Murphy v. Commonwealth Land Title Ins. Co., 2022

[Peter Walther]

This decision out of NY illustrates one of the types of baseless claims made under a title insurance policy.  I'm surprised the Court didn't sanction Plaintiff's counsel for filing a spurious suit.  I wouldn't be surprised if Mr. Murphy doesn't now feel title insurance is worthless rather than wondering why his attorney allowed him to waste his money on frivolous litigation.  

Murphy v. Commonwealth Land Title Ins. Co., 2022 WL 3347223 (E.D.N.Y. Aug. 12, 2022) was a failed attempt to impose a fiduciary duty on a title insurer. In 2002 Murphy bought real estate with an owner’s policy from Commonwealth Title and a mortgage loan from Washington Mutual (which was later absorbed by JPMorgan Chase). In 2008 Murphy defaulted on the mortgage, JPMorgan Chase foreclosed and sold the property to Luciano. Fidelity National Title issued Luciano an owner’s title policy.

In 2016 Murphy sued to set aside the foreclosure on the ground that he had not been properly served with process. Fidelity National undertook defense of Luciano’s title. Murphy demanded that Commonwealth Title represent him in the suit to set aside the foreclosure, but it refused to do so. In the present action, Murphy sued Commonwealth for breach of contract and breach of fiduciary duty on account of its refusal to represent him in attacking the 2008 foreclosure.

On the breach of contract claim, the court had no difficulty ruling against Murphy because of exclusions 3(a) and 3(d) of the owner’s policy. 3(a) excludes coverage for matters “created, suffered, assumed or agreed to” by the Insured; it applies because it was Murphy who defaulted on his mortgage payments, thereby causing the foreclosure. In other words, he brought the foreclosure upon himself. 3(d) excludes coverage for encumbrances “attaching or created subsequent to [the] Date of [the] Policy,” and of course the mortgage was subsequent and subordinate to the deed and title that were insured by the owner’s policy. Thus, Commonwealth properly denied Murphy’s claim and did not breach its duty under the policy.

Murphy did not fare any better under his fiduciary duty claim. He argued that since Commonwealth and Fidelity National are owned by the same holding company, they were engaged in a conflict of interest by pitting two insureds against one another and picking one winner against another. However, under NY law, an insurance company owes a fiduciary duty only if there is a “special relationship” with its insured. The court could see no basis for such a relationship here. Moreover, even if a special relationship could have been shown, Commonwealth simply had no duty to provide coverage to Murphy for the reasons mentioned above. The denial of Murphy’s coverage by Commonwealth was fully justified by the policy language, and there was nothing in NY law suggesting that an insurance company “has an obligation to not defend an insured's proper claim where the opposing insured party lacks a proper claim.” So Fidelity National’s coverage of Luciano’s claim was perfectly OK.

In sum, Murphy lost on both his contract breach and fiduciary duty claims against Commonwealth Title.

Dale A. Whitman

Professor of Law Emeritus, University of Missouri