Court Rules on Title Insurance Closing Protection Letter Issues

A recent Georgia case discussed the limited scope of liability for a title insurance underwriter under a closing protection letter.  In Nutter & Company v. Old Republic National Title Insurance Company, Nutter & Company extended 11 reverse mortgages to various borrowers.  A closing protection letter was issued to a lender in each transaction.  Under the closing protection letters, Old Republic agreed to, in short, reimburse the respective lender for losses that were, among other things, the result of fraud of the closing agent.  The closing protection letters also limited Old Republic’s liability to fraudulent activites that affected the status of title.  During a Fannie Mae and HUD audit, it was discovered that principals of Nutter & Company’s closing agent were involved in a fraudulent scheme.  With regard to the closing protection letter issue, the Northern District of Georgia District Court held that the “clear and unambiguous” language of the closing protection letters only atributed liability to Old Republic when the fraudulent activities affected the status of title.  Here, the Court dismissed the breach of contract claims arising under the closing protection letters because there were no current claims that the fraudulent mortgages were unenforceable.