Title Insurer Faces Bad Faith Claims, Remand From Federal Court.

   In Stewart Title Co. v. Investors Funding Corp., Download Stewart Title Co. v. Investors Funding Corp. (D. Haw. Case No. 09.00455, Opinion Filed May 11, 2010), also published as 2010 WL 1904981 (D. Hawaii Case No. 09-00455, Opinion Filed May 10, 2010) (Westlaw subscription required to access Westlaw), a tangled procedural history became easy to understand when a Federal District Judge remanded a title Insurance Company's Dec action to State Court.

   Investors Funding Corporation ("IFC") claimed that Stewart Title had issued a Title Insurance Policy that was intended to insure two properties, one located on Middle Street and the other located on School Street.  Persons named Chang filed a Foreclosure Lawsuit in Hawaii State Court on the Middle Street property.  The Foreclosure Lawsuit was removed to Bankruptcy Court when one of the Defendants filed for Bankruptcy.

   IFC demanded a defense and indemnity from Stewart Title.  Stewart refused, contending that the Title Insurance Policy listed only the School Street property and not the Middle Street property that was the subject of the Foreclosure-removed-to-Bankruptcy-Court action.

   IFC filed a third-party complaint against Stewart Title in the Bankruptcy proceeding.  "IFC asserts claims against Stewart Title sounding in negligence, gross negligence, breach of contract, and bad faith.  IFC [also] seeks reformation of the policy to include the Middle Street property ...."   Id. at *2.  [Emphasis added.]  The Bankruptcy proceeding was settled, at least in part, coupled with remand to Hawaii State Court of IFC's Bad Faith Action against Stewart Title. 

   Stewart Title responded to IFC's Bad Faith Action by filing a Declaratory Judgment Action in Federal Court.  Stewart Title asked for a declaration that, among other things, the subject Title Insurance Policy did not cover the Middle Street property, and that Stewart Title had acted in Good Faith.  Id. at *3.  The Federal Judge granted IFC's motion to dismiss based on abstention principles.

   The Federal Judge followed what is called Brillhart Abstention in the Federal Courts.  It is a doctrine named after Brillhart v. Excess Insurance Co. of America, 316 U.S. 941 (1942).  As interpreted and applied by the Federal Judge in the IFC case, that doctrine involves six (6) applied factors considered by Federal Courts asked to abstain from deciding cases that involve the same or similar issues allegedly presented in pending State Court Actions:

1.  Whether the Federal Action "Involves Needless Determination of State Law Issues."

2.  "Forum Shopping."

3.  Whether the Federal Action is "Duplicative" of the pending State Court Action.

4.  Whether "The Case Would Resolve Only Part of the Controversy."

5.  Whether the Federal Action "Would Clarify the Parties' Legal Relationship," and

6.  Whether the Federal Action "Creates the Possibility of Entanglement."

Id. at *5-*7.  In the IFC case, as noted, the Federal Court determined that these factors weighed in favor of dismissing Stewart Title Insurance Company's Federal Declaratory Relief Action in favor of IFC's previously filed Bad Faith Action pending in State Court.

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Comments

[Jim]

Great read!