The Indiana Supreme Court recently held that a title agent not in privity of contract with the insured can be liable to a non-insured on a title insurance commitment.
Texcorp, predecessor-in-interest to U.S. Bank, contracted with the title agent, Integrity Land Title, to perform a title search and issue a commitment and policy in the amount of $123,090.00 in early 2006. The search did not disclose a judgment lien against the seller from 1998. The title agent’s principal, Southern National Title Insurance Corporation, issued a loan policy to Texcorp. The judgment lien holder filed suit to foreclose its lien in August 2006. U.S. Bank filed a third party claim against Integrity and Southern alleging negligent misrepresentation. The judgment lien holder was adjudged the first and best lien. Southern later went insolvent leaving the title agent to defend against the bank. The title agent countered that it had no contractual privity with the bank under the policy. The lower courts granted summary judgment in favor of the title agent on the privity grounds. The bank appealed.
The Indiana Supreme Court reasoned that the title agent had a duty to communicate the state of title accurately when issuing its preliminary commitment because the bank was in the foreseeable class of persons that would be affected by the information and would rely upon its contents. Where the advisor – in this case, a title agent – has superior knowledge and expertise, was in the business of supplying title information, and was compensated for the information it provided to the advisee, there will be liability.
Title agents in Indiana may be liable for the contents of their title commitments to anyone who might reasonably or justifiably rely upon the information therein contained where there is no privity of contract with the party relying upon the information. While likely limited to the facts of this case, you should be aware that anyone who obtains a title insurance commitment in connection with a transaction, whether refinance or purchase, is likely in position to bring such a claim. It is more probable than not, though, that the reach of this case is going to be narrowly construed. For instance, any person in privity could not bring the claim. They would have to pursue their contract remedies through the title insurance policy. Further, any person who does not have contractual privity would need to prove that they could reasonably have relied upon the information in the commitment. This class of persons is probably a narrow group. However, it’s a group you need to be aware of.
It is unclear whether there was any institutional reason for why the title agent missed the foreclosure judgment lien. The lien was within ten years. The search should have disclosed the existence of the lien. Further, there’s no information whether there was an errors and omissions policy from the examiner that did the search. If so, the agent could have avoided liability.
The other limiting fact is the insolvency of the title insurance company. Clearly, this was a claim that went wrong. The title insurance company, Southern, went insolvent and did not pay the claim leaving the title insurance agent “holding the bag.” This factor probably weighed into the Court stretching the economic loss rule to create a remedy for the bank.
What about other states?
The same arguments used in the Integrity Land Title case were raised in a similar case in Ohio. Fortunately for title agents in general, the Court did not adopt the argument used by the Indiana Supreme Court to support their opinion. This remains good law in Ohio. As a cautionary measure, title agents in any state should be aware of the changing tides on this issue.
Charles W. Proctor, III ,President NAILTA