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

TITLE INSURANCE; DUTY TO INSURE: Title insurer has no particular duty to issue insurance when requested, and, if it chooses, may refuse to insure tax title without a quiet title action.

Quelimane Company, Inc. v. Stewart Title Guaranty Co., 54 Cal. Rptr. 2d 364 (Cal. App. 1996)

Title insurer, like others in the county, had a policy of refusing to insure title to property acquired at tax foreclosure sales unless the insurance applicant agreed to a quiet title action. Plaintiff, who had acquired title to property at such a sale, contracted to resell the property to certain buyers, and was unable to provide title insurance without the time and cost of the quiet title action. Plaintiff then brought an action against title insurer, alleging tortious interference with contract relations with the proposed buyers, statutory unfair business practice, and negligence.

The court of appeals affirmed the trial court's dismissal of all three claims, basically concluding that title insurers have no duty to agree to issue title on any particular parcel of land.

The plaintiff had alleged that the duty arose out of the insurer's concerted advertising efforts to convince the public that title insurance was a vital part of any land acquisition. Because of this marketing, the plaintiff alleged, the insurers had a duty to behave reasonably in determining whether to insure title when asked. Further, the plaintiff alleged that the insurance companies had conspired in restraint of trade to agree among themselves not to insure tax titles.

The court really deals very little with the notion that concerted marketing activities making title insurance vital to every land transaction imposes a duty on an insurer to make reasonable decisions concerning title policy issuance. This argument appears to have been made primarily in connection with the statutory claim for unfair business practices, and the court holds simply that the statute does not apply to insurance. The court's basis for finding no duty is predicated on earlier California cases and treatises and its apparent conclusion that title insurers are free actors in the marketplace.

As to the conspiracy in restraint of trade allegations, the court holds that a statutory restraint of trade claim cannot be made out because the statutes authorizing regulation of title insurance by the State Insurance Commissioner preclude application of other statutory requirements, even though the Insurance Commissioner does not regulate the practices in question, but pays attention only to pricing.

The court further held that a common law conspiracy to restrain trade did not exist because, again, the refusal to issue title insurance is not illegal. A common law conspiracy must relate to an illegal act, and the alleged conspiracy in this case did not do so.

Comment 1: Some of the court's opinion is unpublished, so we don't know if that part of the opinion dealt at greater length with justification for its conclusion that the insurer's marketing programs imposed no special duty to make its policies available. If this argument were properly raised, the editor would expect some California courts of appeal to give it more credence than this one did.

Comment 2: Notwithstanding the above comment, the editor would not then conclude that there is any particular duty to issue title insurance of a tax title without a quiet title action. A tax foreclosure sale constitutes a "government action" taking, and consequently requires application of Due Process Clause procedural safeguards. Local tax collectors are notoriously lax in complying with such requirements, and in any event there is some vagueness about just how far those requirements extend in particular cases. The consequence of an unconstitutional tax foreclosure is that the tax title is completely void, and cannot be salvaged. This certainly presents special threats to a title insurer.

The fact that title insurers in some areas might be willing to insure tax titles indicates simply that they are willing to take a risk because of what they know about practices of local officials. But where title insurers lack confidence that tax officials can or will meet Due Process guidelines, the risk is great, and caution in insuring is understandable.

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