The Supreme Judicial Court of Massachusetts recently held that where title insurers pursue litigation to cure defects to a title, they do not have a broad duty to defend any uncovered counterclaims against the insured. See GMAC Mortgage, LLC v. First American Title Ins. Co., No. SJC-11161 (Apr. 4, 2013).
The policyholder bank sought to import the concept of “in for one, in for all” that applies to third-party liability insurance policies containing a duty to defend to the title insurance context. Pursuant to that rule, under Massachusetts law (as in many jurisdictions), once a lawsuit against the policyholder contains a covered claim, the liability insurer must defend the entire suit. But the SJC rejected this argument. The SJC pointed out that unlike general liability policies containing a broad duty to defend against future risks, a title insurance policy is a contract providing for indemnity of specific losses from defects of title that have been inspected by the title insurance company at the time the title insurance policy is issued.
The policyholder bank’s rejoinder was that the title insurer should nonetheless be on the hook for defense of the counterclaims because its prosecution of the litigation “invited” those counterclaims. The SJC held that given the narrow nature of title insurance, this basis for imposing a defense obligation on title insurers should only “possibly” apply to compulsory counterclaims (of which there were none in the GMAC case).
The GMAC case may be significant for other types of indemnity contracts as well, where the indemnity agreement carries with it a defense obligation. It also may be instructive for cases involving other insurance policies that do not have a broad “duty to defend” a suit, but instead a narrower duty to reimburse or indemnify the insured for certain defense costs.