Private lender indemnified for prepaid interest after title fraud

The insurer was obligated to indemnify the insured for withheld interest payments following a title fraud.

Insurance law – Title insurance – Interpretation of policy – Duties and liabilities of insured – Practice – Summary judgments

AllenDB Holdings Ltd. v. Stewart Title Guaranty Co., [2024] O.J. No. 2503, Ontario Superior Court of Justice, June 5, 2024, R.L. Akazaki J.

The insured was a private mortgage lender who lent $600,000 to an imposter posing as the owner of a residential property. The mortgage was discharged once the parties became aware of the fraud. Inclusive of prepaid interest and fees, the actual net advance from the insured to the imposter was $509,939.12. The insured recovered $498,256.40 through the cheque clearances process of the Canadian Payments Association (“CPA”). The insured claimed the difference under their title insurance policy. The insurer indemnified the insured for $11,682.72, being the difference between the actual advance and the amount received through the CPA, but excluding the amount the insured retained as prepaid interest. The insured brought a summary trial seeking indemnity for $72,000, equivalent to the prepaid interest portion of the loan.

The insurer argued that it was not liable to indemnify the insured for the prepaid interest because it had not been paid to the imposter and was not part of the loss. The insured argued that the fact that the interest was withheld was irrelevant because the full amount of the mortgage, inclusive of interest, had to be repaid.

The court found in favour of the insured. Although the policy contained a limitation of liability clause, the court concluded that the insurer’s position asked it to read language into the clause. The exclusion limited the insurer’s obligation to indebtedness, but it was not defined and did not differentiate between principal or interest. As a result, the court concluded that the insurer’s indemnity obligation under the policy included the prepaid interest.

This case was digested by Michael J. Robinson and edited by Steven W. Abramson of Harper Grey LLP.  If you would like to discuss this case further, please feel free to contact them directly at [email protected] or [email protected].