On April 25, 2023, the United States District Court for the Western District of Washington ("the Court") issued its opinion in the matter of Ticor Title Company, et al., v. Kiavi Funding, Inc. No. 22-cv-832, LEXIS 72068 (W.D. Wash. Apr. 25, 2023), holding that the successful payment of a title insurance premium remains a condition precedent to a title insurer's provision of coverage, even if the insured attempted to make the payment and an escrow agent wrongfully absconded with the funds.
Background
This matter concerned a loan refinance involving real property located in Everett, Washington, which was owned by Tang Real Estate Investments, Inc. ("Tang"), and on which Kiavi Funding, Inc. ("Kiavi") held a Deed of Trust. Tang and Kiavi agreed to refinance Tang's loan, with Tang choosing to use the escrow agent Escrow Services of Washington LLC ("ESW"). With Kiavi's permission, ESW obtained a preliminary title commitment and a closing protection letter from Plaintiff Ticor Title Company ("Ticor"), the title agent for Commonwealth Land Title Insurance Company ("Commonwealth").
During the closing process, ESW (the escrow agent) instructed Kiavi to wire both the loan funds and the title insurance policy premium directly to ESW, rather than to Ticor (the title agent). Kiavi followed these instructions and did so, after which ESW then absconded with the loan and premium funds. Kiavi never received the title insurance policy and Ticor never received payment of the policy premium. Kiavi later sought a copy of the title insurance policy from Ticor and submitted a claim for coverage, with Commonwealth denying the claim "for failure of consideration because it had never received payment for the [P]olicy." Subsequently, Ticor and Kiavi brought suit before the Court seeking confirmation that the coverage denial was proper.
Summary Judgment
Ultimately, Ticor and Kiavi both moved for summary judgment, with the Court ruling in their favor and affirming the propriety of the coverage denial, holding that despite the "unfortunate [nature of the] case" the plain language of the title policy controlled. In doing so, the Court first looked to the language of Ticor's preliminary title commitment, which expressly required Kiavi to "[p]ay the premium, fees, and charges for the Policy" within 180 days of the commitment's issuance. As the payment of these costs was "a condition precedent to Plaintiffs' liability and obligations" under the Policy, and as these costs were never paid, the coverage denial was proper.
While Kiavi attempted to claim that the closing protection letter provided a separate basis for "imposing contractual liability" and requiring the provision of coverage, the language of the letter clearly stated that it only protected against losses caused by the title agent (Ticor) or an "approved attorney," neither of which classification encompassed ESW. The Court thus held that coverage could not be compelled under the letter as it was ESW's provision of wiring instructions that caused the loss of funds, and not the actions of Ticor.
Summary judgment was accordingly warranted, with the Court observing that although Kiavi had been the unfortunate "victim of the escrow agent's misconduct," its "failure to pay the premium constitute[d] a failure to satisfy a condition precedent" which rendered the title insurance policy void, and thus no duty to defend or indemnify was ever triggered.
Takeaways
This opinion reaffirms that even when faced with "unfortunate" facts and a party harmed through no fault of its own, the clear language of the policy will still control, and a court will still determine liability based upon the policy provisions. It also confirms that a closing protection letter cannot impose contractual liability outside the bounds of the bargained-for contract and serves as a stark reminder to always follow best practices when sending wire transfers.
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