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Can a Lender's Own Acts Void Its Title Policy?
Attorneys filing title claims have begun to notice that the reception from the underwriters has become downright chilly. Claims departments are re-
sponding slower, but denying claims much more quickly. There is anecdotal evidence that claims that were once given due consideration and the title underwriters once paid without much “drama” are now routinely denied. Even when they might admit having liability, claims departments now demand much more information from claimants before making a final decision regarding liability ' and certainly before issuing a check. Title companies now strictly adhere to the terms and conditions of the policy boilerplate. There is much less give and take. A lot of this is understandable. Title companies have been hit by the economic crisis just as severely and perhaps more so, as any other participant in the real property industry. It has long been recognized that claims go up in an economic downturn just as the underwriters' ability to pay decreases. But is there more going on in this new era of strict scrutiny for title claims? Is the evidence merely anecdotal?
The 'Acts of the Insured' Exclusion
Paragraph 3 of the Exclusions from Coverage section of the American Land Title Association loan policy form used in New York excludes policy coverage for “Defects, liens, encumbrances, adverse claims or other matters ' created, suffered, assumed or agreed to by the Insured Claimant.” This provision is generally referred to as the “acts of the insured” exclusion. The evidence does indeed suggest that title underwriters have begun to put title claims made by lenders through the “acts of the insured” test much more frequently these days than they did in the past. Underwriters have served notice that they will not only deny claims where in their view, the lender's own act, such as “grossly negligent” or “reckless” loan underwriting may have led to the loss, but they will also fire a preemptive strike against the claimant as well.
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