by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
randolphp@umkc.edu

TITLE INSURANCE; ABSTRACTOR'S LIABILITY: A restriction on use of property requiring a permit from the state to build on a former railroad right of way is not covered under title insurance policy and therefore no claim exists for breach of contract, but there may be liability for negligence in failing to disclose the fact of railroad useage.

Somerset Savings Bank v. Chicago Title Insurance Company, 649 N.E.2d 1123 (Mass. 1995).

The plaintiff brought suit against his title insurer after the Attorney General of Massachusetts ordered a halt to the construction on his property because the Executive Office of Transportation and Construction had not consented to the issuance of a building permit as required by G.L.c.40 54A (1992) for properties that had been used as a railroad right of way or were appurtenant to such a right of way. All or part of the plaintiff's property was located on land owned by the Boston & Maine Railroad in 1926. This information was apparent on the record at the registry of deeds, but of course the record did not reveal whether the property actually had been used as a railroad right of way or was appurtenant to a right of way.

The policy in fact had been issued by a law firm that had given an independent title opinion. The policy insured a $9.5 million construction loan mortgage.

Held: Title company has no liability on the policy, but may have some liability in connection with the title report process if it held itself out as providing full information regarding restrictions affecting title.

The court noted first that a title insurance policy provides protection only against defects in or liens or encumbrances on title. This does not include protection for governmentally imposed impediments on the use of the land or for impairments in the value of the land. The title insurance policy here contained express exclusions from coverage for governmental and police power, including any law, ordinance or governmental regulation restricting, regulating or prohibiting the use or enjoyment of land. The court stated that it is well established that building or zoning laws are not encumbrances or defects affecting title to property. Although a statute such as that in question may affect the value of property and the marketability of the parcel, but it has no bearing on the title to the property.

Furthermore, the court held that summary judgment was appropriately granted for the defendant title insurer on the plaintiff's claim that the defendant failed to examine, review and analyze the title to the premises and to notify the plaintiff to any facts regarding title. The court found that the defendant was not employed to examine the title. Rather the plaintiff purchased the policy to ensure against existing defects and encumbrances on the title. As the statutory restriction did not constitute an existing defect or encumbrance on the title summary judgment was appropriately granted for the defendant on this count.

The court concluded that the granting of summary judgment was not appropriate on the claim that the defendant had a duty to disclose the prior use of the property as a railroad right of way or the applicability of the statute, because there was a factual dispute whether the defendant voluntarily assumed a duty to inform the plaintiff of these matters. As a general rule, the court declines to impose such a duty. However, if the title insurance company agrees to conduct a search and to provide the insured with an abstract of title, it may expose itself to liability for negligence as a title searcher in addition to any liability under the policy. Furthermore, the court concluded that a claim based on a breach of duty to exercise due care in notifying an insured of matters discovered in a title search voluntarily assumed outside the policy is not barred by an integration clause. The court remanded the negligence claim.

Comment: Note that the court makes almost nothing of the distinction between the attorney's functions and that of the title company. Note also that the court's ruling that the title company had not been employed to examine title is undercut by its subsequent ruling that, in the course of its employment regarding title insurance, the company may have undertaken a duty to go beyond its simple insurance function. This ruling is more consistent with other states that have concluded that modern title insurers in fact play a role in real estate transactions that goes beyond that established by their contract. Like the Massachusetts court, other courts have been reluctant to permit the insurer to "dodge" claims based upon marketplace reliance on their title examination function, particularly when the title companies in fact are aware of and even encourage such reliance. See, e.g.: Breck v. Moore, 910 P.2d 599 (Alaska 1996) (DD 7/26/96) (imposing duty on insurer to explain content and significance of record restrictions that it reports); Sears Mortgage Corp. v. Rose, 634 A2d 74 (N.J. 1993) (Title insurer has good faith duty to provide to the insured the services the insured would reasonably expect or to communicate clearly that it is not providing such service.).

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