The Second Department of New York’s Appellate Division recently affirmed a lower court’s decision that a title insurance company was not responsible for its policy-issuing agent’s defalcation of escrow funds.  See La Candelaria E. Harlem Cmty. Ctr., Inc. v. First Am. Title Ins. Co. of N.Y., 146 A.D.3d 473 (2d Dept. 2017).  In the case, plaintiff is a nonprofit organization that had failed to pay its city property taxes and owed approximately $500,000 in tax liens.  Plaintiff decided to sell its real property to avoid foreclosure and, pursuant to nonprofit law, sought and obtained a court order allowing the sale of the property.  Pursuant to the order, plaintiff was required to deposit $300,000 of the sales price in its then-attorney’s escrow account “pending the further order of the Court upon a showing by [plaintiff] that it has identified a suitable building that it proposes to purchase in furtherance of its charitable purposes.”  At the closing, plaintiff entered into an escrow agreement with defendant’s policy-issuing agent through which they agreed that the $300,000 would be placed in the agent’s escrow account until plaintiff’s new attorney could obtain a new court order authorizing him to hold the funds.  Six years later, plaintiff claimed to have called defendant and spoken with a customer service representative who allegedly confirmed defendant was holding the escrowed funds.  Three years later, plaintiff called defendant seeking the escrowed funds.  After investigating the request, defendant discovered the agent had stolen the funds, and plaintiff initiated this lawsuit against defendant.

On defendant’s motion for summary judgment, the trial court dismissed the complaint.  On appeal, the Second Department affirmed.  First, it held that the agent only had actual authority to clear title defects and issue title insurance policies, and any escrow agreements it entered into with plaintiff were not binding on defendant.  Second, it held that plaintiff’s alleged conversation with defendant in which defendant’s employee confirmed that defendant was holding the escrowed funds did not ratify the escrow agreement because plaintiff had no evidence that she was authorized to bind the company to the agreement.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.