Daily Development for Tuesday, March 5, 2002

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

TITLE INSURANCE; NEGLIGENCE; DAMAGES; LOST SALE: Landowner can sue title company for negligent interference with contract expectation if insurer negligently refuses to insure access right that landowner has contracted to sell and buyer consequently withdraws from contract.

Brackman v. Southern Tier Abst. Corp., 734 N.Y.S.2d 282, 2001 N.Y. Slip Op. 09768, 2001 WL 1551976 (A.D. 3 Dept.).

An owner claimed he lost a buyer for his property because a title agent wrongly declared the property did not have access to a nearby lake.

Seller had received an oral offer for his land, the agreement was never put in writing because one of the buyer's conditions for the purchase was evidence that the lot included a right of access onto a nearby lake. Southern Tier Abstract prepared a title commitment that apparently did not insure the access right. The buyer backed out, and Brackman sued Southern Tier for $3,000 as damages for loss of his sale

The insurer had argued that it had no contract with the seller. But evidence at trial indicated that a single lawyer had represented both buyer and seller, and that lawyer had contracted for the title insurance without otherwise indicating who the "client" would be. Consequently, the court concluded that privity of contract did exist.

The lower courts had ruled that there was no liability in any event because there had never been a contract of sale. They opined that, without a contract for sale, Brackman could not prove that he had lost anything.

On this appeal, the court said that the issue of the lack of a binding sale contract "misses the mark." Rather, it said, if Southern Tier was negligent, it could be sued. However, only Brackman testified at trial. He offered no proof that his property really had insurable lake access. Therefore, the court affirmed the judgment in favor of Southern Tier.

Reporter's Comment: One might say that the appellate division also missed the mark in holding that a title agent can be "negligent" by not committing to insure a right of lake access, and suggesting that damages for such "negligence" can be measured as lost profit on a sale.

Editor's Comment: If, indeed, the title insurer had been retained to do a professional evaluation of the state of title to the lake access, and negligently failed to do that, leading to damages, then the editor concludes that the insurer ought to be liable.

The tricky question is, of course, whether the insurer really could be retained for any purpose other than to commit to insurance. Insurers are always intent on limiting their liability to that set forth on the policy of insurance, and argue that everything else they do is mere preface, and not actionable. Not all courts agree. Some conclude that title insurers are well aware that parties rely upon them and upon the accuracy of their conclusions respecting title in a number of ways, and that when a party with special expertise knows that others in a business relationship are relying upon the accuracy of its work, it has a duty of care.

The insurer clearly was free to refuse to insure. But if, in refusing to insure, it indicated that its decision was based upon uncertainty as to lack of access, then the court here is suggesting that such representation should have been based upon reasonably careful inquiry. Unlike the Reporter, the Editor is not troubled by such a conclusion in a case like this.

(The Reporter for this item was Bush Neilsen, in the Title Insurance Newsletter.)

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

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