N. Am. Title Ins. Co. v. Md. Ins. Admin.
| Decision Date | 29 August 2018 |
| Docket Number | No. 2391,2391 |
| Parties | NORTH AMERICAN TITLE INSURANCE COMPANY v. MARYLAND INSURANCE ADMINISTRATION |
| Court | Court of Special Appeals of Maryland |
Circuit Court for Baltimore City
Case No. 24-C-16-003483
UNREPORTED
Kehoe, Berger, Wilner, Alan M., (Retired, Specially Assigned), JJ.
Opinion by Kehoe, J.
*This is an unreported opinion, and it may not be cited in any paper, brief, motion or other document filed in this Court or any other Maryland Court as either precedent within the rule of stare decisis or as persuasive authority. See Md. Rule 1-104.
After investigating a complaint filed by Ocwen Financial Corporation, the Maryland Insurance Administration ordered North American Title Insurance Company ("North American")1 to pay a claim on a title policy issued by North American to a predecessor-in-interest to Ocwen. The Administration also concluded that North American's refusal to pay Ocwen's claim violated several provisions of the Insurance Article.
North American appealed the Administration's order to the Maryland Insurance Commissioner. The Commissioner delegated the responsibility for holding a hearing and preparing a decision to the Associate Commissioner. After an evidentiary hearing, the Associate Commissioner reversed the Administration's order. He concluded that North American was not obligated to provide coverage under the policy and that the company did not otherwise violate the Insurance Article in its handling of Ocwen's claim.
The Administration filed a petition for judicial review in the Circuit Court for Baltimore City. After briefing and oral argument, the circuit court reversed the Associate Commissioner's decision. North American appealed and presents one issue, which we have reworded:
Was North American bound by its purported agent's actions when the agent issued an insured client protection letter and a lender's title insurance policy to Ocwen's predecessor-in-interest?
Our answer to this question is "yes." However, instead of simply reversing the Associate Commissioner's decision, and thus reinstating the decision of the Maryland Insurance Administration, we think it more appropriate to the remand the case to the Associate Commissioner for further proceedings consistent with this opinion.
In 2009, Michael and Carrie Short entered into an agreement with U.S. Mortgage Finance Corp. to refinance the existing mortgage on their residence in Harford County. As part of their agreement, the Shorts undertook to provide a title insurance policy to U.S. Mortgage that would protect its interest as the first lien holder on the Short property. They contacted REO Land Services, Inc., and requested REO to conduct the settlement. This included arranging for the issuance of a title insurance policy to protect U.S. Mortgage's interest in the Short property.
Pursuant to this engagement, REO issued an undated title commitment and a closing protection letter dated November 5, 2009 to U.S. Mortgage. As its name suggests, a title commitment, sometimes referred to as a "title binder," constitutes a promise by a title agent that its principal will issue title insurance subject to any limitations and exceptions contained in the commitment. See 100 Investment Ltd. Partnership v. Columbia Town Center Title, 430 Md. 197, 219 (2013). A closing protection letter2 "protect[s] a lenderagainst negligence at settlement or loss of loan proceeds or documents when the closing is being conducted by a title insurance company's approved attorney or licensed agent." Betsy Grace Cunningham and Lawrence F. Haislip, SETTLEMENT OF TITLE OF RESIDENTIAL REAL ESTATE § 7.22 (4th ed. 2004) (footnote omitted).
REO was an agent for Stewart Title Guaranty Company when it sent these documents to U.S. Mortgage. Although the title commitment did not identify an insurer, the closing protection letter identified Stewart Title as REO's principal.
REO conducted the settlement on the refinancing transaction on Friday, December 11, 2009. At the settlement, the Shorts directed REO to pay a premium for lender's title insurance out of the loan proceeds. The federal Truth in Lending Act gave the Shorts the right to rescind the loan transaction for three business days. Accordingly, REO was required to hold the loan proceeds in escrow until December 16th. REO was responsible for disbursing a portion of the loan proceeds to satisfy the lien from the preexisting mortgage once the three-day post-settlement cancellation period was over.
As we have related, at the time the Shorts began working with REO, it was an agent of Stewart Title Company. However, REO and Stewart Title parted ways, and, on December 14, 2009, i.e., after the settlement date but before the date of disbursement of the settlement proceeds, REO entered into an agency agreement with North American. This agreement authorized REO to issue title insurance and related documents, including closing protection letters. On that same date, REO used its access to North American's computerized document preparation system to generate another insured's closing protection letters, thistime as agent for North American. This document was issued to U.S. Mortgage, and was prepared by REO, at least purportedly, as an agent for North American. The closing protection letter bore North American's logo as well as the electronic signature of Beverly Akins, then a vice president at the company. The letter stated that North American agreed to protect the insured party, in this case U.S. Mortgage, should the agent, REO, fail to comply with U.S. Mortgage's written closing instructions, or in cases of "[f]raud, dishonesty or negligence of [REO]... in handling your funds or documents in connection with the closings to the extent that fraud, dishonesty or negligence relates to the status of the title to that interest in land or to the validity, enforceability, and priority of the lien of the mortgage on that interest in land."
Because of an intervening weekend and the period for the Shorts' right of recession, the refinance loan was not funded until December 16, 2009. But the disbursements did not occur as the parties intended. An REO employee stole most of the loan proceeds. The balance due secured by the existing mortgage was not paid off and the existing lien was not released. The theft was not immediately detected.
In January 2010, REO, acting purportedly as the agent for North American, issued a lender's title insurance policy to U.S. Mortgage. The policy provided that U.S. Mortgage's deed of trust would be a first lien against the Short's property. The document stated that it was issued by North American, and was signed electronically by that company's president, Emilio Fernandez.
The terms of the written agency agreement between REO and North American required REO to forward to its principal copies of title insurance policies issued by REO in its name "no later than then end of the month following the closing of the transaction on which the Title policies are to be issued[.]" North American received its copy of the policy issued for the Short's refinancing on March 2, 2010. On the same day, North American received a check from REO for $8,249.51, representing North American's share of title insurance premiums collected by REO in a number of transactions, including the Short's refinancing. North American deposited the check in its premium income account. Its share of the Short's premium was $138.13.
A few months later, North American learned that criminal charges were pending against REO's principal for theft and other crimes arising out of a pattern of conduct, of which the Short's closing was but one example. North American terminated its relationship with REO and reviewed the premium payments from REO against information provided by REO in its ledger reports. North American concluded that its share of the Short's premium did not belong to it. North American then transferred its share of the Short's premium to a separate account. The Associate Commissioner found that this transfer took place sometime in June 2010. It is undisputed that North American has retained this money ever since and has not attempted to remit it to the Shorts.
U.S. Mortgage transferred the loan to GMAC shortly after closing. The loan was thereafter transferred again, with Ocwen serving as the servicing agent.
The Maryland Insurance Administration's investigation of the refinance transaction began in 2011, apparently as a result of an inquiry filed on behalf of GMAC. In 2012, GMAC, then the holder of the loan, filed a claim against North American because the prior mortgage had not been released. North American denied responsibility. The claims counsel writing on behalf of North American explained the company's position, which was that REO was not authorized to issue the Shorts' policy, so the company was not responsible for the claim. It does not appear that any further activity occurred related to GMAC's claim.3
GMAC transferred the Shorts' loan and Ocwen became the new servicing agent. In 2014, Ocwen filed a claim with North American. North American again denied the claim on grounds similar to those it asserted when denying GMAC's claim. The company also provided several other rationales for its denial.4 The company further pointed to language in the insured's closing protection letter stating that one of the policy conditions is that written notice of a claim must be filed with North American within one year of the closing in order for the company to be liable. Ocwen filed a complaint with the Administration.
After investigating Ocwen's complaint, the Administration issued its administrative findings in a letter dated February 13, 2015. After setting out the facts that we've previously summarized, it concluded that North American's refusal to pay the claim violated several provisions of the Insurance Article ("IA") of the Maryland Code, , IA § 4-113;5 which prohibits delaying payment on a claim without just cause...
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