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SJC‑11161

GMAC MORTGAGE, LLC  vs.  FIRST AMERICAN TITLE INSURANCE COMPANY.

December 4, 2012.  ‑  April 4, 2013.

Present:  Ireland, C.J., Spina, Cordy, Botsford, Gants, Duffly, & Lenk, JJ.

Insurance, Title insurance, Coverage, Insurer’s obligation to defend.  Real Property, Title insurance.  Contract, Insurance.  Mortgage, Insurance of mortgagee’s interest.  Land Court, Jurisdiction.  Practice, Civil, Complaint, Transfer of action to Superior Court, Removal of case to federal court.  Supreme Judicial Court, Certification of questions of law.

Certification of questions of law to the Supreme Judicial Court by the United States District Court for the District of Massachusetts.

Richard E. Briansky for the plaintiff.

Jason A. Manekas for the defendant.

SPINA, J.  This case involves multiple litigations among three parties — First American Title Insurance Company (First American), the insurer; GMAC Mortgage, LLC (GMAC), the insured mortgagee; and Elizabeth Moore (Mrs. Moore), the homeowner — arising out of a defect in the title to Mrs. Moore’s home.  First American brought suit on behalf of GMAC in the Land Court, seeking to reform the deed to Mrs. Moore’s property or to equitably subrogate her interest in the property behind GMAC’s mortgage.  Because of the Land Court’s jurisdictional restrictions, Mrs. Moore then initiated suit in the Superior Court against GMAC, alleging intentional infliction of emotional distress and violation of G. L. c. 93A for GMAC’s unfair and deceptive conduct in pursuing foreclosure, and “money had and received” for mortgage payments alleged to have been made to GMAC in error.  Because the two actions were closely related, the Chief Justice for Administration and Management ordered, pursuant to his power under G. L. c. 211B, § 9 (xix), that the Land Court action be transferred to the Superior Court and consolidated with Mrs. Moore’s action.  However, after the order of transfer, but before the Land Court action was docketed in the Superior Court, counsel for GMAC removed Mrs. Moore’s litigation to the United States District Court for the District of Massachusetts.  Therefore, the Land Court action never formally was consolidated with Mrs. Moore’s action in the Superior Court.  However, GMAC raised counterclaims in Mrs. Moore’s action, now in the United States District Court, that duplicated the reformation and equitable subrogation claims asserted in the Land Court, and an attorney for First American appeared on behalf of GMAC in the Federal court to prosecute these title-related counterclaims.  GMAC retained its own attorney to defend against the remainder of Mrs. Moore’s action.^[1]  Therefore, all claims in both the original Land Court and Superior Court actions were a part of the Federal court case.  The case settled on the first day of trial.

GMAC filed a complaint and request for injunctive relief against First American in the United States District Court seeking, in relevant part, to recover from First American the costs GMAC incurred in defending against Mrs. Moore’s three claims.^[2]  Following a bench trial, the United States District Court judge determined that First American had no obligation under its title insurance policy to pay GMAC’s defense costs.  However, recognizing that the question of the scope of a title insurer’s duty to defend presented an issue of first impression in the Commonwealth, the judge stayed the proceedings pending this court’s response to two questions that he certified pursuant to S.J.C. Rule 1:03, as appearing in 382 Mass. 700 (1981).  The certified questions are:

“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?”^[3]

“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?” (Emphasis supplied.)

We answer “No” to both questions.

1.  Facts.  Because our task is limited to responding to the certified questions, we do not delve deeply into the factual complexities of this case.  We merely recount several significant facts as the court judge found them.

Mrs. Moore and her husband, Thomas Moore (Mr. Moore), lived in a home in Billerica, the title to which was in Mr. Moore’s name.  In 2001, for the purpose of refinancing the property, Mr. Moore executed a note and a mortgage to GMAC’s predecessor corporation (which obtained a title insurance policy from an agent of First American), and a deed conveying the property from himself to himself and his wife as tenants by the entirety, G. L. c. 184, § 8.  The parties intended for the mortgage to be recorded before the deed creating the tenancy by the entirety.  However, the deed was mistakenly recorded before the mortgage.  Mr. Moore died in 2007.  The undisputed consequence was that record title to the property vested solely in Mrs. Moore, to the exclusion of GMAC.  See Coraccio v. Lowell Five Cents Sav. Bank, 415 Mass. 145, 150-152 (1993).  See also H.J. Alperin, Summary of Basic Law, § 15.31, at 161, 165-168 (4th ed. 2007).  Moreover, GMAC no longer had a clear right to repayment because the short statute of limitations to collect on the underlying note, signed only by Mr. Moore, expired one year after his death.  G. L. c. 190B, § 3-803 (a) (formerly G. L. c. 197, § 9).

Pursuant to the title insurance policy it issued to GMAC, First American could resolve this title defect^[4] either by negotiating with Mrs. Moore, by negotiating with GMAC (to assume title and proceed as it thought fit), or by initiating litigation to cure the title defect.  First American chose the latter course, and the present litigation ensued.

2.  Preliminary issues.  Before we reach the certified questions, we briefly dispose of two threshold issues:  whether to answer the certified questions at all, and whether the title insurance contract covers the causes of action asserted in Mrs. Moore’s action.

a.  Whether to answer the certified questions.  First American urges that we refrain from answering the certified questions on the ground that they are untimely and unnecessary, as the United States District Court judge already reached a decision based on the law as he reasonably predicted it.  We decline to accept First American’s invitation to avoid this case in its entirety.  Because the present matter remains pending (the case is administratively closed and the proceedings stayed, our response to the certified questions will determine the ultimate outcome.  See S.J.C. Rule 1:03.  Moreover, as the judge noted, there is no controlling precedent in the decisions of this court that addresses the issues raised in the certified questions.  See id.  See generally J. Goldschmidt, Certification of Questions of Law: Federalism in Practice 35-39 (1995).  Therefore, we will not forgo the opportunity to weigh in on a significant question implicating, in the words of the judge, the “interface between the general law of insurance (statutory and decisional) in Massachusetts and that specialized type of insurance known as title insurance.”

b.  Whether the title insurance contract covers Mrs. Moore’s claims.  GMAC asks that we conclude that the policy covers the three counts Mrs. Moore asserted in her complaint on the ground that the allegations in her “complaint are ‘reasonably susceptible’ of an interpretation that they state . . . a claim covered by the policy terms.”^[5]  Continental Cas. Co. v. Gilbane Bldg. Co., 391 Mass. 143, 146 (1984).  The United States District Court judge concluded that Mrs. Moore’s three causes of action against GMAC for intentional infliction of emotional distress; violation of G. L. c. 93A; and “money had and received”, “although . . . inextricably intertwined, and related to the title defect . . . were not covered under the title insurance contract.”  “The interpretation of a contract is a question of law for the court.”  Eigerman v. Putnam Invs., Inc., 450 Mass. 281, 287 (2007).  Courts decide this type of question routinely, and such decisions are reviewable.  See, e.g., C.A. Acquisition Newco, LLC v. DHL Express (USA), Inc., 696 F.3d 109, 112 (1st Cir. 2012), quoting Office Max, Inc. v. Levesque, 658 F.3d 94, 97 (1st Cir. 2011).  However, we do not sit in review of the United States District Court judge’s decision in the present case.  Therefore, we assume that Mrs. Moore’s stated causes of action are not covered pursuant to the title insurance contract, and consider only whether First American was nevertheless obligated, by virtue of the implicated title defect, to defend GMAC against the entire action as a matter of law.  See Philadelphia Indem. Ins. Co. v. Chicago Title Ins. Co., 871 F. Supp. 2d 744, 753 (N.D. Ill. 2012) (duty to provide complete defense arises as matter of State law); Little Italy Dev., LLC vs. Chicago Title Ins. Co., U.S. Dist. Ct. No. 1:11CV112, slip op. at 5 (N.D. Ohio June 24, 2011)) (Little Italy) (same).  See also Simplex Techs., Inc. v. Liberty Mut. Ins. Co., 429 Mass. 196, 199 (1999) (Simplex), citing Camp Dresser & McKee, Inc. v. Home Ins. Co., 30 Mass. App. Ct. 318, 322 (1991) (“That some, or even many, of the underlying claims may fall outside the coverage does not excuse [the general liability insurer] from its duty to defend these actions”).

3.  Certified questions.  In Massachusetts, general liability insurers have a broad duty to defend their policy holders.  See, e.g., Doe v. Liberty Mut. Ins. Co., 423 Mass. 366, 368 (1996); Boston Symphony Orchestra, Inc. v. Commercial Union Ins. Co., 406 Mass. 7, 10 (1989).  Because “[i]t is not uncommon for a lawsuit against an insured to assert some claims that are covered by the insurance policy and others that are not,” the general rule in Massachusetts in the general liability insurance context is that “an insurer must defend the entire lawsuit if it has a duty to defend any of the underlying counts in the complaint.”  Liberty Mut. Ins. Co. v. Metropolitan Life Ins. Co., 260 F.3d 54, 63 (1st Cir. 2001) (Liberty Mut. Ins. Co.), citing Mt. Airy Ins. Co. v. Greenbaum, 127 F.3d 15, 19 (1st Cir. 1997).  Said differently, “if an insurer has a duty to defend one count of a complaint, it must defend them all.”  Mt. Airy Ins. Co. v. Greenbaum, supra, citing Aetna Cas. & Sur. Co. v. Continental Cas. Co., 413 Mass. 730, 732 n.1 (1992) (Aetna).  See also Simplex, supra; A.D. Windt, Insurance Claims and Disputes:  Representation of Insureds & Insurers § 4.12, at 126-127 (1982) (Insurance Claims and Disputes).  This is known as the “in for one, in for all” or the “complete defense” rule.^[6]  See 1 J.D. Palomar, Title Insurance Law at § 11:2, at 907 (2011); A.D. Windt, Insurance Claims and Disputes, supra at § 4.13, at 128.  A rationale behind this general rule is that dividing representation between covered and noncovered claims is impractical.  See A.D. Windt, Insurance Claims and Disputes, supra.

The “in for one, in for all” rule of general liability insurance defense typically is invoked where an insurance policy covers at least one cause of action or count in a complaint, but does not cover other claims asserted in the complaint in the same lawsuit.  See Liberty Mut. Ins. Co., supra; Mt. Airy Ins. Co. v. Greenbaum, supra.  Although the Federal court judge concluded that the three causes of action Mrs. Moore asserted in her complaint were not covered under the title insurance policy, see Liberty Mut. Ins. Co., supra, we assume that First American was nevertheless “in for one,” in the sense that its prosecution of the title reformation and equitable subrogation counterclaims was inextricably intertwined with the defense of Mrs. Moore’s action.  Thus, we turn to the certified questions to address the issue whether First American was also “in for all.”

a.  Question one.  The first question asks whether the “in for one, in for all” rule of general liability insurance defense — that an insurer must defend an entire action against an insured where its policy potentially covers any one claim — applies in the unique title insurance context.  We hold that it does not.^[7]

“[A] title insurance policy is not an agreement to guarantee or a warranty of the state of the title . . . .  It is, rather, an agreement to indemnify the policyholder. . . . against loss through defects in title.”  B. Burke, Law of Title Insurance at § 2.01[A], at 2-5 (3d ed. Supp. 2012), quoting Rood v. Commonwealth Land Title Ins. Co., 936 A.2 488, 493 (Pa. Super. Ct. 2007).  Before issuing a policy, a title insurer searches real property records for title defects and, if any are discovered, excludes such known defects from the policy coverage.  See 1 J.D. Palomar, Title Insurance Law, supra at § 1:15, at 36.  In so doing, the title insurer discloses such defects to the potential purchaser of the policy, thus affording an opportunity to cure any title defects before the real estate transaction closes.  Id. at § 1:15, at 36-37.

The “in for one, in for all” rule is inapplicable in the title insurance context because title insurance is fundamentally different from general liability insurance.  See B. Burke, Law of Title Insurance, supra at § 2.01[B], at 2-16 (Supp. 2011); 1 J.D. Palomar, Title Insurance Law, supra at §§ 1:14-1:17, at 36-45.  “Unlike other forms of insurance, title insurance is not directed at future risks.  It is directed at risks that are already in existence on the date the policy is issued.”  B. Burke, Law of Title Insurance, supra at § 2.01[C], at 2-22 (Supp. 2008).  Because title insurance narrowly covers defects in, or encumbrances on, titles that are in existence when a policy issues, title insurers attempt to eliminate or reduce risks prior to the issuance of a title insurance policy.  See id. at § 2.01[C], at 2-22-2-22.1 (Supp. 2008), quoting Fidelity Title Co. v. Washington Dep’t of Revenue, 745 P.2d 530, 531 (Wash. App. 1987).  See also 1 J.D. Palomar, Title Insurance Law, supra at § 1:15, at 36-37 (title insurance as risk eliminating; general liability insurance as risk assuming).  Such differences are reflected in the differing payment schemes and length of coverage as between title and general liability insurance:  title insurance typically requires a single premium payment (often a percentage of the property value) for indefinite coverage, whereas general liability insurance requires continuation premiums (based on the likelihood a future event will occur) for coverage during a set term.  See 1 J.D. Palomar, Title Insurance Law, supra at § 1:17, at 44.  In light of the limited purpose and scope of title as compared to general liability insurance,^[8] title insurers should not be obliged to defend against noncovered claims just because they may be asserted in litigation that also implicates title-related issues to a limited extent.  Moreover, because title issues are discrete, they can be bifurcated fairly easily from related claims, see infra;^[9] thus, the central policy behind “in for one, in for all” — that parsing multiple claims is not feasible — is not implicated to the same extent in the title insurance context as in the general liability insurance context.  For these reasons, it is not surprising that Massachusetts cases that discuss the “in for one, in for all” rule do so in the context of general liability insurance.  See Simplex, supra; Aetna, supra.  The United States District Court judge correctly stated Massachusetts law in his determination that “in the unique circumstances presented by the title insurance policy, First American [is] not obligated to pay for the defense of [Mrs. Moore’s] related claims.”

b.  Question two.  This question asks whether a title insurer that elects to cure a title defect by initiating litigation^[10] (permitted, as one of several options, under a title insurance policy) has a duty to defend an insured against “reasonably foreseeable counterclaims.”^[11]  Anticipating correctly that we would hold the “in for one, in for all” rule inapplicable in the title insurance context, this question thus asks that we consider an alternate justification for imposing a broader defense obligation on title insurers than may be required under a title insurance policy.  GMAC contends that title insurers invite the risk of counterclaims by initiating litigation to cure title defects and, thus, urges us to answer this question in the affirmative.  We decline to do so.^[12]

We return to our touchstone, that title insurance is unlike general liability insurance in that title insurance coverage is narrow.  See B. Burke, Law of Title Insurance, supra at § 2.01[B], at 2-16 (Supp. 2011); 1 J.D. Palomar, Title Insurance Law, supra at §§ 1:14-1:17, at 36-44.  Because the issues covered by a title policy are relatively discrete, an attorney for a title insurance company (who typically specializes in real property issues) feasibly can defend only the title-related issues.  Thus, we decline to impose a complete defense obligation on title insurers.  Were we instead to impose on title insurers a duty to defend insureds against reasonably foreseeable counterclaims, this “reasonably foreseeable” rule of title insurance defense would quickly become a work-around to our conclusion that “in for one, in for all” does not apply in the title insurance context.  See A.D. Windt, Insurance Claims ad Disputes, at § 4.12, at 127 (no duty to defend against counterclaims).  Furthermore, initiating suit to cure a title defect is generally an option available to the title insurer under a standard title insurance contract.  A title insurer should not be penalized (in the sense of having to assume broad defense obligations) for doing what it may do under the contract — what not only may be the wise and prudent course, but also the course that is in the best interests of the insured.  Moreover, we disagree with GMAC that it is the litigation initiated by a title insurance company that exposes the insured to the risk of third party claims.  Instead, the exposure to risk comes from the title defect itself, not its method of cure.  In this case, for example, Mrs. Moore sued GMAC because, notwithstanding its receipt of Mrs. Moore’s demand letter pursuant to G. L. c. 93A, GMAC continued to pursue foreclosure with full knowledge, and prior to the resolution, of the title defect.^[13]  Mrs. Moore may very well have sued GMAC for such intentional conduct even if First American had attempted to cure the title defect through negotiation as opposed to litigation.  For this reason, we are unwilling to go so far as to say that First American invited the liability of Mrs. Moore’s action.

We might conclude differently if claims asserted in response to litigation initiated by a title insurer were compulsory counterclaims.^[14]  A title insurer may have a duty to defend an insured against compulsory counterclaims because failure to raise a compulsory counterclaim results in its permanent forfeiture.  See Reporters’ Notes to Mass. R. Civ. P. 13 (1973), Mass. Ann. Laws Court Rules, Rules of Civil Procedure, at 300 (LexisNexis 2012-2013).  Thus, a title insurer that initiates suit creates the risk of compulsory counterclaims being asserted against the insured.  However, we expect the circumstance of the assertion of compulsory counterclaims to arise infrequently in response to litigation initiated by a title insurer because a counterclaim is only “compulsory” where it is within the subject matter jurisdiction of the court where suit is initiated, and suits to cure title defects are often (as here) brought in Land Court.^[15]  See Mass. R. Civ. P. 13 (a), as amended, 423 Mass. 1405 (1996).  See also J.W. Smith & H.B. Zobel, Rules Practice §§ 13.10-13.11 (2d ed. 2010).  Title insurers that initiate suit to cure a title defect in the Land Court expose insureds to very little risk of compulsory counterclaims because the Land Court is such a limited forum.  Compare G. L. c. 185, § 1 (Land Court jurisdiction), with G. L. c. 218, § 19 (District Court jurisdiction).  Later consolidation (which, technically, was never effectuated here), does not convert a permissive counterclaim into a compulsory counterclaim for purposes of our analysis.  See Reporter’s Notes to Mass. R. Civ. P. 13, supra at 301 (counterclaims that avoid “compulsory” label).  Therefore, in bringing the action to reform the deed or to equitably subrogate the mortgage in the Land Court as opposed to the Superior Court (which has concurrent jurisdiction, see G. L. c. 185, § 1 [k]), First American actually insulated GMAC from compulsory counterclaims for money damages.  Consequently, Mrs. Moore’s only option was to sue elsewhere, which naturally bifurcated the title claims that First American had a duty to defend from the claims relating to GMAC’s conduct that it did not.