Mortgage Network, Inc. v. Ameribanc Mortgage Lending, LLC, et al., (Ohio App.10th Dist.), 177 Ohio App.3d 733, 2008-Ohio-4112

Recently, in Mortgage Network, Inc. v. Ameribanc Mortgage Lending, LLC, et al., 177 Ohio App.3d 733, the Tenth District Court of Appeals held that a title insurer can be held liable for losses resulting from the fraud committed by an agent acting with apparent authority. Significantly, even if the title insurer never receives any premiums, it can be held liable as long as the buyer believes it is paying the premiums to a duly authorized agent of the insurer.

Mortgage Network involved a complex scheme orchestrated by the stockholder of a title agency, Buckeye Land Title. In this case, the title insurer, Ohio Bar Title, had issued a closing protection letter in which they agreed to reimburse Mortgage Network for any losses incurred in connection with closings conducted by its agent Buckeye Land Title. Less than one year after the issuance of the closing protection letter, Buckeye Land Title’s agency relationship with Ohio Bar Title was terminated. Mortgage Network, however, never received notice that the agency relationship had ended. And Buckeye Land Title continued to represent itself as an agent of Ohio Bar Title.

The sole stockholder of Buckeye Land Title used a mortgage company that he operated to continue originating and selling loans to Mortgage Network. He then used a separate company that he owned to conduct the closings on the loans. Buckeye Land Title collected premiums for the policies of title insurance from Mortgage Network but never forwarded any of the premiums to Ohio Bar Title.

Eventually, Mortgage Network was forced to pay over Six Million Dollars ($6,000,000.00) as a result of the fraud of Buckeye Land Title. Mortgage Network requested reimbursement of the funds from Ohio Bar Title under the terms of the closing protection letter. Ohio Bar Title, however, refused payment. As a result, Mortgage Network filed a lawsuit against Ohio Bar Title on a breach-of-contract claim.

The trial court granted summary judgment in favor of Ohio Bar Title, finding that because no premiums were paid to Ohio Bar Title, no consideration was provided for the closing protection letter with respect to the loans originated after the agency relationship with Buckeye Land Title ceased. The Tenth District, however, reversed the trial court and held that Ohio Bar Title was liable on subsequent closings based upon the doctrine of apparent authority. Specifically, Ohio Land Title failed to notify Mortgage Network that Buckeye Land Title was no longer its agent.

Even though Ohio Bar Title never received any premiums, Buckeye Land Title accepted premium payments with apparent authority to serve as Ohio Bar Title’s agent. Thus, the fact that Ohio Bar Title did not receive any premiums was irrelevant because Mortgage Network believed it was paying the premiums to an authorized agent of Ohio Bar Title.

In light of the Tenth District’s decision in Mortgage Network, insurers that conduct business through its agents are obligated to notify any interested party once the agency relationship ends. It is simply not enough for an insurer to end the actual authority of its agents but it must also extinguish any apparent authority.

For further information or questions regarding the practical impact of this decision and the doctrine of so called “apparent authority” context of the insurance coverage or diversified financial institution liability, call one of our Insurance Coverage, Bad Faith/Practice Group or Finance and Creditor Rights and Liabilities Practice Groups.

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