fiduciary relationship.
The matter dates back to June 2002, at which time Plaintiff Edward Murphy (“Plaintiff”) purchased property in Sag Harbor, New York (the “Property”), executing a mortgage with Washington Mutual Bank, now JP Morgan Chase Bank (“Chase”). In connection with this purchase, Plaintiff obtained a title insurance policy from Defendant which bore, among other provisions, the following two exclusions found in every title policy:
- An exclusion for all matters “created, suffered, assumed or agreed to” by the Insured–otherwise known as a standard 3(a) Exclusion; and
- An exclusion applicable to all encumbrances “attaching or created subsequent to [the] Date of [the] Policy”–commonly known as a standard 3(d) Exclusion.
Plaintiff subsequently defaulted on his mortgage, causing Chase to foreclose on the Property, which was later purchased post-foreclosure by Paul Luciano (“Luciano”). In conjunction with Luciano’s purchase, Fidelity National Title Insurance Company (“Fidelity”) issued Luciano a title insurance policy.
In 2016, Plaintiff brought suit against Chase and Luciano for wrongful foreclosure and sought to vacate the foreclosure judgment as he was not served at his primary address. Luciano submitted a claim under his policy to Fidelity who accepted the claim, provided coverage, and funded his defense. Plaintiff submitted his own claim for coverage to Commonwealth, however, Plaintiff’s claim was denied based upon the exclusions contained in his policy. In issuing the denial, Commonwealth explained that because the lawsuit had arisen due to Plaintiff’s own default, “[a]s such, the matter underlying the Lawsuit did not commence until after the Date of Policy of June 4, 2002, and therefore, attached or [was] created subsequent to the Date of Policy”–in other words, coverage was barred by operation of the 3(d) Exclusion.
Plaintiff brought suit against Commonwealth for its tender denial, alleging before the Court, among other claims, that the denial constituted a breach of fiduciary duty and violation of G.B.L. § 349 (deceptive business practices). The claim was based on Plaintiff’s contention that because Commonwealth and Fidelity were owned by the same parent, the title insurer had effectively “pit two insureds against each other.” The Court dispatched with these arguments, finding that Commonwealth had properly denied Plaintiff’s claim because Plaintiff’s default on its mortgage with Chase had triggered both the 3(a) and 3(d) Exclusions, and therefore Defendant had “no obligation to [P]laintiff . . . to begin with.”
As to the breach of fiduciary duty claims, the Court noted that insurance companies do not owe a fiduciary duty to their insureds absent “some special relationship.” Edelman v. O'Toole-Ewald Art Assocs., Inc., 28 A.D.3d 250, 251 (App. Div. 1st Dep’t 2006). The Court held that because Plaintiff had failed to allege any facts giving rise to a “special relationship” between the parties, no fiduciary duty existed and the suit necessitated dismissal.
This case serves to reaffirm settled title insurance principles governing the application of 3(a) and 3(d) Exclusions, as well as the well-settled principle that the issuance of a title policy alone is not sufficient grounds for the imposition of a “special” or fiduciary relationship between an insurer and insured.
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