Thursday, July 14, 2011

A title insurer's duty to defend may not terminate until the check is written!

A New York case feeds the debate about when a title insurer's duty to defend ends. In Busch v. Fidelity National Title Ins. Co., 2011 N.Y. Slip Op. 03948, 2011 WL 197259 (N.Y.A.D. 3 Dept.), the title insurer offered money to its insured for diminution in value caused by a neighbor's claimed easement over the insured's property.  Fidelity stopped paying for the insured's counsel, and the insured continued the litigation for several years, hiring a succession of lawyers.

Fidelity was sued by its insured, who sought recovery of fees he spent in the litigation.  Fidelity took the position that its duty to defend ended when it made an offer to pay for diminution in value.  The insured alleged that there was no such agreement made.

The appellate court said that more litigation was necessary to flesh out the terms of the offer, and whether there was a settlement.  It was important to the court that Fidelity never tendered a settlement check. But the court was clear that an offer, alone, does not terminate the duty to defend.  There must be  a tender of money, a signed agreement or a release.

So, my claim handling friends, what is the lesson?  It is sound practice, in any state, to tender a check and obtain a signed document.  And if the check is not negotiated, or the agreement is not signed, the insurer is left to either continue defending or to file a declaratory judgment action that seeks relief from the policy.