Words Matter.
Contracts are about risk allocation.
In a transaction, who bears what risk?
Back in April I posted on a recent Supreme Court case – Bank of America v First American Title, et. al.
If you recall, that case involved allegations of mortgage fraud perpetrated against BOA to the tune of millions of dollars.
About that Post…
One of the primary issues the Supreme Court was tasked to consider was the legal significance of the closing protection letter (CPL) signed by the Title Company conducting the closing.
Closing Protection Letters.
As the Supreme Court explained, A CPL “is a contract between the title company and the lender whereby the title insurance company agrees to indemnify the lender for any losses caused by the failure of the title agent to follow the lender’s closing instructions.” Id pg 37.
“[a] lender who also wants the title insurer to be responsible for the agent’s acts in connection with escrow closing activities and services must separately contract with the title insurer for such additional protection by entering into an ‘insured closing letter’ or ‘closing protection letter.” Id.
Its About Risk allocation.
Who should bear the risk of a lender’s losses for failure of a title agent to follow the lender’s closing instructions?
In BOA’s case, it was on the hook for a huge loss and wanted to point to the Title Company and say “you should have caught that fraud, you must indemnify me!”
Words Matter.
The Court made a distinction between the inclusion of the word “in” in the CPL in the prior case, and the “exclusion” of the word “in” in the instant case. In the Court’s determination:
“Although the distinction is slight—the only difference is the word “in”—the distinction is legally significant.” Id. page 43.
“[i]f the word ‘in’ is not included, as is the case here, the phrase ‘handling your funds or documents in connection with . . . closings’ simply defines or identifies the closing agent,effectively broadening the indemnification coverage to any acts of fraud or dishonesty by the closing agent related to a closing.” In light of this distinction, the fraud or dishonesty by Westminster or Patriot need not be tied to their handling of Bank of America’s funds or documents.” Bank of Am. v. First Am. Title Ins. Co.id. at page *44 (Mich. Apr. 13, 2016)
Moving on to the Recent BOA Decision…
A few days ago the Michigan Court of Appeals came out with the a related decision in BOA v Fidelity. You can check out the full opinion of BOA v Fidelity National Title.
Similar circumstances as the BOA v FATC case. BOA had alleged mortgage fraud and Fidelity and its affiliates should indemnify BOA for its losses under the CPL.
Words Matter.
The Court of Appeals relied on the Supreme Court in reversing FNT.
In its decision, the Court cited the Supreme Court decision (profusely).
It relied on the Supreme Court’s determination of the CPL’s language (excluding the word “in” as discussed above).
The Court of Appeals reversed the Trial court’s decision in favor of the FNT. It held that “there is evidence establishing a genuine issue of material fact concerning whether BOA suffered actual loss arising out of the fraud or dishonesty of FTC in handling BOA’s funds….”
Interestingly, the Court goes in great detail to analyze the evidence that supports the allegations of “fraud or dishonesty” against FNT.
Lesson (You get the theme):
Words matter! As the Supreme Court opined – one word can be “legally significant.” It could determine liability for millions of dollars…
In the recent BOA case BOA was on the hook for its losses, and all of FNT’s attorney fees. That judgment was vacated and sent back for trial, based upon the language of the CPL.
Questions?
Comments?
e-mail: Jeshua@dwlawpc.com
Twitter: @JeshuaTLauka
Jeshua Lauka's Business and Real Estate Law Blog 
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