Daily Development for
By: Patrick A.
Randolph, Jr.
Elmer F. Pierson Professor of
Of Counsel: Blackwell Sanders Peper Martin
Kansas City,
prandolph@cctr.umkc.edu
TITLE INSURANCE; DUTY TO DEFEND: Title company
has no responsibility to provide legal support for insured's efforts to title
defects when defects are not the basis of a third party adverse claim.
Schwartz v. Stewart Title Guaranty Co. 711 N.E. 2d 1159 (
Schwartz purchased an unfinished condominium. His purchase
was insured by Stewart Title on a standard form policy. When the roof began to
leak and the garage and pool were not rehabilitated as promised, Schwartz filed
suit and gave notice of the suit to Stewart Title, claiming a title defect. The
defect claimed was that although the record owner of the Condominiums was
Murray Hill Company, an
Schwartz apparently was concerned that he lacked marketable
title because of these defects and further that the defect in the
identification of the record owner might interfere with his efforts to
prosecute a lawsuit against the developer for the construction defects.
Stewart denied coverage, but proceeded to contact the
Condominium Association and provided documentation that made it possible to
resolve the ownership defect.
Schwartz prosecuted the case against the developer to
conclusion, including the title matters as part of a broader series of claims
against the developer for construction defects.
The trial court in this case (Schwartz I) adopted a referee's report that found significant
damages relating to building defects, and did acknowledge that there were
problems with the title. With respect to
the overlap, the trial court found that it was a problem readily cured by
consent of the other members, but that, if no such consent was forthcoming, the
court ordered damages for the cost of reconfiguring the furnace room to conform
to the description of the common area.
Subsequently, while the trial court decision was on appeal,
Schwartz settled with the developers for a substantial amount. As part of the settlement, the documents
prepared by Stewart Title were adopted, resolving one title issue. Further, although this is less clear, it
appears that the other owners consented to modify the documents to resolve the
furnace room encroachment as well.
Schwartz then sued Stewart for the attorney's fees involved
in resolving the title defects. Stewart
defended on the grounds that it had been responsible only to defend third-party
adverse claims against the insured, and no such claim had been made. The trial
court in this case entered summary judgment for Stewart, and Schwartz appealed.
The appeals court found that "It is undisputed that
Schwartz' fees were incurred to prosecute a case, not to defend one; that
Schwartz, not Stewart Title, selected the attorney who prosecuted Schwartz I.
We find the plain and unambiguous language of the Policy herein excludes
Schwartz' claims, and the trial court did not err in
granting summary judgment for Stewart Title on Schwartz' claims."(emphasis added)
Schwartz also argued that Stewart had a duty to cure the
title defects that he alleged in Schwartz I. The court found no such duty. The
court noted that the policy provides a duty to defend an adverse claim, but
there is no duty to cure a problem that has not been the basis for any third
party challenge to title.
Comment 1: Although this is a 1999 case, the editor saw it
in a recent report in LandSakes, the First American
title insurance newsletter, and, since it seemed to be just circulating in title
insurance circles, felt it worth reporting here as well. (The report is a
heavily modified version of that item in LandSakes,
which was written by Keith Pearson.) The
editor searched Palomar on Title Insurance, a leading
treatise in the area, and was unable to find quickly any discussion of this
issue. Consequently, it seems to be a
matter that hasn't been litigated much.
Comment 2: Further, although the
court's interpretation of the policy language seems to be unassailable, the
editor notes that many insured unschooled in the fine points of the policy,
might believe that if they identify a otherwise insured title defect that might
cause difficulty in the future, they would be entitled to call upon the insurer
to pay the costs of clearing it.
Comment 3: Where
parties are aware of the problem, it may be that it can be avoided by raising
the issue to the point that a dispute and contrary claims by third parties
actually do arise. As the old joke goes:
"We can't cure your cold - but if you go out and make
it worse, and catch pneumonia - that we can cure."
Comment 4: In the editor's experience, one of the many good things about title insurance companies in the past has been that they will work with their insureds and go beyond the limits of policy coverage to resolve problems. Stewart in fact appeared to have done that in this case. One of the problems with this approach, however, is that the community of insureds tends to overestimate the degree to which it can demand services that are not provided voluntarily.
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
Items reported here and in the
Parties posting messages to DIRT are posting
to a source that is readily accessible by members of the general public, and
should take that fact into account in evaluating confidentiality issues.
ABOUT DIRT:
DIRT is an Internet discussion group for
serious real estate professionals. Message volume varies, but commonly runs 5 ‑
10 messages per workday.
Daily Developments are posted every workday.
To subscribe to Dirt, send an e-mail to:
|
To: |
ListServ@listserv.umkc.edu |
|
Subject: |
[Does not matter] |
|
Text in body of message |
Subscribe Dirt [your name] |
To cancel your subscription to Dirt, send an
e-mail to:
|
To: |
ListServ@listserv.umkc.edu |
|
Subject: |
[Does not matter] |
|
Text in body of message |
Signoff Dirt |
For information on other commands, send the
message Help to the listserv address.
DIRT has an alternate, more extensive
coverage that includes not only commercial and general real estate matters but
also focuses specifically upon residential real estate matters. Because real
estate brokers generally find this service more valuable, it is named "Brokerdirt." But residential specialist attorneys,
title insurers, lenders and others interested in the residential market will
want to subscribe to this alternative list. If you subscribe to Brokerdirt, it is not necessary also to subscribe to DIRT,
as Brokerdirt carries all DIRT traffic in addition to
the residential discussions.
To subscribe to Brokerdirt,
send an e-mail to:
|
To: |
ListServ@listserv.umkc.edu |
|
Subject: |
[Does not matter] |
|
Text in body of message |
Subscribe Brokerdirt
[your name] |
To cancel your subscription to Brokerdirt, send an e-mail to:
|
To: |
ListServ@listserv.umkc.edu |
|
Subject: |
[Does not matter] |
|
Text in body of message |
Signoff Brokerdirt |
DIRT is a service of the American Bar Association
Section on Real Property, Probate & Trust Law and the
DIRT has a WebPage
at: http://www.umkc.edu/dirt/