Chinese Hackers & Title Agency Agreements
Buyer was a Chinese national who wanted to purchaser a home in Utah. Due to restrictions imposed by the Chinese government, Buyer had to wire the purchase money to the Title Agent in four weekly increments of $50,000. Minutes after each transfer, unknown hackers impersonating Buyer emailed Title Agent to return the funds to China. All told, $150,000 was lost.
Buyer sued Title Agent and the Underwriter with whom Agent had a policy-issuing agreement. Underwriter moved for summary judgment on the ground that Agent was not acting as Underwriter's agent with respect to the erroneous escrow disbursement.
The U. S. District Court denied the motion. The Court held the portion of the agency agreement between Agent and Underwriter obligating Agent to maintain escrow funds in secure accounts and conduct settlements in a prudent manner “expressly requires [Agent] to conduct or participate in escrow transactions in which policies of [Underwriter] are to be issued.” As such, an express agency was created with respect to the escrow and vicarious liability could attach. Luan v. Advanced Title Insurance Agency, LLC, No. 2:13-cv-983-DB (U. S. D. C., D. Utah, July 28, 2015).
The Court contrasted two portions of the agency agreement: “Obligations of Issuing Agent” and “Limitation of Issuing Agent’s Authority.” It determined the former trumps the latter: “language that prohibits [Agent] from representing to the public that it is [Underwriter's] agent for escrow transactions, or from receiving funds in [Underwriter's] name, is insufficient to disavow an agency relationship with respect to escrow transactions following [Underwriter's] express instruction to [Agent] that it must engage in escrow transactions in a specific manner set forth by [Underwriter].” Virtually all agency agreements contain similar provisions. If the expansive interpretation adopted in Luan takes hold, underwriters’ exposure for escrow violations will increase despite the absence of a closing protection letter.