New Freedom Mortgage Corporation filed a contractual indemnification claim against Lawyers Title Insurance Corporation. New Freedom brought the action against Lawyers Title to recover indemnity under the closing protection letter for an attorney's alleged fraud at a real estate closing.

The CPL obligated Lawyers Title to indemnify New Freedom for actual losses incurred in connection with residential real estate closings arising out of, among other things, (1) the issuing agent's or approved attorney's failure to comply with written closing instructions regarding the payment or collection of funds, or (2) Fraud or dishonesty of the issuing agent or approved attorney in handling New Freedom's funds or documents in connection with such closings. The parties concede that the CPL was in effect and that its terms applied to the closing.

The evidence adduced at trial showed that the property sale at issue involved mortgage fraud with a significantly inflated property appraisal. The buyer defaulted on the loan, resulting in the foreclosure and sale of the property for significantly less than the appraised value as listed on the HUD-1 settlement statement, and this caused substantial losses to New Freedom. The principal issue at trial was whether the actions of the closing attorney involved in the sale of the property at the inflated price--a lawyer with Brochstein & Bantley--required Lawyers Title to indemnify New Freedom for its losses under the CPL. The jury found that it did and awarded $308,242.55 to New Freedom.

The Georgia Superior Court, Fulton County, entered judgment on the jury's verdict for New Freedom. Lawyers Title appealed.

The Appellate Court reversed the Superior Court holding that in order to trigger coverage under the CPL for fraud at a real estate closing, the following elements must be proven:

(1) proof of fraudulent intent by attorney was necessary for mortgagee to recover indemnity;

(2) instruction defining legal fraud to include misrepresentation of a material fact, whether intentional or not, was substantially erroneous and harmful; and

(3) instruction that mortgagee did not have duty to mitigate or lessen damages was permissible.

The Appellate Court found that, in this case, the jury instructions given to the Fulton County jurors did not emphasize the "intent" elements of the first requirement to trigger coverage. As a result of the faulty jury instructions, the Appellate Court was required to reverse the Superior Court judgment becuase it was more than liekly that the jurors arrived at their decision without correct instruction as to what was required to prove the elements.