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 Accessed: 23-12-2015 01:26 UTC Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at http://www.jstor.org/page/ info/about/policies/terms.jsp JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. American Bar Association is collaborating with JSTOR to digitize, preserve and extend access to Tort Trial & Insurance Practice Law Journal. http://www.jstor.org This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions 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 This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions 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. This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions 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). This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions 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. This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions 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). This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions 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. This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions 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. This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions 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. This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions Title Insurance 681 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. This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions 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). This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions Title Insurance 683 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. This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions 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. This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions 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. This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions 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). This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions 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). This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions TortTrial & InsurancePracticeLaw Journal, Spring 2008 (43:3) 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. This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions 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. This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions 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. This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions 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). This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions TortTrial & InsurancePracticeLaw Journal, Spring 2008 (43:3) 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). This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions 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. This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions 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, This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions Title Insurance 695 Law 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. This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions 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). This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions Title Insurance 697 Law 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). This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions TortTrial & InsurancePracticeLaw Journal, Spring 2008 (43:3) 698 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). This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions Del. Title Insurance Law 699 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). This content downloaded from 165.123.34.86 on Wed, 23 Dec 2015 01:26:57 UTC All use subject to JSTOR Terms and Conditions