On appeal from the Superior Court of New Jersey, Law Division, Bergen County.
King, Havey and Arnold M. Stein. The opinion of the court was delivered by Arnold M. Stein, J.A.D.
We affirm the order granting summary judgment in favor of defendant, Penn Title Insurance Company, because the mortgagee's failure to pay the promised funds to the mortgagor was not a covered risk under the title insurance policy.
On April 12, 1990, a title insurance binder was issued to third-party defendant, Troika Affiliates, Inc., "its successors and/or assigns as their interest may appear" by CCR Search and Abstract Agency, Inc., an agent for defendant Penn Title. The binder was for a loan policy to Troika in the amount of $11,600.
On April 27, 1990, a loan closing took place at which Helene Ernst borrowed $11,600 from Troika and gave Troika a first mortgage on her property located at 119 East Church Street, Bergenfield. The mortgage was recorded on May 30, 1990. Neither Penn Title nor its agent were present at the closing.
On May 9, 1990, plaintiff gave Troika a check in the amount of $11,600 to purchase the Ernst mortgage. The check was drawn on the account of Financial Resources, a business name used by plaintiff. In return, Troika gave plaintiff an assignment of mortgage dated April 27, 1990, and recorded May 30, 1990, in book 964, page 282 of assignments.
Ernst received a $9,233 check from Troika dated May 10, 1990, representing the net loan proceeds. The check was returned due to insufficient funds. For some unexplained reason, Ernst continued to make timely payments for almost one year until her brother discovered that she had never received the loan proceeds and notified plaintiff about the bad check.
After being advised of the assignment of the Ernst mortgage to plaintiff, Penn Title's agent issued a loan title policy dated May 30, 1990, naming plaintiff, his successors and/or assigns as the insured. The title insurance premium was paid on May 10, 1990. The truth in lending disclosure statement reveals that the title charges were paid from the borrower's proceeds, with check numbers corresponding in sequence to the checking account of Troika. Plaintiff demanded coverage from Penn Title for the loss resulting from the bad check. Penn Title denied coverage.
Plaintiff claims that the Judge erred in concluding that the failure of consideration was not a covered event under the title insurance policy. He also contends that his claim is not subject to the exclusion in the policy for matters created, suffered, assumed or agreed to by the insured. According to plaintiff, the law of assignments does not apply because the insurance contract was issued after the assignment of the mortgage.
A title insurance policy is a contract of indemnity under which an insurer for valuable consideration agrees to indemnify the insured in a specific amount against loss through defects of title to, or liens or encumbrances upon, realty in which the insured has an interest. Sandler v. New Jersey Realty Title Ins. Co., 36 N.J. 471, 478-79, 178 A.2d 1 (1962). Title insurance is governed by the same general rules and principles generally applicable to the issuance, validity and interpretation of all policies of insurance. Weir v. City Title Ins. Co., 125 N.J. Super. 23, 29, 308 A.2d 357 (App.Div.1973).
The title insurance policy in this case provides that it will insure against a variety of losses incurred by reason of "[t]he invalidity or unenforceability of the lien of the insured mortgage upon said estate or interest . . . ." It has been held elsewhere that a title insurance contract insures only the title to the land securing the debt and not the debt itself. See Bank of Miami Beach v. ...