Recent Decision Denies Insurance Coverage for Mortgage-Related Liabilities

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On September 30, 2008, the United States Court of Appeals, First Circuit, held that a fraud exclusion barred coverage to a mortgage originator/broker under the insured’s Errors & Omissions policy for claims of alleged fraudulent mis-representation of credit information to a mortgage lender. New Fed Mortgage Corporation v. National Union, No. 07-2762 (1st Cir. Sept. 30, 2008). As we anticipate significant future filings in the subprime context, the First Circuit’s decision will be relevant to coverage claims under Massachusetts law and instructive to federal and state courts elsewhere considering coverage issues in the subprime context.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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