Daily Development for Thursday, September 24, 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

ATTORNEY/CLIENT; MALPRACTICE; TITLE EXAMINATION: Attorney retained to examine title is not liable for negligence of independent contract title abstractor - title examination duty is not nondelegable.

Lawyer's Title Ins. v. Groff , 2002 WL 31055846 (N.H. 9/17/02)

Title company retained a lawyer to do title examinations and issue title policies on a regular basis "in a timely, prudent and ethical manner in accordance with the . . . instructions of [the title company.]" The contract provided that no 'right, interest or duty . . . is delegable by either party hereto without the prior written consent of the other." The contract further provided that the attorney could not issue an title insurance commitment or policy based upon the abstract report of another unless that other was approved in advance by the title insurance company."

The attorney retained an abstractor, an independent contractor, to review title in the instant matter, and the abstractor negligently failed to note a property recorded construction loan mortgage. The attorney issued a title insurance policy. Ultimately, the insured mortgage went into default.

The title insurer was forced to take an assignment of the insured mortgage and, after recovering what it could from the original obligor (seller in the insured transaction), the title insurer suffered a loss of $72,000, which it tried to recover from the attorney through a direct suit for malpractice and on the contract and through assignment of the mortgagee's rights against the attorney.

The court ruled that against the title insurer on the claim that the insurer had breached the contract by using an unapproved contractor, and there was no appeal of that ruling. Consequently, for purposes of this appeal, the court does not take into account any argument that the title insurer had not approved the abstractor in advance.

The title insurer nevertheless argued that the attorney was liable for the negligence of the abstractor because, both under the contract and under the common law, the attorney's duty was nondelegable. The court notes that with respect to "nondelegable duties," the common law provides an exception to the usual rule that one is not liable for the negligence of an independent contractor that one has retained.

As to the notion that the duty to carefully examine the title was nondelegable under the contract, the court noted that the contract appeared to contemplate expressly that the attorney would use abstractors, since it stated that the attorney could not rely upon an abstractor's reports unless the abstractor had been approved. The court concluded that the contractual intent was that the duty to prepare an abstract could be delegated to an approved abstractor.

A more difficult issue arose, however, with regard to the title insurer's assertion of the insured lender's claim, which the insurer had obtained by assignment. Here, of course, there was no contract addressing delegation. The insurer argued that the professional duties of the attorney in examining title included the function of abstracting title, and that therefore the attorney was vicariously liable for the abstractor's negligent performance of this "nondelegable duty."

Although this was a question of first impression in New Hampshire (and, based upon the paucity of authorities cited by the court - a rare issue nationwide), the court concluded that an attorney conducted a title examination does not have a nondelegable abstractor's duty and therefore is not vicariously liable for negligence committed by an independent abstractor so long as the attorney meets the standard of care in selecting and supervising the abstractor and in analyzing the report.

The court noted that there are a number of cases in other jurisdictions that have found certain attorney's duties to be nondelegable, including service of process, management of a client's trust fund, and verification of a pleading. But it stated that the question of whether a duty is nondelegable has "no defined criteria . . . ultimately the decision to categorize a duty as nondelegable rests upon policy considerations. It found one New Jersey case that had not imposed liability where an attorney relied upon an erroneous title report.

As a matter of policy in New Hampshire, the court concluded the abstractor's function in examination of title ought not be be nondelegable. The work does not require legal education, and the demand for such services at costs lower than an attorney would charge is "client driven." The attorney still has extensive responsibilities, but the tradition of use of independent contractors to do the actual abstract is well established, and the court was reluctant to "open up an unrealistic and undue liability channel not only with respect to the relationship of attorneys to title abstractors but to many other relationships . . ."

Comment: The real problem here appears to be that apparently the abstractor's own errors and omissions insurance policy was inadequate. Either the marketplace or state regulation ought to prevent that from happening. We have no information as to why this breakdown happened in this case, or whether it is likely to happen again in New Hampshire.

DIRT would like to know if abstractors are adequately insured in other jurisdictions. What's the report?

In the alternative, is it possible that there would be a privity issue here?? Nawww.

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

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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