United States District Court, E.D. Kentucky, Northern Division, Covington
MEMORANDUM OPINION AND ORDER
GREGORY F. VAN TATENHOVE, District Judge.
In this putative class action lawsuit, defendant Stewart Title Guaranty Company ("STGC") moves to dismiss ten claims related to the charging of excessive title insurance premiums, raising principal arguments as to the applicability of the Kentucky statutes under which certain claims were brought, the existence of various common law duties allegedly owed by STGC, and whether a contract was formed with respect to which the plaintiffs in this case may assert any rights (Doc. # 75). STGC also moves for partial summary judgment as to all claims pertaining to fees charged for an item listed on the HUD-1 Settlement Statement ("HUD-1) as a "title insurance binder, " asserting there has been a fundamental misunderstanding as to the services provided in exchange for those fees (Doc. # 74).
STGC is headquartered in Houston, Texas. The putative class is believed to consist of more than 100, 000 consumers in Kentucky whose individual claims exceed $50.00. Accordingly, the Court has jurisdiction over this action pursuant to 28 U.S.C. § 1332(d)(2)(A).
I. Factual and Procedural Background
STGC is a title insurance company licensed to sell title insurance for properties located in the Commonwealth of Kentucky. Pursuant to KRS § 304.22-020, STGC maintains a schedule of charges, filed with the Kentucky Department of Insurance ("KDOI"), that it must adhere to when selling policies to Kentucky consumers (the "Rate Schedule") (Doc. #1-5).
In order to conduct business locally, STGC regularly employs policy issuing agents, two of which are Stewart Advanced Land Title ("SALT") and Vintage Title Agency, L.L.C. ("Vintage"). SALT and Vintage act on behalf of STGC pursuant to agency agreements dated, respectively, May 14, 2002 and May 2, 2004 (Docs. #74-5 and 74-4). The substantive provisions of these agreements are virtually identical.
The plaintiffs are David Knight and Jackie R. Chandler, who filed suit against STGC on behalf of themselves and a putative class of similarly situated Kentucky residents (collectively "Plaintiffs"). Their claims arise out of certain real estate transactions in which STGC, through its agents, provided title insurance to Plaintiffs and/or their lenders.
On or about September 30, 2005, Jackie Chandler ("Chandler") purchased property in Butler, Kentucky. As a condition to obtaining financing for this purchase, Chandler was required to pay for a lender's title insurance policy in the amount of $132, 000.00. (Doc. #76 at 3). The title insurance agent for this transaction was SALT, and the policy was written by STGC. ( Id. ). The appropriate charge for the lender's policy was $339.00, according to the Rate Schedule approved by the KDOI. (Doc. #1-5 at 2). Nevertheless, SALT quoted a price of $363.00, which was reflected on the HUD-1 and paid for by Chandler. (Doc. #1-6 at 2). SALT never apprised Chandler of the Rate Schedule and failed to disclose that she was entitled to pay a lower rate. Additionally, SALT charged and collected payment in the amount of $50.00 for an item listed on the HUD-1 as a "title insurance binder." According to Plaintiffs, it is unlawful in Kentucky to sell title insurance binders.
On or about March 2, 2007, Chandler purchased another property in Foster, Kentucky. Again, in order to obtain financing, Chandler was required to pay for a lender's title insurance policy in the amount of $162, 484.00, and, again, STGC provided the policy while SALT acted as the title insurance agent. (Doc. #76 at 4). In this transaction, the proper charge for the lender's policy, according to the Rate Schedule, was $401.00 (Doc. #1-5 at 2). However, SALT quoted a price of $448.25, which was reflected on the HUD-1 and paid for by Chandler. (Doc. #1-7 at 2). SALT never apprised Chandler of the Rate Schedule and failed to disclose that she was entitled to a lower rate. ( Id. ). Also, SALT charged and collected payment of $50.00 for yet another "title insurance binder."
With respect to David Knight ("Knight"), on or about February 7, 2005, he purchased his residence in Covington, Kentucky, along with a lender's title insurance policy and an owner's title insurance policy, both written by STGC. (Doc. #76 at 4). On or about April 13, 2006, Knight refinanced the existing mortgage on his Covington residence. As a result, his lender required him to purchase a new lender's title insurance policy, in the amount of $132, 000.00. ( Id. ). The title insurance agent for the refinancing transaction was Vintage, and the policy was written by STGC. The proper charge for the lender's policy was $339.00, according to the Rate Schedule (Doc. #1-5 at 2); however, Knight was also entitled to a reissue discount based on already having purchased a policy on this property from STGC. Vintage failed to disclose to Knight that he qualified for the loan reissue rate, instead quoting a price of $341.00, which was reflected on the HUD-1 and paid for by Knight. (Doc. #1-8 at 2). Vintage never apprised Knight of the Rate Schedule and failed to disclose that he was entitled to a lower rate. ( Id. ). Moreover, Vintage charged and collected payment in the amount of $50.00 for a "title insurance binder."
On May 16, 2007, Plaintiffs filed the initial lawsuit. On March 19, 2008, Plaintiffs filed an amended complaint, adding the allegations related to title insurance binder fees. After STGC filed its answer, the parties jointly proposed that their action be stayed pending developments in a similar Kentucky state lawsuit against STGC. Eventually, a tentative settlement agreement was reached in that case, and, on May 15, 2014, Plaintiffs filed a first amended complaint alleging ten causes of action: (1) unjust enrichment, (2) breach of contract and covenant of good faith and fair dealing, (3) fraud, (4) negligent misrep resentation and negligent servicing, (5) civil conspiracy, (6) liability under KRS § 446.070 for violation of KRS § 304.22-020, (7) vicarious liability, (8) breach of fiduciary duty and/or aiding or abetting a fiduciary in the breach of his duty, (9) constructive fraud, and (10) liability under KRS § 446.070 for violation of KRS § 304.12-190. (Doc. #72). The pending motions were filed soon thereafter and are now ripe for decision.
1. Applicable Law
Federal courts sitting in diversity apply federal procedural law. Hanna v. Plumer, 380 U.S. 460, 465 (1965). The substantive law of the forum state governs the claims asserted. Erie R. Co. v. Tompkins, 304 U.S. 64 (1938); Moore v. Coffey, 992 F.2d 1439 (6th Cir. 1993); Gafford v. Gen. Elec. Co., 997 F.2d 150, 165 (6th Cir. 1993). Accordingly, STGC's motion to dismiss and motion for summary judgment will be considered in light of Rule 12(b)(6) and Rule 56, respectively, while substantive Kentucky will be applied to the individual claims.
2. Organization of Claims
The allegations in this case involve two distinct courses of conduct. First, Plaintiffs allege that STGC, through its policy issuing agents, charged premiums in excess of the rates listed in the Rate Schedule,  in violation of KRS § 304.22-020, which requires STGC to adhere to the Rate Schedule when charging Kentucky consumers for title insurance policies. Second, at the closing meeting of Plaintiffs' respective transactions, STGC, through its policy issuing agents, allegedly collected fees for an item described on the HUD-1 as a "title insurance binder." Plaintiffs assert that charges for title insurance binders are prohibited under Kentucky law. Based on these allegations, Plaintiffs seek certification for two separate subclasses: 1) the "Filed Rate Subclass", for those persons who were charged and paid for an excess premium, and 2) the "Binder Fee Subclass", for those persons who were charged and paid for a "title insurance binder".
While all ten claims alleged in the complaint explicitly implicate the first course of conduct, only two of the ten claims - breach of contract and negligent misrepresentation - make reference to the second course of conduct. The pending motions filed by STGC also discuss each course of conduct in varying degrees. STGC's motion to dismiss, for example, makes no arguments at all with respect to title insurance binders, instead focusing exclusively on each claim as it pertains to excessive premiums. By contrast, the motion for partial summary judgment focuses solely on title insurance binders, and makes no arguments whatsoever with respect to excessive premiums. Because this order addresses the motions filed by STGC, it will also isolate the allegations regarding excessive premiums and title insurance binders, respectively, to the motion to dismiss and the motion for partial summary judgment.
3. 12(b)(6) Motion to Dismiss
a. Legal Standard
Pleadings shall include a "short and plain statement of the claim showing that the pleader is entitled to relief." FED. R. CIV. P. 8(a). Under this standard, the complaint need not contain detailed factual allegations, but it must include more than labels and conclusions or a formulaic recitation of the elements of a cause of action. Bell Alt. Corp. v. Twombly, 550 U.S. 544, 555 (2007). The complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 555 U.S. 544, 570 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id.
When reviewing a motion to dismiss for failure to state a claim, the Court "must construe the complaint in a light most favorable to the plaintiff, and accept all of [his] factual allegations as true." League of United Latin Am. Citizens v. Bredesen, 500 F.3d 523, 527 (6th Cir. 2007). If an allegation is "capable of more than one inference, it must be construed in the plaintiff's favor." Ashland Hosp. Corp. v. Int'l Bhd. of Elec. Workers Local 575, 807 F.Supp.2d 633, 638 (E.D. Ky. 2011) (quoting Bloch v. Ribar, 156 F.3d 673, 677 (6th Cir. 1998) (citations omitted)). However, the Court "is not bound to accept as true unwarranted factual inferences, or legal conclusions unsupported by well-pleaded facts." Id. (internal citations omitted).
b. The Scope of Authority of STGC's Policy Issuing Agents
Several of the claims raised in this case are based primarily on the alleged acts of STGC's policy issuing agents, SALT and Vintage. Assuming the truth of Plaintiffs' allegations, liability can be imputed to STGC, the sole defendant, only if SALT and Vintage were acting as their authorized agents during the transactions in question. Therefore, the Court will first explore the existence and scope of these agency relationships, if any, prior to addressing the merits of each claim.
It is helpful to begin by discussing the process of issuing title insurance in general, and the role of policy issuing agents within that process. The following are excerpts from a similar case, Scott v. First American Title Ins. Co ., in which this Court addressed such topics in detail.
In a residential purchase or refinance transaction, the buyer as well as the lender providing the mortgage need a guarantee that the buyer will have clear ownership of the property. "Title insurance is designed to provide that guarantee by agreeing to compensate the lender (through a lender's policy) or buyer (through an owner's policy) up to the amount of the loan or the purchase price, respectively." General Accounting Office's Report on Title Insurance, April 2006 (2006 GAO Report). An owner's policy insures the owner/purchaser against defects in the seller's title. By contrast, a lender's policy insures the mortgage lender's security interest against title defects as well as priority of the mortgage lien; thus, the insured is the lender and the policy is provided directly to it. Notwithstanding the benefit to the lender, the financing package the borrower receives usually requires him or her to pay for the title examination and the premium for the new loan policy. However, some lenders offer "no cost" refinances in which the lender bears the cost of the title insurance premium to encourage borrowers to refinance.
Title insurance is sold primarily through use of title agents. Before issuing a policy, an agent inspects the title's history by searching public records such as deeds, mortgages, wills, and divorce decrees. Because public records are usually available only locally, the use of local title agents is desirable. The title insurance premium is paid only once-at the time of sale or refinance-and agents retain or are paid a portion of the premium amount as compensation for their title search work and as commission. (2006 GAO Report). Agents then remit the remaining premium amount to the title company. Because the title insurance policy is not recorded, a borrower's chain of title does not reveal whether a prior mortgage transaction was insured by an owner's or lender's policy, if at all. In fact, title insurance policies usually do not issue until one to two months after closing; a copy is then sent to the lender and to the insurer. The borrower ordinarily does not receive a copy of the policy purchased.
Scott v. First American Title Ins. Co., 276 F.R.D. 471, 473 (E.D. Ky. 2012).
SALT and Vintage act as policy issuing agents for STGC pursuant to their respective agency agreements, dated May 14, 2002 and May 2, 2004 (Docs. #74-5 and 74-4). According to these agreements, both entities are authorized to engage in various activities related to the issuance of title insurance on behalf of STGC, including receiving and processing policy orders, and examining and addressing any title issues that may arise. ( See id. at 2). Additionally, the agreements provide that each policy must be issued using forms designated by STGC, and require that various information be collected by the agents and disclosed on those forms. ( Id. ). Agents must also retain a file of all documents supporting each policy issuance, which STGC reserves the right to copy and inspect. ( Id. ). Based on the process as described by STGC, when a title policy is sold, it is SALT and Vintage who calculate and collect the insurance premium (albeit such calculations are supposedly based on STGC's Rate Schedule). (Doc. #75-1 at 7). Typically, STGC will not learn of the sale or of the insured's identity until after the agent sends a copy of the policy along with STGC's portion of the insurance premium. ( Id. ).
These agreements also include limitations of authority; for instance, policy issuing agents are not agents of STGC for the purposes of providing any abstracting or escrow services. (Docs. #74-5 and 74-4 at 3). Likewise, STGC claims that it does not compensate agents for preparing the HUD-1 or otherwise conducting the real estate closing. (Doc. #75-1 at 7). And, of course, STGC also insists that it has no role in calculating or collecting any "title binder fee" that may be charged. ( Id. ). Rather, these activities are paid for by other parties, such as the buyer or lender. As STGC summarizes in its motion, "Except for purposes of issuing and delivering title policies, subject to and in accordance with the terms and provisions of the agency agreements, Vintage and SALT act as independent contractors and are in full and complete control of the operation of their offices." ( Id. at 9). Accordingly, STGC refers to SALT and Vintage as limited policy issuing agents.
Though having conceded that SALT and Vintage are agents for the limited purposes described above, STGC nonetheless disclaims liability for all of their actions in this case, arguing that both SALT and Vintage exceeded the parameters of their agency in dealing with Plaintiffs. (Doc. #75-1 at 13). In support of this argument, STGC relies heavily on paragraph 3(a) of the agency agreements, which provides that the policy issuing agent "shall conduct its business in a sound and ethical manner, and shall issue title policies according to... the rules and instructions... imposed by the Department of Insurance or other regulatory body." (Docs. #74-5 and 74-4 at 1). STGC posits that the alleged actions of SALT and Vintage - misrepresenting facts, overcharging for premiums and collecting payment for unlawful title insurance binders - involve exactly the manner of conduct that is "explicitly carved out of their agency" by paragraph 3(a), and therefore concludes that any claims depending on the existence of an agency relationship should be dismissed as a matter of law. (Doc. #75-1 at 13).
In Kentucky, a principal is bound by the acts of an agent that are within the scope of the agent's authority. Pan-Am. Life Ins. Co. v. Roethke, 30 S.W.3d 128, 132 (Ky. 2000). This rule has been codified within the Kentucky Insurance Code at KRS § 304.9-035, which states, "Any insurer shall be liable for the acts of its agents when the agents are acting in their capacity as representatives of the insurer and are acting within the scope of their authority." Additionally, the term "agent" has been defined quite simply as "a person who sells, solicits, or negotiates insurance or annuity contracts." KRS § 304.9-020. Clearly, SALT and Vintage both qualify as agents; however, the scope of their respective agency relationships requires further analysis.
Despite STGC's argument, the scope of an agency relationship is not determined exclusively by the actual authority granted in a controlling agency agreement. See Pan-Am. Life Ins. Co., 30 S.W.3d at 132 ("[Defendant's] attempts to avoid the principal-agent relationship by providing otherwise in its agreement with [the agent]... are of no avail as the statute overrides any conflicting provisions."). Rather, the doctrine of apparent authority is firmly established under Kentucky law, Clark v. Burden, 917 S.W.2d 574, 578 (Ky. 1996), and fully applicable in the context of insurance sales. Prima Int'l Trading v. Wyant, 6:07-338, 2009 WL 722609, at *7 (E.D. Ky. Mar. 17, 2009) ("[Defendant] cannot cloak an agent with representative authority and then complain, relative to a harmed customer, when the agent exceeds his marching orders in executing that authority.").
Therefore, the central question here is whether the facts establish that SALT and Vintage were acting under the authority of STGC, actual or apparent, throughout their dealings with Plaintiffs. In a case involving life insurance agents, the court answered this question in the affirmative, based on the simple observation that the agent's conduct "appear[ed] to be the usual, ordinary, everyday acts commonly pursued by an insurance agent engaged in selling premium financed life insurance policies." Helton v. Am. Gen. Life Ins. Co., 946 F.Supp.2d 695, 712 (W.D. Ky. 2013). Certainly, if the same rationale is applied here, at least some of the alleged acts of SALT and Vintage could likewise be described as the "usual, ordinary, and everyday acts" of a title insurance agent acting in his representative capacity. This is particularly true with respect to the calculation and collection of insurance premiums, tasks which most reasonable people would expect to be performed by a title insurance agent.
Overall, when construing the first amended complaint in a light most favorable to Plaintiffs, SALT and Vintage were acting as the authorized agents of STGC in certain key respects. Accordingly, with most of the following claims, the existence and scope of the alleged agency is sufficiently established, even at this early stage of litigation. Yet, for other claims, which are noted throughout in the following ...