New Jersey Federal Court Holds That Title Insurance Meets The New Jersey Consumer Fraud Act's Definition Of A Consumer Product
January, 2012
The United States District Court for the District of New Jersey recently held that title insurance is a "consumer product," as defined by the New Jersey Consumer Fraud Act ("N.J.C.F.A."); and, thus, allowed a class action suit filed by New Jersey homeowners who refinanced their home mortgages and alleged that Defendant First American Title Insurance Company systematically cheated them by misrepresenting the amount of money "due and owing for title insurance" to proceed.
In Haskins, et al. v. First American Title Insurance Company, 2011 U.S. Dist. LEXIS 123342 (U.S.D.J. 2011), Plaintiffs claimed that Defendant was bound by statutory title insurance rates yet "overstated" those fees on HUD-1 settlement forms at closing, thus deceiving consumers who "had no idea how much they should be paying for title insurance, and instead relied on defendant title insurer to provide the appropriate title insurance rate for the transaction." Id. Defendant filed a motion to dismiss the entire action, including Plaintiffs' claims pursuant to the N.J.C.F.A., on the following grounds: (1) that title insurance is not a consumer product; (2) that the learned professional or semi-professional exemption bars Plaintiffs' N.J.C.F.A. claims; and (3) Plaintiffs failed to plead that their alleged damages resulted from unlawful conduct committed by Defendant. Id.
The Court rejected Defendant's contention that title insurance is not a consumer product because it is not marketed to consumers and because the insurance is intended to benefit the lender, not the borrowers. Instead, the Court determined that Plaintiffs' claims were analogous to the claims made by the plaintiffs in the case of Lemeleddo, et al. v. Beneficial Management Corp. of America, et al., 150 N.J. 255, 696 A.2d 546, 1997 N.J. LEXIS 195 (1997). In Lemeleddo, the Court determined that the N.J.C.F.A. covered the sale of credit insurance, also made for the lenders' benefit, in connection with the issuance of student loans. The Court concluded that title insurance, like credit insurance, falls within the purview of the N.J.C.F.A. Id.
The Court also rejected Defendant's argument that the learned professional/semi-professional exemption barred Plaintiffs' claims under the N.J.C.F.A. The Court reasoned that the exemption applied to insurance brokers acting within the scope of their insurance license, not insurance companies selling insurance, like Defendant First American Title Insurance Company. See Call, et al. v. Czaplicki, et al., 2010 U.S. Dist. LEXIS 97268 (U.S.D.J. 2010).
Finally, the Court rejected Defendant's contention that Plaintiffs failed to sufficiently allege that their alleged loss resulted from unlawful conduct committed by Defendant. The Court stated that in order to maintain a claim under the N.J.C.F.A., a plaintiff must show a causal relationship between the unlawful practice and the loss. Franlovic, et al. v. The Coca Cola Company, 2007 U.S. Dist. LEXIS 79732 (U.S.D.J. 2007). The Court concluded that Plaintiffs satisfied this pleading requirement because they sufficiently alleged that Defendant misrepresented the cost of title insurance and that they were induced to purchase the title insurance based upon the mistaken belief that the listed rates matched the applicable regulated rates.
Learning Point
Title insurance companies are subject to class action lawsuits alleging that they violated the New Jersey Consumer Fraud Act based solely upon listed title insurance rates provided to the purchasers at the closings of real estate transactions. Accordingly, title insurance companies, title insurance agents, and title insurance brokers should endeavor to make certain that the rates provided to purchasers of title insurance are, in fact, the applicable regulated rates at the time of the closing. Failure to do so significantly increases the title insurance company's litigation exposure should the borrower default on the mortgage.
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