Northeast Cred Un v . Chicago TItle CV-09-071-PB 11/23/10 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE
Northeast Credit Union
v. Case N o . 09-cv-71-PB Opinion N o . 2010 DNH 200
Chicago Title Insurance Company
MEMORANDUM AND ORDER
Northeast Credit Union is seeking to hold Chicago Title
Insurance Company liable for losses Northeast suffered when a
settlement agent misappropriated funds that he had agreed to hold
in escrow for Northeast’s benefit. Chicago Title denies that it
is liable for the settlement agent’s misdeeds and has moved for
summary judgment. For the reasons set forth below, I grant
Chicago Title’s motion.
I. BACKGROUND
This dispute stems from the misconduct of former attorney
Robert Steuk and his title insurance agency, Warranty Title.
Warranty provided various settlement services in connection with
real estate closings. Warranty would obtain title insurance,
conduct closings, record documents and hold funds obtained from
the parties in escrow. Northeast, a credit union based in
Portsmouth, New Hampshire, had utilized Warranty’s services for more than 20 years. Since at least 2002, Warranty had also
served as a title insurance agent for Chicago Title.
In the summer of 2007, Northeast retained Warranty to
provide closing and escrow services in connection with the
refinancing of a home owned by King and Lenare Sanborn.
Northeast intended to extinguish two prior mortgages it held on
the Sanborn property and replace them with a single new mortgage.
In connection with the refinancing, Northeast deposited $188,000
into an escrow account held by Warranty. Most of the funds
(approximately $160,000) were earmarked for repayment to
Northeast in exchange for the release of its prior mortgages.
Warranty also obtained title insurance for the property from
Chicago Title.
After the closing, Northeast provided Warranty with
discharges for its two prior mortgages. Warranty recorded the
discharges along with Northeast’s new mortgage and issued
Northeast three checks in payment for the release of the prior
mortgages. The checks bounced, and it was later determined that
Steuk and Warranty Title had misappropriated the funds.
II. STANDARD OF REVIEW
A summary judgment motion should be granted when the record
reveals “no genuine issue as to any material fact and
-2- that the movant is entitled to judgment as a matter of law.”
Fed. R. Civ. P. 56(c). For the purposes of summary judgment, an
issue is “genuine” if it may reasonably be resolved by the jury
in favor of either party. Vineberg v . Bissonnette, 548 F.3d 5 0 ,
56 (1st. Cir. 2008). The substantive law underlying a claim
determines if a fact is material and “[o]nly disputes over facts
that might affect the outcome of the suit under the governing law
will properly preclude the entry of summary judgment.” Anderson
v . Liberty Lobby, Inc., 477 U.S. 2 4 2 , 248 (1986). The evidence
submitted in support of the motion for summary judgment must be
considered in the light most favorable to the nonmoving party,
indulging all reasonable inferences in its favor. See Navarro v .
Pfizer Corp., 261 F.3d 9 0 , 94 (1st Cir. 2001).
III. ANALYSIS
Northeast seeks to hold Chicago Title liable on two distinct
theories.1 First, it argues that Chicago Title is liable for
1 Northeast alludes to a third potential argument based on a “closing protection letter” that allegedly was issued to Warranty by Chicago Title’s sister company, Ticor Insurance, years prior to the Sanborn closing. A closing protection letter is a letter in which “the underwriter agrees to indemnify the lender for any problems that arise from the closing agent’s failure to properly apply the funds, as set forth in the closing instructions, and the title insurance commitment.” Ticor Title Ins. C o . v . Nat’l Abstract Agency, Inc., N o . 05-CV-73709-DT, 2008 WL 2157046, at *5 (E.D. Mich. 2008). Northeast’s reference to a closing protection
-3- Warranty’s misappropriation of the escrow funds because the
agency agreement between Chicago Title and Warranty expressly
authorized Warranty to conduct escrow activities on Chicago
Title’s behalf. Alternatively, it claims that Chicago Title is
liable under the title insurance policy Chicago Title issued
covering the property. Neither argument is persuasive.
A. The Agency Relationship
Northeast contends that Chicago Title is liable for
Warranty’s misappropriation because the Issuing Agency Contract
between the two businesses expressly authorized Warranty to
undertake escrow services on Chicago Title’s behalf.2
letter cannot support a viable claim against Chicago Title for at least two reasons. First, neither party has been able to locate the letter and Northeast has offered no proof that the letter was ever issued. Second, even if the letter had been issued, it cannot serve as a basis for holding Chicago Title liable because the letter was allegedly issued by Ticor, a distinct legal entity. For similar reasons, the fact that Northeast and Ticor may at one time have envisioned that Ticor might assume liability for Warranty’s escrow activities tells us little about whether Chicago Title authorized Warranty to act as its agent for such purposes with respect to the Sanborn refinancing. 2 Northeast does not argue that Chicago Title is liable based on an implied agency relationship or because Warranty had apparent authority to act on Chicago Title’s behalf. Nor does it argue that an agency relationship can be inferred from a course of dealing between the parties. Thus, I only consider whether Chicago Title can be held liable for Warranty’s actions based on the terms of the Issuing Agency Contract.
-4- A principal grants express authority for an agent to act on
its behalf when the principal “explicitly manifests its
authorization of the actions of its agent.” Demetracopoulos v .
Strafford Guidance Ctr., 536 A.2d 189, 192 (N.H. 1987). An
agent’s actions are not expressly authorized merely because they
are not explicitly excluded from the principal’s grant of
authority. See id. at 192-93; Restatement (Second) of Agency § 7
(1958). Instead, for an agent to act with express authority, his
actions must be specifically authorized by the principal.
See Demetracopoulos, 536 A.2d at 192-93 (holding that executive
director of non-profit corporation lacked express authority to
hire another individual where contract exceeded the director’s
specific hiring guidelines laid out in the agency’s bylaws).
In the present case, Chicago Title appointed Warranty to act
as “an Agent of [Chicago] for the promoting and transacting of a
title insurance business” and authorized Warranty to “validate,
countersign, issue and deliver commitments, policies and
endorsements of [Chicago].” Chicago Title Ins. C o . Issuing
Agency Contract, ECF N o . 12-10. Although Warranty also agreed in
the Issuing Agency Contract to indemnify Chicago Title for losses
resulting from the "misappropriation of escrow or closing funds
by the Agent," an agent’s agreement to indemnify its principal
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Northeast Cred Un v . Chicago TItle CV-09-071-PB 11/23/10 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE
Northeast Credit Union
v. Case N o . 09-cv-71-PB Opinion N o . 2010 DNH 200
Chicago Title Insurance Company
MEMORANDUM AND ORDER
Northeast Credit Union is seeking to hold Chicago Title
Insurance Company liable for losses Northeast suffered when a
settlement agent misappropriated funds that he had agreed to hold
in escrow for Northeast’s benefit. Chicago Title denies that it
is liable for the settlement agent’s misdeeds and has moved for
summary judgment. For the reasons set forth below, I grant
Chicago Title’s motion.
I. BACKGROUND
This dispute stems from the misconduct of former attorney
Robert Steuk and his title insurance agency, Warranty Title.
Warranty provided various settlement services in connection with
real estate closings. Warranty would obtain title insurance,
conduct closings, record documents and hold funds obtained from
the parties in escrow. Northeast, a credit union based in
Portsmouth, New Hampshire, had utilized Warranty’s services for more than 20 years. Since at least 2002, Warranty had also
served as a title insurance agent for Chicago Title.
In the summer of 2007, Northeast retained Warranty to
provide closing and escrow services in connection with the
refinancing of a home owned by King and Lenare Sanborn.
Northeast intended to extinguish two prior mortgages it held on
the Sanborn property and replace them with a single new mortgage.
In connection with the refinancing, Northeast deposited $188,000
into an escrow account held by Warranty. Most of the funds
(approximately $160,000) were earmarked for repayment to
Northeast in exchange for the release of its prior mortgages.
Warranty also obtained title insurance for the property from
Chicago Title.
After the closing, Northeast provided Warranty with
discharges for its two prior mortgages. Warranty recorded the
discharges along with Northeast’s new mortgage and issued
Northeast three checks in payment for the release of the prior
mortgages. The checks bounced, and it was later determined that
Steuk and Warranty Title had misappropriated the funds.
II. STANDARD OF REVIEW
A summary judgment motion should be granted when the record
reveals “no genuine issue as to any material fact and
-2- that the movant is entitled to judgment as a matter of law.”
Fed. R. Civ. P. 56(c). For the purposes of summary judgment, an
issue is “genuine” if it may reasonably be resolved by the jury
in favor of either party. Vineberg v . Bissonnette, 548 F.3d 5 0 ,
56 (1st. Cir. 2008). The substantive law underlying a claim
determines if a fact is material and “[o]nly disputes over facts
that might affect the outcome of the suit under the governing law
will properly preclude the entry of summary judgment.” Anderson
v . Liberty Lobby, Inc., 477 U.S. 2 4 2 , 248 (1986). The evidence
submitted in support of the motion for summary judgment must be
considered in the light most favorable to the nonmoving party,
indulging all reasonable inferences in its favor. See Navarro v .
Pfizer Corp., 261 F.3d 9 0 , 94 (1st Cir. 2001).
III. ANALYSIS
Northeast seeks to hold Chicago Title liable on two distinct
theories.1 First, it argues that Chicago Title is liable for
1 Northeast alludes to a third potential argument based on a “closing protection letter” that allegedly was issued to Warranty by Chicago Title’s sister company, Ticor Insurance, years prior to the Sanborn closing. A closing protection letter is a letter in which “the underwriter agrees to indemnify the lender for any problems that arise from the closing agent’s failure to properly apply the funds, as set forth in the closing instructions, and the title insurance commitment.” Ticor Title Ins. C o . v . Nat’l Abstract Agency, Inc., N o . 05-CV-73709-DT, 2008 WL 2157046, at *5 (E.D. Mich. 2008). Northeast’s reference to a closing protection
-3- Warranty’s misappropriation of the escrow funds because the
agency agreement between Chicago Title and Warranty expressly
authorized Warranty to conduct escrow activities on Chicago
Title’s behalf. Alternatively, it claims that Chicago Title is
liable under the title insurance policy Chicago Title issued
covering the property. Neither argument is persuasive.
A. The Agency Relationship
Northeast contends that Chicago Title is liable for
Warranty’s misappropriation because the Issuing Agency Contract
between the two businesses expressly authorized Warranty to
undertake escrow services on Chicago Title’s behalf.2
letter cannot support a viable claim against Chicago Title for at least two reasons. First, neither party has been able to locate the letter and Northeast has offered no proof that the letter was ever issued. Second, even if the letter had been issued, it cannot serve as a basis for holding Chicago Title liable because the letter was allegedly issued by Ticor, a distinct legal entity. For similar reasons, the fact that Northeast and Ticor may at one time have envisioned that Ticor might assume liability for Warranty’s escrow activities tells us little about whether Chicago Title authorized Warranty to act as its agent for such purposes with respect to the Sanborn refinancing. 2 Northeast does not argue that Chicago Title is liable based on an implied agency relationship or because Warranty had apparent authority to act on Chicago Title’s behalf. Nor does it argue that an agency relationship can be inferred from a course of dealing between the parties. Thus, I only consider whether Chicago Title can be held liable for Warranty’s actions based on the terms of the Issuing Agency Contract.
-4- A principal grants express authority for an agent to act on
its behalf when the principal “explicitly manifests its
authorization of the actions of its agent.” Demetracopoulos v .
Strafford Guidance Ctr., 536 A.2d 189, 192 (N.H. 1987). An
agent’s actions are not expressly authorized merely because they
are not explicitly excluded from the principal’s grant of
authority. See id. at 192-93; Restatement (Second) of Agency § 7
(1958). Instead, for an agent to act with express authority, his
actions must be specifically authorized by the principal.
See Demetracopoulos, 536 A.2d at 192-93 (holding that executive
director of non-profit corporation lacked express authority to
hire another individual where contract exceeded the director’s
specific hiring guidelines laid out in the agency’s bylaws).
In the present case, Chicago Title appointed Warranty to act
as “an Agent of [Chicago] for the promoting and transacting of a
title insurance business” and authorized Warranty to “validate,
countersign, issue and deliver commitments, policies and
endorsements of [Chicago].” Chicago Title Ins. C o . Issuing
Agency Contract, ECF N o . 12-10. Although Warranty also agreed in
the Issuing Agency Contract to indemnify Chicago Title for losses
resulting from the "misappropriation of escrow or closing funds
by the Agent," an agent’s agreement to indemnify its principal
does not authorize the agent to act for the principal on matters
-5- covered by the indemnification. Nor is it appropriate to infer
an express grant of authority with respect to closing services
from the fact that Chicago Title did not explicitly limit
Warranty’s ability to act as its closing agent with respect to
closings. Under the circumstances presented by this case, a
grant of express authority cannot be inferred from silence.
B. Coverage Under The Title Insurance Policy
Northeast also asserts that its loss is covered under the
title insurance policy issued by Chicago Title. Under
Northeast’s theory, because Northeast was entitled to rescind the
discharges of its prior two mortgages after Warranty’s checks
were returned for insufficient funds, and because such a
rescission would create a title defect with respect to
Northeast’s new mortgage, its loss should be covered by the title
insurance policy issued by Chicago Title. While these actions
could arguably transform Warranty’s misappropriation into an
insurable event under the policy, Northeast’s hypothetical
actions are subject to a policy exclusion.
The title insurance policy at issue is subject to various
“Exclusions From Coverage.” One such exclusion is for
“[d]efects, liens, encumbrances, adverse claims or other matters:
(a) created, suffered, assumed or agreed to by the insured
claimant.” Chicago Title Ins. Policy, ECF N o . 12-6. If
-6- Northeast were to rescind its prior discharges, its new mortgage
would be subject to its two pre-existing mortgages, thereby
creating a defect in the title insured by Chicago Title.
However, this defect would have been created by Northeast’s own
actions (i.e. its decision to rescind its prior discharges) and
would amount to a “[d]efect[], lien[], [or] encumbrance[] . . .
created, suffered [or] assumed” by Northeast (the insured
claimant). Therefore, had Northeast actually proceeded along
these lines, its loss as a result of such a defect would be
excluded.
III. CONCLUSION
Northeast’s loss, while unfortunate, was the consequence of
the misdeeds of Robert Steuk and his company, Warranty Title.
Liability for Steuk’s actions cannot be transferred to Chicago
Title. No express authority for closing and escrow services can
be divined from the Issuing Agency Contract between Chicago Title
and Warranty. Moreover, Chicago Title’s insurance policy did
not cover either Steuk’s transgressions or the hypothetical
domino-effect proposed by Northeast. As a result, defendant’s
motion for summary judgment is granted (Doc. N o . 1 2 ) . The clerk
is directed to enter judgment and close the case.
-7- SO ORDERED.
/s/Paul Barbadoro Paul Barbadoro United States District Judge
November 2 3 , 2010
cc: Lauren S . Irwin, Esq. Russell F. Hilliard, Esq. Jonathan M . Shirley, Esq.
-8-