In the recently decided matter of Mansur Properties, LLC v. First American Title Insurance Company, 2022 US Dist. LEXIS 190201 (WD Wash Oct. 18, 2022), Plaintiff Mansur Properties, LLC (“Plaintiff”), purchased a parcel of land in Vancouver, Washington, with the intention of converting the land into a used car lot. Plaintiff obtained a title insurance policy from Defendant First American Title Insurance Company (“First American”). Post-closing, Plaintiff learned that a third-party neighbor (“the neighbor”) owned sections of the parcel that Plaintiff had intended to use for vehicle storage.

In January 2021, Plaintiff submitted a claim to First American under its title insurance policy, alleging First American had erred in its chain of title review by failing to discover a 1965 statutory warranty deed transferring a portion of the Property to the neighbor. Plaintiff sought $105,000 dollars for alleged “loss of value” and “loss of functionality” in the property, calculating this amount based upon an opinion it had allegedly received from a real estate broker.

In March 2021, First American accepted coverage, denied Plaintiff’s “settlement offer,” and retained counsel to negotiate with the neighbor on Plaintiff’s behalf, in an attempt to resolve the deed issue. In April 2021, the retained counsel personally met with Plaintiff’s member-manager and spent months thereafter attempting to negotiate a resolution with the neighbor. After settlement attempts ultimately proved fruitless, in January 2022, First American retained an appraiser to examine the property and calculate its diminution in value, with the appraiser issuing an expert report valuing the loss at $23,700 dollars. In March 2022, First American issued Plaintiff a check for this value.

Despite receiving this payment, in June 2021 Plaintiff filed suit, alleging First American had negligently reviewed the chain of title, breached its contractual duty to provide Plaintiff an accurate pre-purchase description of the property, and further breached its contract by “unreasonably delaying and failing to otherwise settle the matter.” First American ultimately moved for summary judgment as to all claims. The United States District Court for the Western District of Washington (“the Court”) granted First American’s requested relief and dismissed Plaintiff’s Complaint in its entirety.

Title Insurance is Contractual and a Negligence Claim is Generally Not Sustainable

The Court first disposed of Plaintiff’s negligence claim, holding the claim failed as an “insured cannot simply rely on duties created by its insurance contract to establish a duty for purposes of a tort claim.” As Plaintiff could not establish that First American possessed a non-contractual duty to search for and disclose potential title defects, it could not assert this claim.

The Court also distinguished between a preliminary report or “commitment” furnished during an application for title insurance–which was done here, and which is not considered a representation as to title condition–and the preparation of an “abstract of title,” which is intended to be a representation of title condition and thus necessarily intended to be relied upon. Consistent with these definitions, title insurers will only be considered to have a general extra-contractual duty to disclose potential or known title defects when they are preparing or have prepared an abstract of title, which First American was not doing in the instant matter.

Title Insurance is a Contract of Indemnity, not a Guarantee of Title

The Court next dispensed with Plaintiff’s breach of contract claims, beginning with the contention that First American’s alleged “failure to provide a reasonably accurate title assessment” constituted breach. The Court noted that as a title insurer, First American’s obligation was to indemnify Plaintiff against defects, not guarantee clear title to the property. As the terms of the parties’ contract failed to include any provision guaranteeing the existence of clear title, Plaintiff’s claim failed, as title insurance companies have “no general duty to disclose potential or known title defects when they are not preparing an abstract of title.”

As to Plaintiff’s contention that First American was in breach for having failed to settle, the Court identified that the terms of the contract imposed no requirement that First American settle the dispute with the neighbor, instead granting First American the option to either: (1) settle the matter; or (2) pay Plaintiff the fair value of his claim. Thus, while Plaintiff “might have preferred to settle” with the neighbor, “First American was not obligated to do so,” nor was there “any evidence that the other property owner was willing to settle,” and there could accordingly be no breach.

As to the assertion that First American had “unreasonably delayed” resolving Plaintiff’s claim, the Court observed that the parties’ contract had no terms imposing time constraints on claim resolution. The Court observed that where a title insurance contract imposes a time obligation but fails to define the terminology used, the provision will be interpreted as carrying a “reasonable time for performance of [the] obligation,” to be determined by reference to the nature of the contract, positions and intent of the parties, and circumstances of performance. In this matter, even had the contract contained an ambiguous time provision, as First American had accepted the claim within two months of receiving it, promptly retained an attorney for Plaintiff, spent months negotiating in an attempt to obtain Plaintiff’s preferred resolution, and promptly paid out the claim, no unreasonable delay could have been found.

Finally, as to breach for having failed to pay Plaintiff’s proposed settlement figure, while it was agreed that the policy allowed for Plaintiff to recover the diminution in property value caused by the title defect, Plaintiff had failed to put forth any evidence contradicting First American’s expert appraisal report. As the burden of establishing damages was Plaintiff’s to bear, Plaintiff’s failure to offer any admissible evidence establishing its damages or any opposing expert report doomed its claim, as Plaintiff could not “carry its burden to show that First American paid less than what was owed under the Policy.”

Take-aways

This opinion reiterates certain important principles of title insurance. First, it confirms that title insurance is not a guaranty of title. Second, prompt investigation and response to claims serves underwriters well. Finally, as a best practice, diminution in property value should always be determined and confirmed via a timely expert appraisal, as insureds can freely attack these valuations after-the-fact, at which time firm documentary evidence will be invaluable.