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May 25th, 2012

Mealey's Financial Services Litigation Report

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Jury Clears Title Insurance Company Of All Claims In Bad Faith Lawsuit

RIVERSIDE, Calif. — A California state court jury on April 25 returned a unanimous verdict clearing a title insurance company of wrongdoing in a bad faith lawsuit regarding a failed $37 million construction loan made by a bank to a developer for the construction of a residential development (Central Pacific Bank v. Fidelity National Title Insurance Co., No. RIC 525131, Calif. Super., Riverside Co.).

After one day of deliberations, the jury cleared Fidelity National Title Insurance Co. (FNTIC) and Fidelity National Title Co. (collectively, FNT) on two claims for breach of contract, breach of the implied covenant of good faith and fair dealing, declaratory relief, two claims for reformation, breach of fiduciary duty, negligence, fraud and negligent misrepresentation, which were made by Central Pacific Bank, the lender in the construction loan transaction.

Central Pacific Bank, in its second amended complaint filed in the Riverside County Superior Court, alleged that FNT breached “the escrow instructions and its fiduciary duties as escrow agent in numerous ways” with regard to FNT’s role as escrow agent for Central Pacific Bank for the construction loan.

Escrow Instructions

“Had FNT complied with the escrow instructions and its fiduciary duties, it could not have closed the Construction Loan or the subsequent loan modification and could not have distributed the Construction Loan proceeds. Nor would Central Pacific Bank have made the Construction Loan or the modification and disbursed the Construction Loan funds in the first instance,” Central Pacific Bank said.

“One of FNT’s obligations under the escrow instructions was to obtain an American Land Title Association Loan Policy of Title Insurance with specific required endorsements that insured Central Pacific Bank’s deed of trust was a first priority lien. FNT obtained a title insurance policy from its sister company, Fidelity National Title Insurance Company. However, the policy did not satisfy the requirements of the escrow instructions. Moreover, FNTIC subsequently wrongfully denied insurance coverage under the policy that FNT did obtain causing Central Pacific Bank further damages and forcing Central Pacific Bank to file this action to establish the existence of the title insurance that FTN was required to obtain.”

Counsel

Central Pacific Bank is represented by Harvey L. Rochman and Dinesh R. Badkar of Manatt, Phelps & Phillips in Los Angeles and Amy B. Briggs of Manatt Phelps in San Francisco.

FNT is represented by Eric P. Early, William A. Wright, Christopher I. Ritter, Kevin S. Sinclair and Sophia Lau of Early Sullivan Wright Gizer & McRae in Los Angeles.

Source: Timothy Raub, Mealey’s