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Court Refuses to Dismiss Suit on CRESPA Bond

An Alexandria U.S. District Court denies a surety’s motion to dismiss a title insurance company’s suit on a $100,000 surety bond issued to a settlement company prior to discovery on the scope of the title insurance company’s control over the settlement agent, as the 4th Circuit is set to review the question of a title insurer’s suit on a CRESPA bond.

Travelers issued a $100,000 surety bond to Excelente Settlement Inc. under Virginia’s Consumer Real Estate Protection Act, which regulates title settlement agents. Plaintiff First American Title Insurance Company made two claims to Travelers under the surety bond, which Travelers denied. FATIC sued.

Travelers argues this civil action should be dismissed because 1) FATIC cannot recover for wrongful acts by its own agent; 2) a Fairfax County court settlement precludes recovery against Travelers; and 3) FATIC cannot recover on a bond issued under CRESPA, a consumer protection statute.

The agency agreement is unclear about the scope of FATIC’s specific control over Excelente.

Although paragraph 2(f) appears to provide FATIC with some control over Excelente’s settlement activities, paragraph 8 explicitly disclaims such control. Because the agency agreement is self-contradictory, discovery is necessary to determine the exact nature of FATIC’s control over Excelente as to the closing at issue, in which $500,000 was to be paid to a contractor to start renovations, and Excelente falsely informed Chevy Chase Bank that a loan had closed according to closing instructions, even though the deed of trust was never recorded and the mortgage had not been paid off. Accordingly, the issue cannot be resolved on a motion to dismiss.

As to the settlement documents in the Fairfax County case, discovery is necessary to determine the amount of money that FATIC already has recovered under the settlement and the likelihood that it will recover the outstanding balance. The motion to dismiss will not be granted based on the settlement reached in state court.

The court defers ruling on whether CRESPA provides a cause of action. In First American Title Ins. Co. v. Western Surety Co., June 14, 2010, Judge O’Grady allowed FATIC to recover on a CRESPA bond that Western Surety issued to an agent that mismanaged funds. The appeal of that decision has been fully briefed and is pending before the 4th Circuit. Because the 4th Circuit’s decision will resolve this issue, this court defers ruling on the CRESPA issue.

Motion to dismiss denied.

First American Title Ins. Co. v. Travelers Cas. Surety Co. of America
(Brinkema, J.) No. 1:10cv1078, Dec. 23, 2010; USDC at Alexandria, Va. VLW 011-3-012, 8 pp.

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