Mercury Cos. sues title insurance underwriter

Suit claims First American must serve subsidiaries

Mercury Companies Inc. — the parent of troubled Alliance Title Co. — has sued First American Corp. to force the company to continue underwriting title insurance policies on behalf of other Mercury subsidiaries in California.

Alliance Title, which once claimed more than 2,000 employees at 200 branches in California, closed its doors without warning in December (see Inman News story).

At the time, the California Department of Insurance said closings and escrow accounts being handled by Alliance were being transferred to another Mercury subsidiary, Financial Title Co., in areas where that company has offices. In other markets, First American Title Insurance Co. picked up many Alliance Title files.

Now, First American says it is no longer obligated to underwrite title insurance policies for Financial Title and other Mercury subsidiaries in California, including Investors Title Co. and Lenders Choice Title Co., Mercury alleges in its lawsuit.

"There exists an actual and substantial controversy between Mercury and defendants as to whether (First American) can prevent (Mercury’s) California subsidiaries from issuing policies of title insurance" underwritten by First American, Mercury said in a May 1 complaint.

Mercury is seeking a judgment declaring that First American "must continue to allow (Mercury’s) California subsidiaries to issue policies of title insurance" underwritten by First American.

A spokeswoman for First American said the company’s policy is not to comment on pending litigation.

The May 1 complaint, filed in the U.S. District Court for the District of Colorado, also alleges that First American has breached agreements that call for Mercury and its affiliates to be First American’s exclusive agents in Colorado.

Mercury and its Colorado affiliates — including Heritage Title, Security Title, Title America and United Title — were, in turn, to use First American as their exclusive underwriter, "unless the customer specifically requested, in writing, that Mercury Companies issue polices of title insurance on underwriters" other than First American, the lawsuit alleged.

The agreements, which date back to December 2000, were to remain in effect until Jan. 8, 2011, or until First American sold shares of Mercury stock it owned — whichever occurs later, Mercury claims.

Although First American still owns shares of Mercury stock, First American and First American Title "have used — and continue to use — multiple agents other than Mercury and its affiliates in Colorado," the lawsuit claims.

Furthermore, First American and First American Title have "taken the position that they are no longer obligated to issue policies of title insurance to (Mercury’s) California subsidiaries," the complaint alleges.

Mercury claims Financial Title had a preexisting underwriting agreement with First American, and that its other California subsidiaries, Lenders Title and Investors Title, are part of amended agreements even though they did not exist when the agreements were signed.

The lawsuit seeks an injunction preventing First American from using any agents in Colorado other than Mercury’s affiliates, and for a declaration that First American "can not prevent (Mercury’s) California subsidiaries from issuing policies of title insurance" underwritten by First American.

Although First American would not comment on the lawsuit, Alliance Title appears to have amassed considerable unpaid obligations.

The California Department of Insurance filed a "cease and desist" order against the company Feb. 21, which stated the company had a net deficit of $50.6 million as of Nov. 30, and that Alliance Title had a working capital deficit of $22.1 million.

Alliance and its Colorado-based parent, Mercury Cos., face separate lawsuits by the California Labor Commissioner and former employees who claim they are owed unpaid wages and expenses. The Labor Commissioner alleges that Alliance employees are owed at least $3 million in wages and commissions, and that the company faces more than $10 million in penalties.

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