May 2010 BAD FAITH CASES NO POSSIBILITY OF BAD FAITH WITH DECISIONS OCCURRING AFTER AN INSURER’S OBLIGATIONS UNDER A POLICY HAVE ENDED (Middle District)

In Morrison v. Wells Fargo Bank, N.A., the plaintiff, James Elder Morrison, shared a first and last name with another resident of the same town, James Eugene Morrison.  James Eugene Morrison signed a mortgage for his house, which was assigned to Wells Fargo.  Wells Fargo eventually filed a mortgage foreclosure action against James Eugene Morrison, but it incorrectly attached the plaintiff’s property to the action.  The plaintiff eventually subdivided his land, but he was unable to sell one of the lots at full value and could not borrow money against his land due to “the cloud upon the title to the land” created by the incorrect assignment of plaintiff’s property to James Eugene Morrison’s mortgage.

Plaintiff sued Wells Fargo, which subsequently filed a third party complaint against Stewart Title Guaranty Company.  An agent of Stewart Title had served as the settlement agent for the transaction where James Eugene Morrison entered into the mortgage, and the agent had incorrectly identified plaintiff’s property as belonging to James Eugene Morrison.  Stewart Title had then issued a Loan Title Insurance policy, affording title insurance to Wells Fargo against liability.  Stewart Title at first appointed counsel to defend Wells Fargo with regard to the original complaint by plaintiff, but eventually it notified Wells Fargo that it would no longer continue to defend Wells Fargo because its liability was cut off once the mortgage was fully satisfied.  One of the counts in Wells Fargo’s third-party complaint against Stewart Title alleged bad faith when Stewart Title refused to continue to defend Wells Fargo.

In addressing the bad faith claim, the court used its prior conclusion that Stewart Title’s obligations under the policy had indeed terminated once the mortgage was paid in full to hold that there was no possibility of bad faith on the part of Stewart Title.  It was impossible to act in bad faith if the company had no contractual obligation to Wells Fargo at the time.

Date of Decision: May 10, 2010

Morrison v. Wells Fargo Bank, N.A., Civil Action No. 1:09-CV-0324, 711 F. Supp. 2d 369, United States District Court for the Middle District of Pennsylvania, 2010 U.S. Dist. LEXIS 45312, (M.D. Pa. May 10, 2010) (Smyser, J.).