For the first time, the Indiana Court of Appeals has decided that a title insurance agent is not also an agent of the title insurance company with respect to escrow and closing services.

The issue arose in Fidelity National Title Insurance Company v. Rhys Mussman and Sally Mussman, No. 64A03-0905-CV-204, in which the Mussmans were awarded $1.6 million on summary judgment on their complaint alleging conversion of funds held in an escrow account by Intercounty Title Company. Fidelity National Title Insurance Company hired ITC as its title insurance agent based on an issuing agency agreement.

The Mussmans contracted to sell real estate for $1.6 million, in which the purchase agreement provided that ITC would issue owner’s and mortgagee’s title insurance policies. ITC also acted as closing agent and escrow agent for the parties. Fidelity didn’t have any contact with the parties during the transaction.

The Mussmans later discovered insufficient funds in ITC’s escrow account when they tried to collect their money. The escrow account funds had been stolen by ITC’s owner and others as part of a Ponzi-like scheme.

The Mussmans sued for conversion and theft against ITC and its owner and filed an amended complaint alleging negligence by Fidelity.

The Mussmans argued on appeal that ITC had implicit actual authority as Fidelity’s agent to close the action based on the agreement and conduct of the companies. They emphasized the fact that Fidelity had and exercised the right to audit ITC’s closing records and escrow accounts.

The appellate court used Southwest Title Insurance Co. v. Northland Building Co., 552 S.W.2d 425 (Tex. 1977), and Proctor v. Metropolitan Money Store Corp., 579 F.Supp.2d 724 (D. Md. 2008), to conclude that Fidelity’s authority to audit ITC’s escrow accounts doesn’t convert ITC’s limited agency to issue title insurance commitments and polices into a broader general agency in which Fidelity has vicarious liability as the principal.

“We conclude that neither the indemnification provisions in the Agreement, nor ITC’s issuance of policies and collection and remittance of premiums confers a sufficient benefit upon Fidelity to establish a general agency relationship that does not otherwise exist,” wrote Judge Edward Najam. “Thus, we agree with the court in Proctor that the primary purpose for general escrow account requirements, including reconciliation, access for audits, and indemnification, is to minimize the risk of loss under the title insurance policies, and even allegations of vicarious liability like the ones raised in this case.”

There’s no evidence Fidelity conducted any business other than the issuance of title insurance or that ITC had any more authority from Fidelity than to issue its polices, he continued.

Even if the agreement and conduct of the companies implied actual authority, it’s well settled that a determination of actual authority focuses on the belief of the agent and there’s no designated evidence showing whether ITC believed it had authority to conduct escrow or closing services on Fidelity’s behalf.

Fidelity is entitled to summary judgment on the Mussmans’ complaint.