Georgia Attorneys Title Guaranty Fund

Underwriting Bulletin No. 96

October 31, 2003

SUBJECT: Mutual Indemnificatoin Agreement
In an effort to increase the efficiency of operations, and expedite the closing process and issuance of title insurance policies to our customers, a number of title insurance underwriters entered into a Mutual Indemnification Agreement as of September 1, 2003. That agreement, sometimes referred to as an “Indemnification Treaty”, covers issues commonly encountered in title examinations which may be the basis for liability of the underwriter of the title insurance policy held by a current seller or mortgagor. First American Title Insurance Company has entered into the Mutual Indemnification Agreement in the form attached to this bulletin as Attachment A with the underwriters listed on its Exhibit 1 on page 6 of this bulletin. In addition, First American has entered into a similar, but separate, Mutual Indemnification Agreement with American Pioneer Title Insurance Company, also attached hereto as Attachment II.

The Mutual Indemnification Agreement allows you, as First American’s agent, to issue First American’s owners or loan policies of title insurance provided a prior owners policy or loan policy (based upon which the lender has foreclosed) exists on one of the underwriters listed below and provided the particular title issue for which we require the indemnity is covered under the terms of the Mutual Indemnification Agreement. If you have a participating underwriter’s prior policy and the matter is covered under the terms of the Mutual Indemnification Agreement attached hereto as Attachment A or Attachment B, it is not necessary to obtain a specific letter of indemnity from the underwriter.

We refer you to the Mutual Indemnification Agreement for an explanation of the covered matters. Generally, the Agreement covers issues relating to (1) unsatisfied judgments and federal or state tax liens which pre-date the indemnitor’s policy (subject to the limitations contained in the attached Mutual Indemnification Agreement), (2) unsatisfied mortgages (security deeds) UCC 2’s or Assignments of Rents and Leases prior to the indemnitor’s policy (again subject to the limitations contained in the attached Mutual Indemnification Agreement) and (3) absence of corporate seal or lack of stated corporate capacity on corporate deeds prior to the indemnitor’s policy (again subject to the limitations contained in the attached Mutual Indemnification Agreement).

When relying on the provisions of the Mutual Indemnification Agreement to provide indemnification for a known defect, you should obtain a copy of either the prior owners policy which insures the current seller or mortgagor, or the prior mortgagee policy that insures a lender that has acquired title through foreclosure. We ask that you attach a copy of the other underwriters policy to your remittance copy of the policy and place a notation on the remittance copy stating that you are insuring over a specific title defect (describe the defect) based upon the Mutual Indemnification Agreement and the policy from the other underwriter.

It is important to remember that the liability under any indemnitor’s policy is the face amount of the prior policy or $500,000.00, whichever is less. When you are issuing a policy in an amount exceeding $500,000.00, and the apparent liability for the noted title defect is greater than the amount of coverage under the indemnitor’s policy or $500,000.00, whichever is less, the protection afforded by the agreement would be insufficient and it would be necessary to obtain a written letter of indemnity from the underwriter of the prior policy, with coverage extending to the amount of the new policy.

One important provision of the Agreement is that in order to rely on its provisions, the indeminitor’s policy, either owners or mortgagee, must be at least one year old. It is thought that title defects should be remedied whenever possible and many title companies would prefer to correct title defects rather than to simply insure over them in reliance on the indemnities contained in the Agreement. Such defects may be more easily corrected within one year of issuance of the policy.

If you discover a title defect which would come within the scope of the Mutual Indemnification Agreement you may wish to disclose this title defect to all parties in the transaction, whether or not they are an insured, and state that you are not excepting the matter from coverage because of the existence of this indemnity. You should obtain such disclosure in writing with a signed acknowledgment and acceptance by the parties notified. (This type of disclosure should be made in all situations where we are accepting an indemnity or otherwise insuring over a title defect.)

If, after reviewing the attached Mutual Indemnification Agreement, you have further questions or comments, please contact the Underwriting Department at (404) 250-1604 or (800)328-2642. Please see the accompanying pdf for a copy of the Agreement.

Printable version: ub96.pdf*

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