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Tort Trial & Insurance Practice Law Journal Volume 43 issue 3 2008 [doi 10.2307%2F25763902] Jerel J. Hill, Jennifer Stephens and Yvonne Ocrant -- RECENT DEVELOPMENTS IN TITLE INSURANCE LAW

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RECENT DEVELOPMENTS IN TITLE INSURANCE LAW
Author(s): Jerel J. Hill, Jennifer Stephens and Yvonne Ocrant
Source: Tort Trial & Insurance Practice Law Journal, Vol. 43, No. 3 (SPRING 2008), pp. 673-699
Published by: American Bar Association
Stable URL: http://www.jstor.org/stable/25763902
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RECENT DEVELOPMENTS
INTITLE INSURANCELAW
JerelJ. Hill, Jennifer Stephens, and Yvonne Oar ant
I. Introduction.
674
II. Insured versus Insurer. 674
A. Who
Is Insured?. 674
B. What Is Insured?. 676
C. Duty toDefend.
680
D.
Exclusions and Exceptions.
E. Measure
ofDamages.
683
F. Claims Procedures.
684
G.
H.
686
Arbitration.
Protection
Letter.
Closing
I. Tort Liability.
689
Insurer versus Agent. 689
681
687
III.
IV. Duties ofTitle/Escrow Agent. 691
V. Governmental Regulations.
696
A. Federal.
696
B. State.
697
VI. Miscellaneous.
697
A. Recording Acts.
697
698
B. Bankruptcy.
699
C. Unfair Competition.
D.
Employment Law.
699
JerelJ. Hill, a solopractitionerinHouston, Texas, is thechair-electof theTIPS Title
InsuranceLitigation Committee.JenniferStephens is an associateattorneyin Stites&
YvonneOcrant isa partner inHinshaw &
Harbison, PLLCs Louisville,Kentucky,office.
Unless otherwiseindicated,thisarticle coverstheperiod
CulbertsonLLPs Chicago office.
September1, 2006, toAugust 31, 2001. Subsequent eventswill be coveredin thespring
2009 issueof theJournal.
673
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674
TortTrial & InsurancePracticeLaw Journal, Spring 2008 (43:3)
I. INTRODUCTION
Policy interpretation made a resounding return to prominence this year.
About half of the cases reviewed were on this topic. The duties of escrow
and title agents was the second largest category.
Among the extraordinary cases for the survey period were two on con
sequential damages under the owner title policy and themeasure of dam
ages for an agent's breach of its duty of confidentiality. An antitrust case
may have a significant impact on limiting county clerks' powers to regulate
resale of title information.
II.
INSURED VERSUS
INSURER
Several cases this year explored what risks are insured by owner and mort
gagee policies, who is covered, what limits are imposed by policy exclu
sions and exceptions, and what protection is afforded under insured
closing
protection letters.Claims administration also received the attention of the
courts, with two decisions supporting arbitration.
A. Who Is Insured?
In two recent cases, courts addressed whether or not the conveyance of
property to a company owned by the insureds will preclude coverage
under a previously issued title insurance policy. In Point ofRocks Ranch,
LLC v. French,1 the purchasers of property obtained an owner's
policy
of title insurance from Commonwealth
Land Title Insurance Company
and later conveyed the same property to Point of Rocks, LLC,
a lim
ited liability company they owned. Then, the insured owners learned that
theUnited States had obtained an easement across the property at issue
approximately fiftyyears before they purchased it.2They made a claim
under their policy, which Commonwealth
denied. The
insured owners
argued that the owner's policy of title insurance did not terminate when
they sold the property but rather continued to exist for any claim they
incurred during their ownership of the property.3 The Idaho Supreme
Court disagreed with the insured owners and held that their choice of
conveying the property at issue to their limited liability company termi
nated Commonwealth's
liability under the policy4 The court furthernoted
that the clause setting the duration of coverage under the title insurance
was
policy
unambiguous.5
1. 116P.3d 677 (Idaho 2006).
2. Mat
678.
3. Id. at 6/'9.
4. Id.
5. Id.
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Title
Insurance
675
Law
Unlike the holding in thePoint ofRocks Ranch case, aNew Jersey appellate
court recently held that transferring title to a limited liability partnership
(composed of the same people as a previously insured general partnership)
did not terminate coverage under an owner's policy of title insurance. In
Shotmeyer v. New Jersey Realty Title Insurance Co., theNew Jersey Supe
rior Court reversed an order of a lower New Jersey court granting sum
mary judgment in favor ofNew Jersey Realty Title Insurance Company.6
Henry Shotmeyer and Charles Shotmeyer, general partners, purchased
property in the name of the general partnership, and the general part
nership purchased an owner's policy of title insurance. The Shotmeyers
formed a limited partnership eleven years later and conveyed the subject
properly to that limited partnership for a nominal fee.7
to the property in the
Approximately twenty-one years after taking title
name of the general partnership, the insured owners learned that an ad
to approximately twelve acres of their land.
joining landowner claimed title
insurer
the denial of their claim. The insurer filed
the
title
after
sued
They
a motion for summary judgment, relying on the policy definition of an
insured and arguing that the limited partnership was not covered under
the owner's policy of title insurance purchased by the general partnership.8
Jersey appellate court disagreed with the title insurer and found
that because the same partners had formed the limited partnership, the
coverage available under the owner's policy of title insurance remained in
effect.The court relied on a "reasonable expectation" principle, stating
The New
that a policy "may be interpreted to reflect the reasonable expectations
of the purchaser and a policy" and utilizing equity to "enforce rights and
duties which spring from the 'real' relations of parties."9
Plaintiffs who cannot locate their alleged policy also encountered mixed
results. In Clair v. First American Title Insurance, theOhio Court ofAppeals
held that an alleged insured owner with no proof that he had purchased an
owner's policy of title insurance was not entitled to recovery under the al
Ameri
leged policy.10The alleged insured owner, Clair, claimed that First
can had issued a policy of title insurance to him and then later refused to
so when problems arose with the property.
acknowledge that it had done
The record reflected that a commitment had been issued in favor of an
insured lender, but not to Clair.11 Although Clair claimed that he paid a
an owner's policy of title insurance, therewas no evidence
premium for
a policy nor any
to
in the file
support his contention that he purchased
6. No.
L-772-05,
7. #.at*l.
2007 WL
283661
(N.J. Super. App. Div. Feb.
2, 2007).
8. #.at*2.
9. #.at*4.
10.No. 23382, 2007WL
11. #.at*3.
1063989 (OhioCt. App. Apr. 11,2007).
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TortTrial & InsurancePracticeLaw Journal, Spring 2008 (43:3)
676
evidence that one should have been issued to him. The tide insurer was
on Clair's claims.12
granted summary judgment
to
in
the
Clair, theCalifornia Court ofAppeal recendy
Contrary
holding
held thatCalifornia claimants were entided to pursue a claim against a title
insurer even though the owners were unable to locate the actual policy. In
Van de Bovenkamp v. United Title Co., the claimants located a copy of the
lender's loan policy of title insurance thatwas issued at closing, were able
to verify that they had performed all of the conditions required prior to
the issuance of the policy, and proved that they had paid the premium
for the policy.13 The insured owners charged that the title insurer had a
an
duty to defend them in
underlying lawsuit, failed to properly investi
the
facts
of
the
lawsuit, and failed to promptly agree to indemnify
gate
them. The court found that there was sufficient evidence to establish the
existence of a contract for tide insurance between plaintiffs and the tide
insurer because the alleged insureds were able to plead a number of specific
requirements for the issuance of the policy and because plaintiffs alleged
that they had paid the appropriate premium for the policy.14Upon remand,
the claimants could go to trial in their case against the insurer.
B. What Is Insured?
InAnderson v. Commonwealth Land Title Insurance Co.,15 the question "What
is insured?" was answered by finding that a policy does not insure more
property thanwhat is described in it.The Anderson court held that an owner's
policy of title insurance insured only the property described in the policy
and referenced deed, not an adjacent courtyard thatwas not included in the
legal description.16 The insured purchasers of the property relied on repre
sentations by the seller that a courtyard adjacent to their condominium was
for the use of their particular unit.17The owner's policy of tide insurance,
which was purchased at closing, contained a legal description that referred
to two recorded plats. The firstrecorded
plat was ambiguous on the court
and
the
second
recorded
yard status,
plat (filed before the policy date) did
not contain any specific notations or
language indicating the use or owner
of
the
Commonwealth
moved for summary judgment on
ship
courtyard.18
the insured owners' claims, arguing that neither the policy nor any of the
documentation of record indicated that the courtyard area was a limited
common element
belonging to their unit and to which other unit owners
12. Id.
13.No. B180752, 2006WL
14. M.at*10.
3530473 (Cal.Ct. App. Dec. 8, 2006).
15. 644 S.E.2d 414 (Ga.Ct. App. 2007).
16. Mat417.
17. Id. at 415-16.
18. Id. at 416.
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Title
Insurance
Law
677
did not have access.19 Accordingly, Commonwealth
argued that its policy
did not insure the owners against claims of other property holders to that
courtyard.20The Georgia Court ofAppeals agreed and held that therewas
no support for the claim
by the insured owners that the title policy insured
an exclusive interest in the
courtyard.21The court specifically noted that
the courtyard was not included in the legal description attached to the in
sured owners' deed and found that the subsequent amendment to the plat
did not provide insurance to the owners for that courtyard.22
A Louisiana case also concerned the property description in Schedule A.
In New South Federal Savings Bank v. Commonwealth Land Title Insurance
Co.,23 the insured lender held a mortgage that described the physical ad
dress of one property but contained a legal description for another. The
bank learned of this errorwhen it attempted to foreclose on the property,
discovering that the property it thought it had encumbered was actually
owned by the borrower's son and that the property identified in the legal
description was a vacant lot owned by the borrower.24The appellate court
found for the insurer on the issue of liability,noting that the insuredmort
gage was valid against the tract described in it and also in the policy.25The
court said that the policy "... did exactly what itwas intended to do. [The
policy] insured that plaintiff had a valid firstmortgage over the property
described in the insurance policy."26New South was not entitled to cover
age for any of its losses related to its inability to foreclose on the property
not described in themortgage or in the policy.27
Several cases have found that the physical condition or use of property
is not an insured matter. A Texas appellate court recently held that a flood
plain designation is not a title defect but concerns only the condition of
the property. InHanson Business Park v. First National Title Insurance Co.28
the owner of three tracts of land purchased an owner's policy of title in
surance. After learning that a portion of the property was in a floodplain,
the insured owner made a claim against the insurer,which the title insurer
denied. After being sued by the owner, the insurer filed amotion for sum
mary judgment based on the argument that a floodplain designation does
not constitute a defect in title.29Although the court agreed that floodplain
19. Mat417.
20. Id.
21. Id.
22. Id.
23. 940 So. 2d 739 (La. Ct. App. 2006).
24. Id. at 740-41.
25. Id.
26. Mat745.
27. See generally id.
28. 209 S.W.3d 867 (Tex. Crim. App.
29. Id. at 869-70.
2006).
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678
TortTrial & InsurancePracticeLaw Journal, Spring 2008 (43:3)
status was a defect in the condition of the property, floodplain status was
not a title defect as contemplated by the policy; and the court granted sum
mary judgment in favor of the tide insurer.30
In House v. First American Title Co.,31 an insured owner purchased a
home "as is" from a foreclosure sale buyer and learned after closing that
the county health department had previously secured an injunction against
the former owner that prohibited the use of a septic system.32The insured
owner sued First American Tide
Company, claiming that the injunction
was a tide defect that affected
marketability. The court disagreed and held
that the injunction was not a covered matter under the owner's policy of
tide insurance for two reasons. The injunction was cut off by the foreclo
sure sale; and even if ithad not been cut off, the injunction affected neither
the title to the property nor itsmarketability.33
Finally, in GRPL Enterprises, Inc. v. Angelo, plaintiff's deed contained
a provision requiring him and his co-owners to list the property with a
specific real estate broker when theywished to sell it.The insured owners
executed a contract for sale but did not list the property with the speci
fied broker.35 The prior seller of the property sued the insured owners
for breach of contract, and the insured owners filed a third-party action
against the insurer.36The insurer filed a motion for summary judgment,
arguing that the alleged restrictive covenant was unenforceable as a mat
ter of law and thus did not constitute an encumbrance on property that
would give rise to a claim against the title insurer.37The court agreed and
granted summary judgment in favor of the tide insurer, stating that the
restrictive covenant was void as a matter of law.Accordingly, the restric
tive covenant was not a title defect that should have been excepted from
the policy.38This holding is unusual; normally, an insurer would have to
defend against patently invalid claims if the matter was not clearly ex
cluded or excepted.
Recent holdings make it clear that a policy's coverage for access does
not guarantee that the insured will have the
ability to use a specific road or
creek. In Coles v. Lawyers Title Insurance Corp.,39 the insured had access to a
public road but not to Fisk Road, which was adjacent to the property. The
insured owners sued Lawyers Tide,
claiming that Lawyers Title breached
30. Id. at 870.
31. 858 N.E.2d
640 (Ind. Ct. App.
32. Id. at 641-42.
2006).
33. Id. at 645-46.
34.No. 05MA 77, 2006WL
3849859 (OhioCt. App.Dec. 28, 2006).
39.No. E-05-063, 2006WL
2640266 (OhioCt. App. Sept. 15,2006).
35. Id. 14.
36. See generally id.
37. Id. H 13.
38. See generally id.
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Title
Insurance
679
Law
the owner's policy of title insurance by failing to compensate the insured
owners for the loss of access to Fisk Road.40 Lawyers Title filed a motion
for summary judgment, which was granted based on the appellants' pro
cedural admission that their parcels had access to public roads other than
Fisk Road.41 The Ohio Court of Appeals affirmed the trial court's grant of
summary judgment for the insurer on those grounds.42 No endorsement
guaranteeing access to a specific road had been issued.
In Read v. Chicago Title Insurance Co.,43 an insured owner argued that his
title insurance policies insured him against damage incurred by "lack of a
access to and from the land" and that the policy also covered "creek
right of
access" to a nearby river.44A recorded plat, incorporated by reference into
the policy, stated that a drainage easement across a nearby lot provided
creek access to a river,but the easement was not described in Schedule A of
the owner's policy at issue.45The court agreed with the title insurer's denial
of coverage. Plaintiffs had a right of access to their lots based on a road, and
the policy did not insure for creek access.46
Finally, one court held that a lender's negligence, when coupled with the
a
negligence of the title agent, does not preclude coverage under mort
gagee title policy. In a case where damages exceeded $3.25 million, the
U.S. District Court ofMaryland found that an insured lender's failure to
read trust documents was not an act that would exclude coverage under
exclusion 3(a) or 3(b) of the mortgagee title policy.47 InMercantile-Safe
nor the
Deposit & Trust Co. v. Chicago Title Insurance Co., neither the lender
title insurer closely reviewed trust documents prior to closing.48 If either
party had reviewed the documents, they would have discovered that the
trustee did not have the power to encumber property contrary to the inter
est of the residual beneficiaries of the trust at issue.49The policy at issue in
this case did not contain an exclusion for any beneficiary's rights under the
trust
documents.
was not empowered to convey the prop
Eventually, because the trustee
at
in
the
issue
this
case,
erty
beneficiary succeeded in invalidating the
When
the insured lender lost,Chicago Title denied
insured lender's lien.50
Id. H 4.
Id. H 13.
42. See generally id.
43. No.
2:06-CV-483-CWH,
44. M.at*2-3.
45. Id.
40.
41.
2006 WL
3313935
(D.S.C.
Nov.
14, 2006).
Ins. Co,
Civ. No.
46. ?/.at*3.
47. Mercantile-Safe
Deposit
& Trust Co.
2007WL 892103 (D.Md. Mar. 20, 2007).
v. Chi. Title
CCB-05-2217,
48. M.at*2.
49. M.at*2-3.
50. M.at*3.
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680
TortTrial & InsurancePracticeLaw Journal, Spring 2008 (43:3)
liability under the policy.51The court commented that "mutual mistakes
or mere
negligence is not sufficient to establish a policy exclusion under
the terms of [paragraph three, subsection a]; the insurer, however, may not
avoid liability based on mere negligence of the insured in bringing about
the loss."52Noting that both the insured lender and Chicago Title should
have obtained and reviewed the trust documents, the court held that the
insured's failure to review the documents would not exclude liability under
the policy and specifically noted that Chicago Tide did not reserve its
rightswhen it engaged counsel for the insured.53
C. Duty toDefend
In three recent cases, courts have upheld an insurer's refusal to defend
against claims of unrecorded easements or claims related to the insured's
conduct. Courts have also held that after curing the defect, the tide insurer
has no furtherduty under the policy.
The Washington Court ofAppeals held that a title insurer does not have
a duty to defend an insured owner against a
neighbor's claim to reform an
easement that did not, pursuant to land records at the time the
policy was
v.
burden
the
insured
In
owner's
Ticor
Title
issued,
Campbell
property.54
Insurance Co., the owners purchased a title insurance policy that excluded
from coverage any loss or damage related to easements not disclosed
by
the public records.55 After purchasing the property at issue, a neighbor
claimed the right to cross over their property to access a lake by virtue
of an unrecorded easement.56When
the Campbells
tendered defense of
the suit to Ticor, it denied coverage and refused to defend based on the
exclusion in its policy for unrecorded easements. The case also involved a
post-policy date suit for reformation of the easement.57 The court agreed
with Ticor and held that under the clear terms of the policy, Ticor had no
duty to defend.58
InMiller v. First American Title Insurance Co.,59 the insured owners pur
chased property in 1986, sold it in 1996, and were sued
by a third party in
2003 over an easement claim for fraudulent concealment, failure to dis
and negligent misrepresentation.60
close, intentional misrepresentation,
51. Id. at*4-5.
52. Id. at*9.
5 3. See generally id.
v.Ticor Title
54. Campbell
June26, 2007).
Ins. Co, No.
25327-9-III,
2007 WL
1822391
(Wash. Ct. App.
5 5. See generally id.
56. See generally id.
57. Id. % 8.
58. Id.n
17-18.
59.No. B187276, 2006WL 2440850 (Cal.Ct. App.Aug. 24, 2006).
60. M.at*l.
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Law
The lawsuit against the former owners and the insureds alleged that the
insured owners intentionally concealed the fact that a neighboring land
owner had constructed and used a road on their property in an open and
notorious manner when the insured owners sold the property. The suit
further alleged that prior to selling the property to the current new owner,
the insured owners misrepresented that the property had a private beach.61
First American filed a motion for summary judgment and argued that it
had no duty to defend the insured owners because all of thematters com
plained of in the case involved the conduct of the insured owners, not title
to the property. First American also argued that the owner's policy of title
insurance did not provide coverage for fraudulent or wrongful conduct
in conjunction with a future sale of the property.62The court, noting that
"title insurance is fundamentally different from other types of insurance
because it is not prospective in nature," ultimately based its decision on the
fact that the conduct at issue in the case was a post-policy matter and found
that summary judgment in favor of the title insurerwas proper.63This case
demonstrates the scope ofwarranty coverage.
Lastly, in a case involving the damages under an owner's policy, an ap
pellate court held that an insured owner had no further claim against a title
insurer after the insurer successfully defended him against invalid subdi
vision restrictions.64 In Darbonne v. Goldberger, an insured owner sought
a permanent injunction against the town's enforcement of a restrictive cov
enant providing that his property could not be subdivided.65 Fidelity Na
tional Title Insurance Company provided a defense to its insured owner
for the covered portion of the lawsuit.The court ultimately found that the
restrictive covenant was invalid.66The court further found that because the
alleged defect in the owner's title no longer existed after the favorable judg
ment, the insured owner had no further claim of loss under his title insur
ance policy.67
D.
Exclusions and Exceptions
In four different cases, courts around the country have strictlyconstrued the
exclusions and exceptions set forth in lender's and owner's title policies.
For example, a lender thatmisspelled the borrower's name in themort
gage instrument was not entitled to coverage under its loan policy of title
insurance due to its own negligence in preparing themortgage instrument.
61. Id.
62. Id. at*2.
63. Id. at*4-5.
v.
64. Darbonne
Goldberger,
65. Id. at 694-95.
66. itf. at 695-96.
31 A.D.3d
693 (N.Y. App. Div.
2006).
67. Id. at 695.
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TortTrial & InsurancePracticeLaw Journal, Spring 2008 (43:3)
682
In FirstMerit Bank, NA v. Guaranteed Title & Trust Co.,68 the borrower's
name was spelled differendy on the deed than itwas spelled in themort
the borrower sold the property, the mortgage
gage instrument.69When
was not located in the tide search and was not
paid off.70FirstMerit Bank
sued under the loan policy of tide insurance, and the trial court found that
the lender's policy covered FirstMerit Bank's loss.However, the appellate
court disagreed and held that the loan policy of tide insurance did not
cover First Merit Bank's loss because the bank had
improperly prepared
itsmortgage instrument and because the lender's policy at issue excluded
coverage for defects created by the insured.71
The insureds claimed that a commitment exception created liability in
Kokinis v. First American Title Insurance Co.72 A utility lien was listed in the
commitment and paid at closing. Two years later, the insureds learned that
their house had a defective septic system.The city required them to con
nect to the city sewer. They sued the insurer,
alleging that the utility lien
that had been listed in the commitment constituted a representation that
the property was on the city sewer. The court held that the police powers
exclusion applied and refused to find a representation by inference.73
Two cases dealt with the "parties in possession" exception. In Koenig v.
First American Title Insurance Co. ofTexas, a neighbor's possession of a
forty
inch by forty-five-foot strip of land was "an open and visible, notorious,
exclusive and merely constructive" evidence of possession of the property.74
Neighbors claimed the strip by adverse possession and sued the insureds.75
First American denied coverage because the neighbors were in actual pos
session of the disputed strip of land.76Finding that the policy of title insur
ance issued by First American had an express
exception for rights of parties
in possession, theTexas appellate court found that the insurer had no
duty
to defend the insured.77The court found that "[t]he
'rights of parties in
possession' exception applies if the nature of the possession alleged is such
that it charges the purchaser with notice of a third party's possession."78 In
this case, it did.
Similarly, a New York City rent receiver was deemed to be a party in
possession in Cohen v. Fidelity National Title Insurance Co.19 The receiver
68. No. 22894, 2006WL
69.
jW.at*l.
1791148(OhioCt. App. June30, 2006).
70. M.at*2.
71. Id.
72. 860 N.E.
73. M.at*l-2.
2d 978 (Mass. App. Ct.
2007).
74. 209 S.W.3d 870, 872 (Tex.Crim.App. 2006).
75. Id.
76. Mat872-73.
77. Id. at 874.
78. Mat875.
79.
831 N.Y.S.2d
689 (N.Y. App. Div.
2007).
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Title
Insurance
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Law
had been appointed to receive rents and administer the property, which
created a special lien that had not been listed as an exception to coverage.80
The court held that the resulting lien was not one that should have been
listed in the title report.81The administrator/receiver was clearly a "person
in possession," and, thus, any losses arising out of the receiver's lien were
excluded under Schedule B of the policy.82Thus, the insured's losses were
not compensable under the loan policy of title insurance at issue.83
E. Measure
ofDamages
cases dealt with the extent towhich consequential damages are re
coverable under a policy of title insurance. In all three cases, the insureds
more than the loss in themarket value of the land.
sought
In Bennett v. Investors Title Insurance Co., an insured under an owner's
Recent
a
policy of title insurance sought the cost of removing wall, including the
"value of the improvements thatwere required to be relocated and/or
. . ."84At the time the insured owner
destroyed due to the title defect.
not make
owner's
the
the
property,
policy of title insurance did
purchased
a
easement
the
that
encumbered
for
exception
sixty-six-foot right-of-way
property.85The insured owner built two brick walls within forty-one feet
of the centerline of a highway, which ran the course of the easement.86
Investors Title refused to pay for the removal and repair of the brick
wall, arguing that the title policy excluded consequential damages.87 A
was affirmed. The opinion relied on the sur
judgment for the insurer
if it applied, there would be no loss, direct or
vey exception. However,
consequential.88 Perhaps the court reached the right result for thewrong
reason.
appellate court denied an insured owner's claim for dam
in size of a hypothetical building due to a missed
the
reduction
ages for
a utility easement
v.
In
Rakhshani
easement.89
Chicago Title Insurance Co.,
had not been disclosed prior to the insured owner's purchase. As a factual
matter, the actual building under construction was not revised due to the
the insured owner argued that reduction
discovered easement. However,
in size would be necessary to a hypothetical building, a building thatwas
not currently on the property nor was in the process of being built.
A Minnesota
80. Id. at 799.
81. Id. at $00.
82. Id. at 696.
83. Mat698.
84. 635 S.E.2d
85. Id. at 652.
649, 653 (S.C. Ct. App.
2006).
86. Id.
87. Mat653.
88. Id.
89. Rakhshani
May 22, 2007).
v. Chi. Title
Ins. Co,
No.
A06-1206,
2007 WL
1470460
(Minn. Ct. App.
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684
TortTrial & InsurancePracticeLaw Journal, Spring 2008 (43:3)
court applied the proper formula to calculate damages
The Minnesota
under a policy of title insurance, which is the diminution in the value of
the land due to the tide defect, and found that the hypothetical building's
insured owner was limited
reduction in size was not compensable. The
to recovering the difference in the value of the land with and without
the
easement.90
The third case was Morgan v. Chicago Title Insurance Co.,91 inwhich the
insureds could introduce evidence of the
Ninth Circuit held thatHawaiian
tax consequences of a policy claim at trial.The district court refused to allow
the insured owners to introduce evidence of the tax consequences caused
by Chicago Title's alleged breach of itstitle insurance contract. The Ninth
Circuit remanded the case back to the district court on the issue ofwhether
or not the insured owners were entided to greater than nominal damages.
In accordance with the liberal standard utilized inHawaii, the district court
allowed the insured owners to present evidence of the tax consequences of
the tide insurer's breach, in addition to other items of damage.92
F. Claims Procedures
A number of cases recendy dealt with the issue of whether or not a title
insurer's claims procedures were proper, what constitutes timely notice,
when a loss under a mortgagee policy occurs, and other aspects of claims
procedures.
In BayrockMortgage Corp. v. Chicago Title Insurance Co., a title insurerwas
found to have acted properly and not in bad faith because the insurer had
the right to cure the title defect based on the policy terms, even though it
took sixmonths after the initial demand to do so.93Bayrock Mortgage Cor
poration's insured mortgage lost priority when the United States seized
When
property after the insured owner was convicted of drug trafficking.94
the insurer did not pay or clear title within sixty days, Bayrock sued the
title insurer under Georgia's bad faith statute.The insurer settled with the
States and tendered title back to the insured lender, all within six
months after the initial demand.95 The Georgia Court ofAppeals held that
Georgia's bad faith statute did not preempt the policy terms that gave the
insurer reasonable time to cure the title defect.96 Summary
judgment in
favor of the insurer on the issue of bad faithwas appropriate.97
United
90.
Id. at *4-5.
91. Nos. 05-17145,06-16176,06-16292,2007WL
92. Id.at*l-2.
93. No. A07A0429, 2007WL
94. Id. at *2-3.
1073773(9thCir.Apr. 6, 2007).
1763692 (Ga.Ct. App. June20, 2007).
95. Id. at*l.
96. Id. at *3-4.
97. Id.
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Title
Insurance
685
Law
a
Similarly, aMissouri appellate court recently held that lawsuit against
a title insurerwas premature prior to a foreclosure action thatwould have
formed the basis for the lender's damages calculations.98 In Wedgewood
v. Lincoln Land Title Company, Inc., the
Square Center Limited Partnership
owner
sued the title company under a policy of title insurance is
insured
to
it based on a $30,000 deed of trust thatwas not disclosed and/or
sued
excluded in the policy.99The trial court found that the claim was premature
because the insured had never attempted to foreclose on the mortgage,
thus making its damages undetermined, and that damages must be ascer
tainable prior to proceeding on a claim under a title insurance policy.100
However, the court left open the question of whether or not further pro
or without prejudice.101
a
ceedings should include dismissal with
In U.S. Bank v. Stewart Title Insurance Co.,102 the foreclosing lendermade
a claim after receiving a title report that indicated therewere prior unpaid
mortgages on the property at issue.103The insurer, erroneously believing
that the prior mortgage had been paid off, advised the lender to proceed
with foreclosure in response to its claim.104The court reasoned that the
title defect complained of by plaintiff arose due to the lien encumbering
the insured property prior to the date of the policy and was, thus, covered
was not able to argue that its
by that policy.105Accordingly, the title insurer
notice of the claim was untimely.106
In Chicago Title Insurance Co. v. Bologna,107 the Connecticut
Superior
Court recently held that an attorney/agent was allowed to proceed to trial
on the claim that a seller's attorney misled the agent by stating inwriting
that the seller's attorney would use sales proceeds to pay off outstanding
issue was whether or not a lawyer representing the seller in
liens. The
a real estate closing can be held liable for a tortious breach of duty to a
was also the agent for the insurer.108
The court held
buyer whose attorney
that the buyer's attorney could pursue a negligent misrepresentation claim
court was clear to note that at
against the seller's attorney.However, the
are not their clients.109
to
no
owe
who
duties
torneys usually
people
v. Lincoln
98. Wedgewood
Square Ctr. Ltd. P'ship
Ct.
(Mo.
App. 2007).
310-11.
99. Mat
100. Mat311.
101. Id. at 311-12.
see Sw. Tide
Ins. Co.
102. 832 N.Y.S.2d
103. Id. at 224.
104. Id. at 225.
Land Title
Co.,
Inc., 217 S.W.3d
For a case on calculating damages under a loan policy of tide insurance,
v.Northland
552 S.W.2d 325 (Tex. 1977).
Bldg. Corp,
223 (N.Y. App. Div. 2007).
105. Id.
106. Id.
107.No. HHDCV0308258305, 2006WL
108. Id.
308
3491260 (Conn. Super.Ct. Nov. 9, 2006).
109. M.at*8-9.
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TortTrial & InsurancePracticeLaw Journal, Spring 2008 (43:3)
686
In Albright v. Attorneys Title Insurance Fund, theU.S. District Court of
featured a rather bizarre theory involving claims of racketeering, civil
conspiracy, and alter ego.110The ninety-four plaintiffs lostmoney as a re
sult of approximately fifty-eight separate, allegedly fraudulent real estate
transactions. They alleged that closing agents at issue took proceeds from
the sale or the refinance of homes and were supposed to hold those pro
ceeds in an escrow or trust account for a period of time, accounts from
which the borrowers would receive high interest rates and could redeem
the full principal balance at any time. Although itwas found that the clos
the borrower's funds, therewas no outstanding
ing agents misappropriated
Utah
The bor
policy liability to the tide insurer associated with those funds.111
rowers sued a number of underwriters, reinsurers, and an outside law firm
engaged by the reinsurer, alleging that the title insurer and other defen
dants orchestrated a Racketeer Influenced and Corrupt Organizations Act
(RICO) conspiracy to cover up and perpetrate this fraud.112The victims
further alleged that the title insurer and its agents knew about and facili
tated the fraudulent activities of the agents at issue. However,
the court
found that there was no evidence that the tide insurer or its agents were
aware that theywere active participants in thefraud. The court
agreed that
"... the frauds inwhich plaintiffs lost theirmoney and the activities of the
defendants are unrelated."113
In an Ohio case, Anthony v. Chicago Title Insurance Co.,114 the son of the
record owner forged her name on a deed conveying tide to him. He then
closed the resale at the title company, which insured the buyer and new
lender. The mother was not the insured under a policy of title insurance,
but she made a claim against the title insurer as a third-party beneficiary
to the title insurance policy purchased
by her son. The court held that
no
to
the title insurer had
duty
plaintiff and could not have converted her
property because the title insurer never made a claim to it.115
Furthermore,
the court granted the title insurer'smotion to dismiss plaintiff's breach of
fiduciary duty claim and claim for breach of contract. The court specifi
cally held that the title insurerwas not enriched by any of plaintiff's funds
because she did not pay the title insurance premium.116
G. Arbitration
recent rulings, one
arising out of the U.S. District Court for the
Southern District ofMississippi
and one arising out of the U.S. District
Two
110. 504F. Supp. 2d 1187 (D.Utah 2007).
111. See generally id.
112. See generally id.
113. Mat
1206.
114. No.
2:06-CV-00719,
115. M.at*9-10.
116. M.at*12-13.
2007 WL
1144802
(S.D. Ohio
Apr.
16, 2007).
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Title
Insurance
687
Law
Court
for the Southern District of Indiana, support the enforceability of
arbitration clauses in title insurance policies.
InMississippi Valley Title Insurance Co. v. Lewis, the district court com
pelled arbitration of a claim under an owner's policy of title insurance.117
The court rejected the insured's argument that the arbitration agreement
was unenforceable because itwas not a
signed separate agreement.118The
insured had not objected to the arbitration provision formany years.119
The insured's failure to sign the policy did not preclude enforcement of
the arbitration clause.120 Interestingly, the title agent was also allowed to
compel the insured to arbitrate the insured's claim against the agent, not
just the insurer.121
In a case interpreting the 1992 American Land Title Association (ALTA)
policy, a federal district court recently decided that an arbitrator was prop
erly permitted to pick the venue of arbitration.122The insured on a policy
covering Indiana property filed a demand for arbitration and requested
that the arbitration occur inCalifornia.123 The American Arbitration Asso
ciation (AAA) determined that the arbitration would be conducted in Los
Angeles, California.124 AAA also advised the parties that the title insurance
arbitration rules were discontinued as of the day of the arbitration demand,
and those cases filed after that time would be decided under the Com
mercial Arbitration Rules.125 After its request for reconsideration of the
venue was denied, the insurer filed a lawsuit seeking a declaration that the
arbitration should be heard in Indiana, not California. The court disagreed
and found that the arbitrator's decision to hold the arbitration inCalifornia
was not inmanifest disregard of the law.126
Closing Protection Letter
Two notable cases construed the limited liability faced by title insurers
under insured closing protection letters. As mortgage fraud claims in
crease, so will this type of claim.
In Lawyers Title Insurance Corp. v. New Freedom Mortgage Corp.,121 the
trial court found that the title insurerwas required to indemnify the lender
under a closing protection letter for a closing inwhich the sale of a piece of
H.
117.No. 4:06CV 79LS, 2006WL 2694603 (S.D.Miss. Dec. 13,2006).
118. #.at*2.
119. #.at*2-3.
120. Id.
121. #.at*3.
122. Conestoga
WTL,
2007WL
123. Id. zt*l.
124. Id.
Title
Ins. Co.
v. Acoustic
Home
1058228 (S.D. Ind.Apr. 5, 2007).
Loans,
LLC,
No.
1:06-CV1636-RLY
125. Id.
126. Id.
127. 645 S.E.2d 536 (Ga.Ct. App. 2007).
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688
property was actually a sham transaction involving a straw purchaser and
an inflated property appraisal.128The lender argued that the insurer's clos
ing agent disregarded the lender's written closing instructions and acted
fraudulently and dishonestly in handling the lender's funds and docu
ments.129The appellate court ruled that themortgagee must prove that the
closing agent acted with the intent to deceive in order to establish liability
under the insured closing protection letter.130
The court also stated, albeit in dicta, that the lender's contributory neg
ligence was not a defense to Lawyers Title's alleged liability under the clos
The court interpreted thewords arise out of in the
ing protection letter.131
to require full indemnification for the lender in
letter
closing protection
cases inwhich the lender's
negligence may have partially caused the loss.132
court
the
However,
recognized that the title insurerwould have a defense
if the loss was caused only by the lender's negligence.133
A Florida case, Lehman Bros. Holdings, Inc. v. Hirota, recently held that
a lender pressing claims under a closing protection letter could recover
Hirota involved an alleged mort
under a contract theory but not in tort.134
gage fraud scheme inwhich the Lehman Brothers bank was induced to
fund loans based on false financial information, undisclosed second mort
gages, and overvalued appraisals.135The scheme left the bank with a num
ber of unsecured loans and millions of dollars in damages.136 Defendants,
including the title insurer,moved to dismiss the bank's fraud, negligent
misrepresentation, and negligence claims on the basis that these claims
violated the "economic loss" rule of the Florida Supreme Court's holding
in Indemnity Insurance Co. ofNorth America v. American Aviation, Inc.ul In
that case, the Florida Supreme Court clarified that itwould not recognize
tort claims when the parties had already
negotiated remedies for non
a
or
of
contract.138
Fraud
performance
misrepresentation does not give
rise to an independent tort action when a contract was in place between
the parties.139The court here also dismissed breach of fiduciary duty and
civil conspiracy claims for the same reason and allowed plaintiff's breach of
contract claim to proceed.
128. Id. at 539.
129. Id.
130. Id.
131. Id. at 541-42.
132. Id.
133. Mat
134. No.
543-44.
8:06-cv-2030-T-24MSS,
135. 7^.at*l.
136. Id.
2007 WL
1471690
(M.D.
Fla. May
21, 2007).
137. 891 So. 2d 532 (Fla. 2004).
138. Id. at*3.
139. Id.
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Title
Insurance
689
Law
I. Tort Liability
In another case, Florida's economic loss rule also prevented a tide insurer
and its agent from being liable in tort for amissed easement inChicago Title
Insurance Co. v. Commonwealth Forest Investments, Inc.m Commonwealth
Forest alleged that prior to the closing at issue, both the insurer and its
agent had a duty to conduct a reasonable tide search on the property at
issue. At the time the property was purchased, however, a utility company
held a recorded easement thatwas not disclosed on the tide commitment or
listed as an exclusion to the policy. The tide insurer and the closing agent
moved to dismiss the negligence claims because the negligence claims were
barred by the economic loss rule and because the parties were already privy
to a tide insurance contract. The court agreed with the insurer and found
that the insured could not circumvent the insurance policy's allocation of
risk by alleging a tort based upon a negligent search theory.141
III.
INSURER VERSUS AGENT
recent cases illustrate obstacles to an underwriter's recovery from its
agent under an agency agreement. In First American Title Insurance Co. v.
Lippman,142 an agent discovered a 1997 notice of a federal tax lien in his
Two
search. He decided that it did not encumber the property because itmade
no reference to the subject condominium and there was no reference to
the lien on the existing certificate of tide. Therefore, he did not secure a
release of the federal tax lien prior to closing. First American incurred a
loss and sued the agent for gross negligence. His contract limited his li
or fraud. A summary judgment
ability to claims involving gross negligence
for First American was reversed. The court held that gross negligence was
to be decided by the fact finder.
The second case, Commonwealth Land Title Insurance Co. v. Jones,m fea
tured an agent who did not except a judgment based on a borrower's unver
the loss occurred, the insurer sued the
ified oral misrepresentation. When
court
that the insurer's action concerned
held
The
attorney/agent, Jones.
the acts Jones performed as an attorney (examining and certifying tide),
not as an insurance agent; and, therefore, Louisiana's one-year statute of
limitations for legal malpractice applied and barred the action.144
Errors and omissions (E&O) coverage for title agents was discussed in
three cases. In an unpublished opinion, St. Paul Fire & Marine Insurance
140. 494 F. Supp. 2d 1332 (N.D. Fla. 2007).
141. Mat
1337.
142. 851 N.E.2d
1133 (Mass. Ct. App. Aug.
143. 948 So. 2d 1243 (La.Ct. App. 2007).
1, 2006)
(unpublished).
144. Id. at 1247.
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TortTrial & InsurancePracticeLaw Journal, Spring 2008 (43:3)
690
Co. v. Global Title Co., Inc.,145 the court found no coverage under the E&O
policy because the agent's theft of escrow funds qualified both as criminal
conduct and mishandling of funds, each of which was excluded from cov
erage. A factually similar case with the same result was Gulf Underwriters
Insurance Co. v. KSI Services, Inc.146The agency agreement in Seneca Insur
ance Co., Inc. v.
Lexington & Concord Search & Abstract, LLC147 included an
of
the
benefits of the agent's E&O
assignment
policy to the insurer.The
was
insurer
and
the
sued
the agent. Concurrently,
terminated,
agreement
theE&O carrier filed a declaratory judgment action against the agent. The
title insurer sought to intervene. The trial court denied intervention be
cause thepreloss assignment of policy
was invalid under
rights
Pennsylvania
two
were
in
law.148
issues
the
the
suits
different.
Moreover,
In Abstract & Title Guarantee Co., Inc. v. Chicago Insurance Co.,149 an em
ployee of Abstract and Title Guaranty (ATG) committed various acts of
fraud. In September of 2002, ATG firstnotified itsE&O
insurer,Chicago
Insurance Company (CIC), about "an incident(s)" recently brought to its
attention. Shortly thereafter,ATG notified CIC "that theremight be hun
dreds of claims forthcoming....
By the spring of 2003, therewere nearly
one hundred claims pending
against ATG, totaling over $15 million."150
CIC realized that the value of eventual claims against ATG was going to
exceed CIC's potential maximum liability under the E&O
policy. CIC
therefore "filed an interpleader action . . . and deposited with the court
an amount equal to its limit of coverage....
CIC advised ATG to hire
counsel of their choosing and seek payment of those legal fees out of the
interpleaded policy limits."151The court "disbursed the deposited funds to
the various claimants in accordance with a settlement agreement."152 ATG
brought the instant case against CIC, "alleging thatCIC had breached its
insurance contract by interpleading the coverage limits and by not defend
ingATG in court."153The policy provided that "CIC did not have a duty 'to
defend or to continue to defend [ATG] after the applicable limit of [CIC's]
liability [had] been exhausted by the payment of judgments, settlements,
[and] [d]amages or [c]laim [e]xpenses."'154 The court held that "[h]aving
paid its limit in claims expenses, the contract between the parties clearly
145. No.
4:05-CV-00483
GTE,
146.No. 06-1362,2007WL
147. 484 F. Supp.
148. Id. at 377.
2d 374 (E.D.
2006 WL
2947644
(E.D. Ark. Oct.
1280665 (4thCir.May 2007).
16, 2006).
Pa. 2007).
149. 489 F.3d 808 (7thCir. 2007).
150. Mat812.
151. Id.
152. Id.
153. Id.
154. Id.
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Title
Insurance
instruct[ed] that CIC was under no obligation
defend ATG."155
IV. DUTIES
691
Law
OF TITLE/ESCROW
to defend or to continue to
AGENT
The duties of title and escrow agents include handling of funds and docu
ments in escrow, recording documents, and securing lien payoffs. This
year's cases covered these topics and also dealt with subrogation issues and
the tort liability of agents.
In Fleenor v.American Title Co., Inc.,156American Tide closed amortgage
loan from Ameriquest Mortgage Company to Tyler Britt. American Title
was directed to issue checks from the loan proceeds to various creditors of
Britt. Plaintiff, Sharon Fleenor, was one of those creditors. On June 30,
2004, American Tide received a fax from Fleenor's attorney confirming that
he would prepare a satisfaction and release of judgment upon receipt of the
expected payment. The lawyer received the check fromAmerican Tide on
July 7, 2004, and deposited the check in his trust account. Either that day
or very soon thereafter,Britt and the lender rescinded the loan agreement.
Ameriquest notified theAmerican Tide closing agent to stop disbursing the
loan proceeds. The closing agent then issued a stop payment order on the
sent to Fleenor's attorney. Fleenor sued American
for breach of warranty. The trial court held in favor of the closing
agent. The appellate court agreed, affirming the trial court's holding that
the judgment debtor and themortgage company nullified the loan agree
ment thatwas to fund the check sent to Fleenor's counsel.157 Consequently,
the closing agent's obligation to fund the closing check was nullified.158
a party fails to give specific directions to the agent, courts are re
When
luctant to impose implied duties on the agent. Two cases this year involved
or contributed to
incomplete instructions or contract terms that caused
the loss.
In State Resources Corp. v. Lawyers Title Insurance Corp.,159 the borrower
lender contacted agents in both
owned property in two counties. The
counties for title commitments. The agent in the first county closed the
check that had been
Tide
loan and recorded the deed of trust.The county clerk returned the deed
of trust to the lender. The agent in the second county advised the other
agent that ithad not received the deed of trust so that it could record it.By
the time the lender discovered the oversight, the borrower had recorded
155. Id.
156.No. E2005-01029-COA-R3-CV, 2006WL 2056508 (Tenn.Ct. App. July25, 2006).
157. M.at*8-9.
158. Id.
159. 224 S.W.3d
39 (Mo. Ct. App.
2007).
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692
another lien in the second county.The lender sued both agents. On appeal,
the judgment for both agents was affirmed.160The court gave no specific
instructions to record the deed of trust in the second county.
In Land Title ofCentral Florida, LLC v. Jimenez,161 Arely Jimenez con
tracted to purchase a home with "[n]o legal description [] provided in the
contract. Land Title was employed to prepare the closing documents,
.. .
a
Unfortunately, Land Title
including warranty deed and mortgage.
a
a
a
deed
and
different
mortgage
prepared
covering
piece of property that
was also owned
the
sellers."162
later
learned that she did
[same]
Jimenez
by
not own the property she intended to buy. She "contacted Land Title and
was told that the matter would be"
quickly corrected.163 After some time,
the mistake remained uncorrected, and Jimenez sued Land Title. About
two years later,Land Title finally corrected its error. Jimenez then "discov
ered that the property she had [in fact] purchased was subject to a mineral
rights reservation."164 She sold the property during the pendency of her
suit against Land Title; and although she sold the property for a profit,
she claimed she had to reduce the price by $5,000 because of themineral
rights reservation.
Jimenez prevailed at trial against Land Title and "was awarded dam
ages in accordance with a number of her claims." Land Title appealed the
damages award, and the appellate court agreed that Jimenez was not en
titled to damages for themineral rights reservation or attorney fees.165The
mineral rights issue would have existed if the deed's legal description had
been correct.166There was no Florida statute allowing Jimenez to recover
attorney
fees.167
lien payoffs was in issue in two cases. In Fisher v. Congress
Handling
Title,168 plaintiff alleged thatwhen he sold certain New Jersey property,
defendants held approximately $56,000 in escrow to pay his creditors, who
had placed liens on the property. Plaintiff claimed that rather than pay
off these liens, defendants paid the debts of "persons of same or similar
names." Plaintiff alleged that defendants thereby violated the Fair Debt
Practices Act (FDCPA),
claiming that defendants should have
verified the judgments of similar or same names and should have provided
that verification to plaintiff. The court held that the FDCPA
does not
Collection
160. See generally id.
161. 946 So. 2d 90 (Fla. Dist. Ct. App.
162. Id.
2006).
163. Id.
164. Id.
165. Mat92.
166. Mat94.
167. Id.
168.No. 06-1607(JBS),2007WL
77333 (D.N.J.Jan.8, 2007).
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Title
Insurance
Law
693
apply to plaintiff's claims for two reasons. First, there was no allegation
that defendants were "collecting or attempting to collect" any debt as re
quired by the definitions under the FDCPA.169 The intended purpose of
the FDCPA does not concern the activity of escrow agents or title compa
nies or others whose conduct in the payment of debts might be the object
of complaints.170The court noted that Congress specifically exempted es
crow agents from the purview of the FDCPA.171 Title agents act to clear
title and only incidentally collect debts for others.
The second case was Wilcher v. Amerititle, Inc.,172where plaintiff sued
Ameritide for breach of implied contract and negligence arising from
its disclosure of allegedly confidential information. Plaintiff obtained a
line of credit from C&K Markets, Inc. to finance construction of a spec
Inc. [] to build a chimney
home. "Plaintiff hired Mark Wendt Homes,
for the home....
Plaintiff [] did not payWendt
for the work[,] ... [and]
a
amount of approxi
in
Wendt
filed
construction
lien
the
subsequently
mately $13,000.173
loan. "C&K
recorded a
Meanwhile,
plaintiff defaulted on his C&K
trustee's notice of sale of the property, based on plaintiff's failure tomake
payments on the loan and on his failure to resolve the lien" filed by
Wendt.174 Plaintiff nevertheless listed the property for sale after the filing
of C&K's notice. Plaintiff received and accepted an offer to purchase his
property that included an agreement by the buyer to pay off theWendt
lien,which was now approximately $20,000, and to pay off plaintiff's obli
gation to C&K. The buyer hired Ameritide to close the sale of plaintiff's
to settle the outstanding lien
property. The buyer negotiated withWendt
with the payment of $3,000 in cash and $9,000 of nursery stock. Amer
itide 's agent was not privy to these settlement negotiations between the
buyer andWendt and contacted each of plaintiff's creditors to determine
the exact amount necessary to release the liens against the property. She
contacted Wendt's
lawyer,who, in the course of this conversation, asked
Amerititle's agent about the sale price of plaintiff's property. Amerititle's
agent told the lawyer the sale price.Wendt decided not to go forward with
the settlement agreement because his lawyer advised him not to com
court found that
promise his lien in light of plaintiff's sale price.175The
Ameritide could not be held liable for noneconomic
damages to plain
tiff's reputation and inability to obtain credit because the cause of these
169. Id. at *2 (citing 15U.S.C.
? 1692a(6)).
170. Id. (citing15U.S.C. ? 1692(e)).
171. Id. (citing15U.S.C. ? 1692a(6)(F)).
172. 157 P.3d790(Or.Ct.App.2007).
173. Mat791.
174. Mat791-92.
175. Id.
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694
TortTrial & InsurancePracticeLaw Journal, Spring 2008 (43:3)
losses resulted from plaintiff's defaults, lien filings, and judgments entered
against him before the subject transaction even occurred.176 Second, how
ever, the court did hold that itwas reasonably foreseeable that plaintiff
would have suffered the difference between the $12,000
that plaintiff could
have insisted the buyer pay and the $20,000 that comprised the pay
construction lien at the time of Amerititle's
off amount on theWendt
employee's disclosure.177
A trio of cases featured misrepresentation
claims against an agent. Two
of them involved title reports. The third concerned a letterwritten by the
closer to counsel for the insurer.
Bucking the majority rule, an Ohio case held that a title agent could
be sued in tort formisrepresentation when the commitment did not list a
recorded
sewer
easement.178
In another case, an investor requested title information from an agent.179
It supplied only copies of themost recently recorded deed, deed of trust,
and lien assignment. He alleged that the agent's sales representative said
that titlewas "free and clear." This was disputed. The investor paid noth
ing for the copies.
After he bought the property, the investor had to pay the IRS almost
$25,000 on a predecessor's lien.He then sued the agent for negligence.
The investor could have paid for a title policy or report, the court ruled.
He made an economic decision and must accept the results.The court held
that "[the investor] by his own testimony established he had neither the
ability nor initiative to understand whatever he got from [the agent]. If he
'never read' reports, he could not rely on their contents."180
In 2920 Park Grove Joint Venture, Ltd. v. LandAmerica American Title
Company (LATC),181 plaintiffs purchased an apartment complex and were
sued by the sole beneficiary of the seller/estate who objected to the sale on
the grounds that the executor had no authority to convey the property.
Plaintiffs then brought a third-party action against LATC claiming negli
gence, misrepresentation, and promissory estoppel stemming from a let
terwritten
an
by
employee of LATC
regarding the executor's authority
to sell.
LATC was the issuing agent forChicago Title Insurance Company. The
LATC escrow employee wrote a letter to an officer of Chicago Title stat
ing that "it is the belief of the probate attorney, and the real estate attorney,
176. Mat
177. Id.
807-08.
178. McMullian
July28, 2006).
v. Borean, Nos.
07-05-40,
07-05-37,
2006 WL
2105045
(Ohio Ct. App.
179. United
States v.Mayberry, 444 F. Supp. 2d 742 (S.D. Tex. 2006).
180. Id. at 747.
181. No.
2006 WL
3038598 (Tex. Crim. App. Oct. 26, 2006).
11-05-00120-CV,
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that under the Probate Code, the Independent Executor does have power
of sale in order to settle the estate."182LATC sent a copy of this letter to the
purchasers.183 The purchasers claimed that LATC made affirmativemis
representations and/or promises to themwhen this letter communicated
that the independent executor possessed the authority to sell the apart
ments.184 The court held that this letter did not state that the executor in
fact possessed the authority to sell the apartments, but, rather, itmerely
or beliefs of two attorneys.185The court held that
conveyed the opinions
such opinions are not actionable and affirmed the trial court's granting of
LATC's motion for summary judgment.186
Escrow agents are, in general, under no duty to protect third parties.
This principle was reaffirmed this year in cases involving a negative pledge
agreement187 and a right of first refusal.188The Anthony case discussed
above also illustrated it.189
An agent's right to recover its losses was highlighted in three cases. The
first two dealt with escrow funds mistakenly disbursed.190 The third fea
tured a borrower who convinced a bank tomisdirect its lien payoff.
The third case was Chicago Title Insurance Co. v. Allfirst Bank.191Here,
Farmers Bank (Farmers) had a lien on Shanahan's property. First Equity
closed a refinance and prepared a check to Farmers for the lien payoff.
When
Shanahan delivered the check to the bank, he was allowed to de
to his account. The check was then debited against First Equity's
it
posit
account, not that of Allfirst Bank (Allfirst).When Farmers later sought
foreclosure, First Equity sued both banks.
As to Allfirst, theMaryland Court of Appeals held that the check was
en
properly payable under theUniform Commercial Code.192 It had been
dorsed by the payee, Farmers.
Farmers did not escape potential liability.There was a nexus between
First Equity and Farmers that created tort liability.193
However, this part of
the action was remanded to consider contributory negligence as a defense.
182. Id. at*l.
183. Id.
184. M.at*2.
185. Id.
186. Id.
3732995
L.P. v. First Am. Title Ins. Co., No. L-2320-05
187. Titan Mgmt,
2006, WL
(NJ Super. Ct. App. Div. Dec. 20, 2006).
188. C-S Lakeview atGwinnett, Inc. v. Simon Prop. Group,
Inc., 642 S.E.2d 393 (Ga. Ct.
App. 2007).
text.
189. See supra note 114 and accompanying
Fin. Network,
190. Doss v. Homecomings
Inc., 210 S.W.3d 706 (Tex. Crim. App.
914 A.2d 231 (Md. Ct. Spec. App. 2007).
Hill v. Cross Country Settlements, LLC,
2006);
191. 905A.2d 366 (Md. 2006).
192. Id. at 374-75.
193. Mat
396-99.
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TortTrial & InsurancePracticeLaw Journal, Spring 2008 (43:3)
696
is, the lossmight have been avoided ifFirst Equity had delivered the
check directly to Farmers.194
That
V. GOVERNMENTAL
REGULATIONS
A. Federal
County Clerks have a monopoly. You must register
with them to provide notice to third parties. How
oly extend? Four title insurers sued fiveMichigan
American Title Insurance Co. v. DeVaugh.195 Four of
real estate documents
far does thismonop
county clerks in First
the clerks prohibited
the insurers from reselling the document copies. This requirement was in
agreements that the clerks had the insurers sign.The fifth clerk refused to
sell document copies at bulk rates or provide electronic copies. Plaintiffs
asserted that the clerks' actions violated the Sherman Antitrust Act.196The
district court dismissed the complaint because it found that the state action
exemption applied.
The Sixth Circuit reversed the judgment in favor of the four clerks. The
legislation gave the clerks a monopoly on the sale of document
Michigan
or
title
information.197However,
thismonopoly does not imply a
copies
furthermonopoly on the resale of copies or title information.198The legis
lature could have granted such powers, but it did not. This monopoly was
not implied by statutes allowing clerks to use discretion in
operating their
offices.
The
judgment for the fifth clerk was affirmed. She had discretion on
how to provide copies (paper or electronic) and could strictly follow the
$1.00 per page charge imposed by the legislature for the paper copies.199
Affiliated business arrangements (ABAs) are title agencies whose owners
refer orders to them, e.g., a real estate broker who sets up an entity to close
and insure transactions he refers to it. Section 8(c) of the Real Estate Set
tlement Procedure Act200 (RESPA) and regulations adopted pursuant to it
provide a safe harbor forABAs ifcertain guidelines are met. These guide
lines were reviewed in two Ohio cases this year, Pettrey v.
Enterprise Title
v. Wells-Bow en
Inc.201
and
Carter
cases denied
Inc.202
Both
Agency,
Realty,
class status to plaintiffs.However,
thePettrey case in particular scrutinized
194. Id.
195. 480 F.3d 438 (6thCir. 2007).
196. Mat440.
197. Mat447.
198. Id.
199. Id. at 459.
200. 12U.S.C. ? 2607(b).
201.
241 F.R.D.
268 (N.D. Ohio
2006).
202. 493 F. Supp. 2d 921 (N.D. Ohio 2007).
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what an ABA must do to satisfy the safe harbor requirements and is recom
mended for review to all attorneys who advise clients on ABAs.
Closing agents may charge parties more for a service than the billed
fee by the third-party service provider. These fees are called "marked up"
fees. Three opinions ruled on claims thatmarked up fees violated ? 8(b)
of RESPA as split or unearned fees. Two opinions held for defendants and
one for plaintiffs.203The California and Ohio cases both have scholarly
reviews of the two lines of theU.S. circuit court cases on this issue.
B. State
There was only one case this year defining when closing serves as the prac
tice of law. The South Carolina Supreme Court was asked if the lender
a law firm closed a
engaged in the unauthorized practice of law when
court held that dis
disburse
funds.204
The
transaction but let the lender
bursement of residential loan proceeds is the practice of law.205
Thus, like
or
must
be handled by
supervised by a South
examining and closing, it
Carolina attorney.
VI. MISCELLANEOUS
A. Recording Acts
There were two cases concerning novel issues under real property record
ing
statutes.
An Illinois bankruptcy case206 dealt with a mortgage that was recorded
twice. The borrower paid the firstnote, and a release was executed and
recorded. He borrowed money from the same lender, who recorded the
mortgage again. (The opinion does not explain why a new lien was not
secured.) The borrower subsequently filed a Chapter 7 bankruptcy action,
and his trustee sought to cancel the claimed lien.The court held for lien
holder. The mortgage met all the requirements of Illinois law and properly
on notice of this lien.207
the court could
Moreover,
placed all third parties
find no law to the contrary.208
The second case was from California.209 Here, an adult son became con
servator for his fatherwhen the lattermoved into a convalescent care facility
v.
v.Wash. Mut,
203. McKell
Inc., 49 Cal Rptr. 3d 227 (Cal. Ct. App. 2006); Morrison
Ohio
2006
2850522
WL
No.
Brookstone Mortgage
29,
2:03-CV-729,
(S.D.
Inc.,
Sept.
Co,
2506460
2006 WL
Ins. Co,
05-VC-474-DRH,
(S.D. 111.
2006); Fiore v. First Am. Title
Aug. 28, 2006).
636 S.E.2d 866 (S.C. 2006).
204. Doe Law Firm v. Richardson,
205. Id. at 868.
111.Aug.
2458817 (Bankr. CD.
206. In re John D. Good, No. 06-7047, 2006 WL
207. ?/.at*2.
208. Id.
2007 WL
1454785 (Cal. Ct. App. May
209. Cook v. Equimax, Inc., No. E038888,
23, 2006).
18, 2007).
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in 2002. In 2003, the father signed documents to sell his house to a third
an employee of the facility alerted the son to his father's ac
party.When
tions, the son had his attorney record a notice of the conservatorship in the
real property records. Unfortunately, the county clerk indexed the docu
ment under "[Father's name] estate." The son then sued the buyer and the
buyer's lender to set aside the deed and new mortgage. He also sued the
escrow agent for negligence.
The appellate court affirmed the judgment for defendants. The notice
was filed after the transaction started and was improperly indexed.210The
notice should have been indexed simply against the father's name.211 In ad
dition, the escrow agent had no duty to the son; he was not a party to the
escrow.212
B. Bankruptcy
effect of a bankruptcy filing upon an erroneous release of lien was
explored inWashington Mutual Home Loans, Inc. v. DeMello.213
The debtor was having financial trouble and trying to refinance his first
lienwithWashington Mutual. Suddenly, he received a letter showing that
MERS
(the national mortgage registry) had released the lien and sent him
a refund check for $591.22. The error was caused
by a tide company pay
was
customer's
another
the
but
credited to the debt
loan,
payment
ing
or's account. Washington Mutual
took a few weeks to discover the error.
the debtor filed a Chapter 7 bankruptcy action.
Meanwhile,
After the bankruptcy was completed, Washington Mutual filed a state
court action to reinstate the lien. The court held for the lienholder. The
mortgage was reinstated, but not the borrower's personal liability.214
notWashington Mutual.215
The error was made byMERS,
In In re Livingston, a tide agent missed a second lien on two properties
sold by Livingston.216 The agent secured a state court fraud judgment for
The
$168,045.84. Livingston filed forChapter 7 protection. The tide company
an
brought
adversary proceeding to determine whether or not its judgment
was
dischargeable. The court held that the judgment was nondischargeable.
Funds escrowed by the developer to cover costs of off-site water and
sewer facilities were not part of the debtor's
Chapter 11 estate.217A similar
case from 2004 gives directions on how to draft this type of
agreement.218
210.
211.
212.
Id. 2t*5-6.
Id.
Id. at *7-8.
214.
Id. at*5-6.
Id.
213.No. 290843, 2006WL
1875471 (Mass.Land Ct. July7, 2006).
215.
216. No.
217.
1237820 (Bankr. E.D. Mich. Apr. 27, 2007).
06-4481, 2007 WL
In re Atl. Gulf Cmty. Corp, No.
2007 WL
1519837
01-01594,
(Bankr. D.
May 22, 2007).
218.
In reHeartland
Steel, Inc., 389 F.3d 741 (7th Cir. 2004).
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C. Unfair Competition
Rules regulating conduct among competition in the title industrywere re
viewed in First California Title Co. v. Financial Title Co.219 Employees of
First California left their jobs towork at Financial. Departing employees in
some cases violated rules concerning soliciting fellow employees while still
working for the old employer and misappropriation of confidential infor
mation. First California secured a preliminary injunction against Financial
to stop these activities. The injunction was upheld on appeal. The opinion
should be read by counsel who represent title companies on employment
and competition issues.
In Chicago Title Insurance Corp. v.Magnuson220 Magnuson
and his part
ners sold an Ohio
in 1991. He
title agency to Chicago Title (CTIC)
an agreement that prohibited him from competing with CTIC
signed
left a sister company of CTIC
for five years after he left it.Magnuson
sued
in 2002 and immediately went to work for First American. CTIC
court
in
million
First
American.
The
trial
awarded
and
$10.8
Magnuson
in
The
Sixth
Circuit
and
$32.4
compensatory damages
punitive damages.
reversed the damage awards and remanded the case. The trial court was
directed to consider the covenant as enforceable for at least two years, to
acted to mitigate damages,
consider evidence on whether or not CTIC
and to not award punitive damages.221 In particular, the trial court was to
consider whether CTIC
could have handled additional title orders after
Magnuson
breached
the covenant.222
D.
Employment Law
Closers inNew York and Texas were held to be not exempt from the Fair
Labor Standards Act.223Time and a half after fortyhours applies to them.
In a third case, a federal district court in Colorado refused to consolidate
on this issue.224
eighteen cases against Land America
219. No. BC 327332,2006WL 2621066 (Cal.Ct. App. Sept. 12,2006).
220. 487 F.3d 985 (6thCir. 2007).
221. Mat992-93.
222. Id.
2577829
03 Civ. 5580, 2006 WL
223. Relyea v. Carman, Calhan, & Ingham, LLP, No.
v.
Co.
of
Tide
Am, Inc., 484 F. Supp. 2d 589
6,
2006);
(E.D.N.Y.
Equity
Sept.
Gallegos
(WD. Tex. 2007).
2006 WL
224. Archer v. LandAm.
Fin. Group,
Inc., No.
05-CV-02661-MSK-MJW,
2475278 (D. Colo. Aug. 25, 2006).
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