Countrywide Home Loans, Inc. v. United Gen. Title Ins. Co.

• Decision Date: 25 September 2013
• Citation: 109 A.D.3d 950,971 N.Y.S.2d 353,2013 N.Y. Slip Op. 05981
• Parties: COUNTRYWIDE HOME LOANS, INC., etc., appellant, v. UNITED GENERAL TITLE INSURANCE COMPANY, respondent, et al., defendants.
• Court: New York Supreme Court — Appellate Division

109 A.D.3d 950

971 N.Y.S.2d 353

2013 N.Y. Slip Op. 05981

COUNTRYWIDE HOME LOANS, INC., etc., appellant,

v.UNITED GENERAL TITLE INSURANCE COMPANY, respondent, et al., defendants.

Supreme Court, Appellate Division, Second Department, New York.

Sept. 25, 2013.

Blank Rome LLP, New York, N.Y. (Jonathan M. Robbin of counsel), for appellant.

DelBello Donnellan Weingarten Wise & Wiederkehr, LLP, White Plains, N.Y. (Robert Hermann and Jacob E. Amir of counsel), for respondent.

DANIEL D. ANGIOLILLO, J.P., CHERYL E. CHAMBERS, SANDRA L. SGROI, and JEFFREY A. COHEN, JJ.

In an action, inter alia, to recover damages for breach of an insurance contract, the plaintiff appeals, as limited by its brief, from so much of an order of the Supreme Court, Richmond County (McMahon, J.), dated December 8, 2011, as granted the motion of the defendant United General Title Insurance Company for summary judgment dismissing the complaint insofar as asserted against it.

ORDERED that the order is reversed insofar as appealed from, on the law, with costs, and the motion of the defendant United General Title Insurance Company for summary judgment dismissing the complaint insofar as asserted against it is denied.

In January 2005, Fayyaz Ahmed, posing as Munir Lodhi, obtained a mortgage loan from the plaintiff in the amount of $304,200 secured by certain real property in Staten Island. The plaintiff obtained title insurance for the transaction from the defendant United General Title Insurance Company (hereinafter United). In December 2005, the plaintiff learned that Lodhi had been the victim of identity theft by Ahmed. After verifying Lodhi's claim of identity theft, the plaintiff executed a satisfaction of mortgage releasing its lien on Lodhi's property. It then notified United of its claim under the title insurance policy (hereinafter the policy), and subsequently recorded the satisfaction of mortgage. Three and one-half years later, United notified the plaintiff that it was disclaiming coverage based on the plaintiff's release of the mortgage and on the ground that the plaintiff had created the defect causing the loss. Subsequently, the plaintiff commenced this action against, among others, United, inter alia, to recover damages for breach of the policy.

United moved for summary judgment dismissing the complaint insofar as asserted against it, contending that the plaintiff's execution of the satisfaction of mortgage without United's knowledge or consent violated certain conditions of coverage under the policy and acted to terminate coverage. Alternatively, United contended that the plaintiff's loss of the loan proceeds by identity theft was not a “title defect” covered by the policy, and that the plaintiff's carelessnessand failure to verify the borrower's identity actually “created” the loss, and thus, was subject to an exclusion under the policy. The Supreme Court granted the motion, finding both that the plaintiff's filing of the satisfaction of mortgage extinguished its interest in the property, thereby terminating United's obligation to indemnify, and alternatively, the failure of the plaintiff's closing agent to properly verify the identity of the borrower fell under the exclusion to the policy for defects “created” by the insured. We reverse the order insofar as appealed from.

A “title insurer will be liable for hidden defects and all matters affecting title within the policy coverage and not excluded or specifically excepted from said coverage” ( Francis v. D & W Saratoga, Inc., 49 A.D.3d 597, 598, 856 N.Y.S.2d 137 [internal quotation marks omitted]; see Citibank v. Commonwealth Land Tit. Ins. Co., 228 A.D.2d 635, 637, 645 N.Y.S.2d 826). The title insurer's liability to its insured is essentially based on contract law, and “liability is governed and limited by the agreements, terms, conditions, and provisions contained in the title insurance policy” ( Nastasi v. County of Suffolk, 106 A.D.3d 1064, 1066, 966 N.Y.S.2d 172;see Property Hackers, LLC v. Stewart Tit. Ins. Co., 96 A.D.3d 818, 819, 949 N.Y.S.2d 70).

United failed to establish prima facie entitlement to judgment as a matter of law on the ground that the subject loss was not covered under the terms and conditions of the policy. The plaintiff's inability to enforce its purported security interest against the real property was covered under the express policy provision for any “loss ... sustained or incurred by the insured by reason of ... [t]he invalidity or unenforceability of the lien of the insured mortgage upon the title” ( see Lawyers Tit. Ins. Corp. v. JDC [Am.] Corp., 52 F.3d 1575, 1581–1583 [11th Cir.]; Citicorp Sav. of Illinois v. Stewart Tit. Guar. Co., 840 F.2d 526, 529–530 [7th Cir.]; McHenry...