Deutsche Bank Nat'Lass'N v. First Am. Title Ins. Co.

• Decision Date: 11 July 2013
• Docket Number: SJC–11265.
• Citation: 991 N.E.2d 638,465 Mass. 741
• Parties: DEUTSCHE BANK NATIONAL ASSOCIATION, trustee, v. FIRST AMERICAN TITLE INSURANCE COMPANY.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

465 Mass. 741

991 N.E.2d 638

DEUTSCHE BANK NATIONAL ASSOCIATION,¹ trustee,²

v.FIRST AMERICAN TITLE INSURANCE COMPANY.

SJC–11265.

Supreme Judicial Court of Massachusetts,

Suffolk.

Argued March 7, 2013.

Decided July 11, 2013.

Richard E. Briansky (Jeffrey J. Pyle with him), Boston, for the plaintiff.

Jason A. Manekas, Boston, for the defendant.

Present: IRELAND, C.J., SPINA, CORDY, BOTSFORD, GANTS, DUFFLY, & LENK, JJ.

CORDY, J.

In the present appeal, we consider whether the terms of a title insurance policy require First American Title Insurance Company (First American) to defend Deutsche Bank National Association (Deutsche Bank) in a lawsuit brought by a third party, Karla Brown,³ seeking rescission of a note and first mortgage securing that note, originated by Deutsche Bank's predecessor in interest in connection with the purchase of Brown's home. Following First American's denial of coverage, Deutsche Bank instituted this action seeking a judgment declaring that First American has a duty to defend it in Brown's lawsuit and seeking statutory damages. We transferred the case here on our own motion following Deutsche Bank's appeal from a Superior Court judge's order granting summary judgment in favor of First American.

On appeal, Deutsche Bank argues that the policy is susceptible to an interpretation that it covers the claims alleged in Brown's complaint and that two exclusions contained within the policy do not preclude coverage.⁴ Based on these arguments, Deutsche Bank contends that First American is under a contractual duty to defend it in the Brown lawsuit. In addition, Deutsche Bank renews its claim for damages under G.L. c. 93A due to First American's alleged violation of G.L. c. 176D, § 3.⁵ In response, First American argues that the allegations in Brown's complaint do not trigger its duty to defend because they relate to a predatory lending scheme concerning the validity of the underlying note and not the enforceability of Deutsche Bank's mortgage interest. Alternatively, First American argues that it need not defend Deutsche Bank because Brown's claims are excluded by the policy. For the reasons discussed below, we conclude that the allegations in Brown's complaint did not trigger First American's duty to defend under its title insurance policy, and therefore we affirm the judge's grant of summary judgment.

Background. On June 6, 2006, Accredited Home Lenders, Inc. (Accredited) issued a loan, secured by a first mortgage, to Brown in the amount of $374,400 to purchase her home in the Dorchester section of Boston. Prior to the closing on Brown's home, Accredited purchased a title insurance policy from First American, which provided coverage to Accredited and its successors and assigns. ⁶ Thereafter, Accredited sold Brown's loan and mortgage to Morgan Stanley ABS Capital Incorporated, which then assigned the loan and mortgage to the Morgan Stanley IXIS Real Estate Capital Trust 2006–2, of which Deutsche Bank is the trustee. As trustee, Deutsche Bank is covered by the title insurance policy, a fact that is undisputed by the parties in the present appeal.

In May, 2009, Brown filed an action against Accredited; Deutsche Bank; Saxon Mortgage Services, Inc., the loan servicer; HSBC Mortgage Service, Inc., the servicer of a second loan; GMAC Mortgage Corp., the mortgage broker; Philip Brown, the mortgage broker's agent; and Barrando Butler, the closing attorney, seeking to void the indebtedness under the promissory note and rescind the mortgage.⁷ Her complaint asserts claims for misrepresentation; unconscionability; breach of the duty of good faith and fair dealing; tortious interference with contract; violations of G.L. c. 183, § 63; legal malpractice; intentional infliction of emotional distress; and violations of G.L. c. 93A.⁸ In support of her request for relief, Brown alleges that she was “the victim of a predatory lending scheme,” perpetrated by the named defendants, which involved “underwriting predatory ‘stated income’ loans to families in low-income neighborhoods.” She further alleges that the defendants “unilaterally misrepresented [Brown's] income to justify higher interest rates and higher monthly payments” and coerced her into accepting loans that she could not afford.

Following the institution of Brown's lawsuit, Deutsche Bank contacted First American to provide notice of the lawsuit and to request that it defend Deutsche Bank's mortgage interest pursuant to the terms of the title insurance policy.⁹ First American refused coverage because “Brown does not challenge that she granted the mortgage, rather she claims that she was misinformed as to the terms of the note,” and thus the lawsuit did not trigger its duty to defend.

Discussion. 1. Standard of review. “The standard of review of a grant of summary judgment is whether, viewing the evidence in the light most favorable to the nonmoving party, all material facts have been established and the moving party is entitled to a judgment as a matter of law.” Augat, Inc. v. Liberty Mut. Ins. Co., 410 Mass. 117, 120, 571 N.E.2d 357 (1991). There are no material factual disputes in this case, and the only issue is the interpretation of the title insurance policy, which is a question of law that we review de novo. Chenard v. Commerce Ins. Co., 440 Mass. 444, 445, 799 N.E.2d 108 (2003).

2. The scope of a title insurer's duty to defend. The determinative issue is whether the allegations set forth in Brown's complaint trigger First American's duty to defend under the terms of the title insurance policy.

In Massachusetts, a general liability insurer has a broad duty to defend an insured in litigation. GMAC Mtge., LLC v. First Am. Title Ins. Co., 464 Mass. 733, 738, 985 N.E.2d 823 (2013)( GMAC Mtge.). See Metropolitan Prop. & Cas. Ins. Co. v. Morrison, 460 Mass. 352, 357, 951 N.E.2d 662 (2011)( Metropolitan ), quoting A.W. Chesterton Co. v. Massachusetts Insurers Insolvency Fund, 445 Mass. 502, 527, 838 N.E.2d 1237 (2005). A liability insurer's duty to defend is determined by comparing the allegations in the third-party complaint against the provisions of the insurance policy. See Continental Cas. Co. v. Gilbane Bldg. Co., 391 Mass. 143, 146, 461 N.E.2d 209 (1984)( Continental ). See also Simplex Techs., Inc. v. Liberty Mut. Ins. Co., 429 Mass. 196, 197, 706 N.E.2d 1135 (1999). “[I]f the allegations of the complaint are ‘reasonably susceptible’ of an interpretation that they state or adumbrate a claim covered by the policy terms, the insurer must undertake the defense” (emphasis added). Continental, supra, quoting Sterilite Corp. v. Continental Cas. Co., 17 Mass.App.Ct. 316, 318, 458 N.E.2d 338 (1983). See Billings v. Commerce Ins. Co., 458 Mass. 194, 200, 936 N.E.2d 408 (2010)( Billings ), citing Ruggerio Ambulance Serv., Inc. v. National Grange Mut. Ins. Co., 430 Mass. 794, 796, 724 N.E.2d 295 (2000). Any uncertainty as to whether the pleadings include or are reasonably susceptible to an interpretation that they include a claim covered by the policy terms is resolved in favor of the insured, and the insurer must undertake the defense until it obtains a declaratory judgment of no coverage. Metropolitan, supra at 358–359, 951 N.E.2d 662.¹⁰

In the present dispute, the parties assume that this standard for determining a general liability insurer's duty to defend is equally applicable in the context of title insurance. Because this bears on the outcome of the dispute, we take the opportunity to determine whether that assumption is correct.

Our analysis is guided by our recent decision in GMAC Mtge., supra. There, we concluded that the “in for one, in for all” rule applicable in the context of general liability insurance does not apply to title insurance.¹¹Id. at 739, 985 N.E.2d 823. That is, a title insurer does not have a duty to defend claims outside the scope of the title insurance policy simply because the insurer has an obligation to defend a claim that is covered by the policy. Id. Significantly, our conclusion was predicated on the unique purpose of title insurance as compared to general liability insurance. Id. at 740, 985 N.E.2d 823. As we explained, “[A] title insurance policy is not an agreement to guarantee or a warranty of the state of the title.... It is, rather, an agreement to indemnify the policyholder ... against loss through defects in title.” Id. at 739, 985 N.E.2d 823, quoting B. Burke, Title Insurance § 2.01[A], at 2–5 (3d ed. Supp. 2012). “[It] narrowly covers defects in, or encumbrances on, titles that are in existence when a policy issues.” GMAC Mtge., supra at 740, 985 N.E.2d 823, citing B. Burke, Title Insurance § 2.01[C], at 2–22 to 2–22.1 (3d ed. Supp. 2008). In light of this purpose, we stressed that title insurance is “fundamentally different” from general liability insurance, see id., citing B. Burke, Title Insurance § 2.01[B], at 2–16 (3d ed. Supp. 2011), which is “directed at future risks,” ¹² see id., quoting B. Burke, Title Insurance § 2.01[C], at 2–22 (3d ed. Supp. 2008).

Based on our reasoning in GMAC Mtge., supra, and the limited purpose of title insurance, we conclude that the broadly applied standard for determining whether a general liability insurer has a duty to defend is inapplicable in the context of title insurance. More precisely, a title insurer does not have a duty to defend simply because the allegations in the underlying complaint are “ ‘reasonably susceptible’ of an interpretation that they state or adumbrate a claim covered by the policy terms.” Continental, supra at 146, 461 N.E.2d 209, quoting Sterilite Corp. v. Continental Cas. Co., supra at 318, 458 N.E.2d 338, and citing Vappi & Co. v. Aetna Casualty Co., 348 Mass. 427, 431, 204 N.E.2d 273 (1965). Application of this standard threatens to sweep a whole host of uncontemplated risks into the ambit of title insurance. See GMAC Mtge., supra at 740–741, 985 N.E.2d 823. To avoid such an aberration, we conclude that a title insurer's duty to...