GMAC Mortgage, LLC v. First American Title Insurance Company

Filing 12

Judge William G. Young: ORDER entered. ORDER OF CERTIFICATION (Paine, Matthew)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS

GMAC MORTGAGE, LLC,
Plaintiff,
v.
FIRST AMERICAN TITLE INSURANCE
COMPANY,
Defendant.

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CIVIL ACTION
NO. 12-10180-WGY

ORDER OF CERTIFICATION
YOUNG, D.J.
I.

February 28, 2012

INTRODUCTION
Along the interface between the general law of insurance

(statutory and decisional) in Massachusetts and that specialized
type of insurance known as title insurance, there are a number of
questions of first impression.

These questions are of

significant import today due to the mortgage meltdown.
GMAC Mortgage, LLC (“GMAC”) sued First American Title
Insurance Company (“First American”) claiming that, because First
American chose to cure a certain title defect by filing an
action, it was obligated to defend GMAC against all related
claims.
On February 10, 2012, this Court held that in the unique
circumstances presented by the title insurance policy, First

American was not obligated to pay for the defense of the related
claims not covered under the title insurance policy.

GMAC

Mortgage, LLC v. First Am. Title Ins. Co., Civil Action No. 1210180-WGY (D. Mass. Feb. 10, 2012).
This decision resolved an issue of first impression at the
trial level.
II.

PRIOR PROCEEDINGS
After holding a bench trial, the Court found the following

facts.

In 2001, Mr. Thomas E. Moore (“Mr. Moore”) and his wife,

Elizabeth A. Moore (“Mrs. Moore”) resided at 2 Country Lane,
Billerica, Massachusetts (the “Property”), title of which was
held solely in the name of Mr. Moore.

Findings and Rulings 2:16-

20, GMAC Mortgage, Civil Action No. 12-10180-WGY (D. Mass. Feb.
10, 2012).

Mr. Moore refinanced the Property through GMAC’s

predecessor, GN Mortgage Corporation.

Id. at 2:20-22.

The

transaction provided that Mr. Moore would execute a note and a
mortgage on the Property, then convey the Property from himself
to himself and Mrs. Moore as tenants by the entirety.
3:3-7.

Id. at

Mr. Moore was to sign both the note and mortgage while

Mrs. Moore was to sign only the mortgage.

Id. at 3:8-10.

At the closing, GMAC’s attorney, acting concurrently as
agent for First American, issued a 1992 standard American Land

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Title Association (“ALTA”) policy of title insurance (the
“Policy”) to GMAC from First American.1

Id. at 3:11-19.

GMAC’s attorney made two significant errors in executing
mortgages however.
Id. at 4:4-6.
reverse order.

First, Mrs. Moore never signed the mortgage.

Second, the deed and mortgage were recorded in
Id. at 4:6-9.

That is, the deed from Mr. Moore

to Mr. and Mrs. Moore as tenants by the entirety was recorded
first, then the attorney recorded the mortgage, thus
subordinating the mortgage in the chain of title to the Moores’
title as tenants by the entirety.

Id. at 4:9-13.

In 2007, Mr. Moore died and by operation of the property
laws of the Commonwealth of Massachusetts, sole title to the
Property vested in Mrs. Moore - title superior to that of the
mortgagee, GMAC.

Id. at 4:14-18.

Mrs. Moore, acting in good

faith, continued to make the mortgage payments, totaling
approximately $44,000, until she eventually defaulted.

Id. at

4:19-24.
GMAC began foreclosure proceedings against the Property in
2009.

Id. at 5:1-4.

At this time, GMAC neither held good title

to the Property, as title was vested solely in Mrs. Moore, nor
did it have any clear right to repayment of the underlying note,

1

Title insurance, more akin to a good than a service,
requires a one time payment and insures that the financial
institution that extends significant funds to a borrower has good
title to the property used to secure its loan. Id. at 3:19-4:3.
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as the statute of limitations had long since expired to collect
on the note following Mr. Moore’s death.2
When GMAC was made aware of the defect in the title, it made
demand for a defense on First American.

Id. at 6:6-7.

First

American determined that it was liable under the Policy for the
defect in title.

Id. at 6:6-11.

Under the Policy, First American could pursue one of three
options to resolve the defect in title.

First American could (1)

negotiate with the property owner, Mrs. Moore, to resolve the
title defect at First American’s cost, Policy of Title Insurance,
First American Title Insurance Company, No. 100640675 MAL
(“Policy”) § 6(b)(i); (2) negotiate with GMAC to assume title
then take such actions as it thought fit at First American’s

2

The spectacle of banks exercising such economic power
without any supporting documentation is, unfortunately, not a
rare occurrence. See, e.g., Office of the Assessor-Recorder,
Foreclosure in California: A Crisis of Compliance (San Francisco,
Feb. 2012), available at http://www.sfassessor.org/modules
/showdocument.aspx?documentid=1018. As this Court remarked in
dicta in delivering its findings and rulings:
[GMAC’s foreclosure attorneys] started foreclosure
proceedings on a note that the statute of limitations
precluded, a note and a mortgage, I should say, that the
law precluded from enforcement. If ever there was a case
that emphasized the need that one initiating foreclosure
proceedings possess both the note, a valid note, and the
mortgage, this case is it.
In this case, GMAC had
neither. We’ll see ultimately what the Supreme Judicial
Court has to say about this in the Eaton case. But this
case cries out for a rule that one who initiates
foreclosure proceedings possess both a valid note and a
mortgage.
Findings and Rulings 5:18-6:3.
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cost, Policy § 6(b)(ii); or (3) initiate litigation to remedy the
defect in title, Policy § 4(b).
First American chose the third option and filed suit in the
Land Court of the Commonwealth of Massachusetts, seeking an
equitable remedy to reform the title or equitably to subrogate
Mrs. Moore’s interest in the property to the GMAC mortgage.
at 7:9-13.

Id.

Mrs. Moore then initiated suit in the Superior Court

of the Commonwealth of Massachusetts raising three claims of: 1)
intentional infliction of emotional distress; (2) money had and
received, for the mortgage payments she made but now claimed were
made in error; and (3) violation of Massachusetts General Laws,
Chapter 93A by the alleged unfair and deceptive acts of GMAC’s
foreclosure attorneys in initiating foreclosure proceedings.
at 7:23-8:7.

Id.

While these claims were effectively counterclaims

to GMAC’s Land Court action, jurisdictional restrictions
prevented her from raising these claims in that action.

The Land

Court claim was transferred to the Superior Court and
consolidated with Mrs. Moore’s action.

Id. at 8:8-12.

The

Superior Court case was then removed to the United States
District Court and assigned to this Court.

Id. at 8:25-9:1.

GMAC and First American settled with Mrs. Moore on the first day
of trial.

Id. at 12:4-6.

III. BACKGROUND

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In Massachusetts, the obligation to defend is broader than
the obligation to indemnify.

Thus, when there is an overlap to

some extent between one or more of the counts of a complaint with
the terms of an insurance policy, the insurer is obligated to
defend the insured.

The duty to defend the action exists even if

the judgment on the ultimate claim is one which the insurer is
not obligated to indemnify.

It is the general rule of

Massachusetts, and several other jurisdictions, that when covered
claims are “inextricably intertwined” with other claims, the
insurer has an obligation to defend.

Nashua Corp. v. Liberty

Mut. Ins. Co., No. Civ. A. 94-2227A, 1997 WL 89163, at *10 (Mass.
Sup. Ct. Feb. 18, 1997) (Fabricant, J.) (“[A] duty to defend
arising from a particular claim or count of a complaint compels
the insurer to defend the insured against the entire
complaint.”); see Oscar W. Larson Co. v. United Capitol Ins. Co.,
845 F. Supp. 458, 460 (N.D. Mich. 1993) (“The Court determines
that under Michigan law an insurer’s duty to defend arises when
an insured tenders to its insurer its defense to a claim that is
potentially covered by the policy.”); Safeguard Scientifics, Inc.
v. Liberty Mut. Ins. Co., 766 F. Supp. 324, 333 (E.D. Pa. 1991)
(finding a duty to defend because the claim potentially was
covered by the policy and the pursuit of the counterclaims was
inextricably intertwined with the defense), rev’d in part on
other grounds, 961 F.3d 204 (3d Cir. 1992) (table decision); see

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also TIG Ins. Co. v. Nobel Learning Communities, Inc., No. Civ.
A. 01-4709, 2002 WL 1340332, at *9 (E.D. Pa. June 18, 2002)
(quoting Safeguard).
in for all” rule.

This is sometimes called the “in for one,

Joyce D. Palomar, 1 Title Ins. Law § 11:2

(2011).
A.

The Parties’ Proposed Constructions

GMAC and First American dispute whether under Massachusetts
law and the terms of the Policy, First American is obligated to
defend GMAC against the three claims brought by Mrs. Moore.
1.

GMAC

The Policy states that First American shall, at its own
cost, have the right to pursue any action or proceeding to cure
the title.

Policy § 4(b).

GMAC argues that First American had a

variety of contractual options to cure the title defect and, by
choosing to litigate, First American assumed the duty to defend
GMAC against the reasonably foreseeable claims of Mrs. Moore.
Further, once litigation was undertaken, the claims made by
Mrs. Moore against GMAC were inextricably intertwined with the
claim to cure the title defect.

Accordingly, GMAC contends that

under Massachusetts law, First American had a duty to defend GMAC
from those claims that were related to and arose under the
Policy.
2.

First American

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First American contends that it had no duty to defend GMAC
against Mrs. Moore’s claims because the plain language of the
Policy explicitly states that First American will defend the
insured only against certain claims:
[First American] shall provide for the defense of an
insured in litigation in which any third party asserts a
claim adverse to the title or interest as insured, but
only as to those stated causes of action alleging a
defect, lien or encumbrance or other matter insured
against by this policy.
Policy § 4(a).

First American notes correctly that the cases

presented developing the “in for one, in for all” Massachusetts
law all involve general liability insurance policies.
Accordingly, First American argues that such decisional law does
not apply to a title insurance policy case.
IV.

THIS COURT’S CONSTRUCTION
This Court held that First American is not obligated to pay

for the defense of the related claims not covered under the
Policy.

Id. at 18:8-11.

Because of the differences between title insurance and
general liability insurance, this Court interpreted the contract
in accordance with its plain terms, and did not apply the general
liability insurance “in for one, in for all” rule.

Having in

mind the economic situation in which those terms came into play
and the objective and reasonable expectations given to those
terms by the parties to the contract, this Court held that
although the claims were inextricably intertwined, and related to
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the title defect, id. at 15:19-21, they were not covered under
the title insurance contract, id. at 16:18-23.
V.

ORDER FOR CERTIFICATION
Because the outcome of this case hinges on the

interpretation of Massachusetts law and there are no controlling
precedents in the decisions of the Supreme Judicial Court of
Massachusetts, this Court respectfully certifies the following
questions to the Supreme Judicial Court of Massachusetts pursuant
to its Rule 1:03:
1.

Under Massachusetts law, when there is an overlap
between one or more of the counts of the complaint and
the terms of this standard title insurance policy, does
the insurer have a duty to defend the insured against
all claims in the action?

2.

Under Massachusetts law, when a title insurance
contract gives the insurer the right to engage in
litigation to cure a defect covered by the policy, does
an insurer initiating litigation have a duty to defend
the insured against all reasonably foreseeable
counterclaims?

This Court of course welcomes the advice of the Supreme
Judicial Court of Massachusetts on any other questions of
Massachusetts law deemed material to this case.
The Clerk will transmit this question and copies of the
record,3 briefs, and appendices in this case to the Supreme

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As a matter of judicial economy the Court’s decision was
rendered from the bench and it is this somewhat unpolished
recitation that is submitted herewith. The Court certainly
intends no disrespect with such unpolished submittal and, upon
notice from the Supreme Judicial Court, will promptly prepare a
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Judicial Court of Massachusetts.
This case will remain administratively closed and
proceedings stayed until responses to the certified questions are
received from the Supreme Judicial Court.
SO ORDERED.

/s/ William G. Young
WILLIAM G. YOUNG
DISTRICT JUDGE

full opinion.
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