Posting for

Friday, June 12, 1998

by: Bert Rush

brush@firstam.com

DEFINING TITLE INSURANCE/UNAUTHORIZED PRACTICE OF LAW/REPRESENTATIONS

Here's an exchange between Ken Jannen (Fort Lauderdale) and myself--anyone else have any views on this?

Ken wrote:

I noticed something at the training meeting that concerned me. "Q&A - Title Insurance For The Property Owner" has, as the first question, "What is title insurance?" The answer given is that it is "An opinion of the condition of title to real property, backed by an insurance policy." This causes me some concern, especially in an area of the country that still gets into controvercies about the unauthorized practice of law; moreover, it may open the door to taking policy provisions out of insurance law interpretations and invite a court to apply the law of misrepresentation. Interestingly, the Georgia Fund's Members issue, in a sense, First American policies backed by opinions - opining that title is as shown in the policy. Comments?

I replied:

Hi Ken: Thanks for the e-mail. Your e-mail is the second reason I've had to think about this issue recently. There's a lawyer who frequently writes to the DIRT listserv about title insurance issues--name escapes me but I think he's retired from Chicago. Anyway, he recently wrote something that I took to express the same view or concern. I've used the term "opinion" this way for at least ten years--to describe title insurance--and never noticed a problem. Seems to me to be clear that what we're selling is insurance, not any opinion. On the misrepresentation point, that too has come up from time to time in court cases--mainly in Texas as I recall. There was a case I heard about in '87 or so where a title company wrote over a known risk--without telling the insured--and they got sued for misrepresentation. The title company lost the case--and it was negligent misrep.

Do you think we should put the question up on LandSakes? How else would you word a description of title insurance for the average person?

Ken's reply: It might be a good idea to put it on LandSakes. Let's see what kind of a definition we all come up with!

Just press the "Reply" button and send your thoughts to LandSakes.

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Following last Friday's posting Oscar Beasley writes:

Bert: I have not rendered an opinion of title in the last thirty-five years. I have made a title search and insured the title to the property I searched subject to the various fact which I have found. I have not rendered an opinion to any one even in the situation of unusual underwriting matters. An attorney may render their opinion about a specific subject but that opinion will be render virtually worthless by the disclaimers. An attorney as demonstrated by the Muirhead case(which started title certificates)has no liability unless he violates the standard of the bar association, no obligation to defend etc. We have contract liability and if we are willing to issue a contract as we do then the word opinion has no place in the vocabulary. I note Ken's statement that we are insuring an opinion. I am insuring facts as found in the record.

Reply to Oscar: Actually, I'm the one responsible for inserting the word "opinion" into the definition of what we insure (on the Q&A page of the First American website) because I thought it would be the easiest term for the average person to understand. I don't think it's enough to say that we insure facts found of record, because I think we apply our knowledge and expertise to delete a lot of "facts" found of record, and because we also insure the closing process plus some hidden risks (such as forgery).

I did some soul-searching this weekend about the "o" word--which I use frequently in defining title insurance. At one point I had myself thinking it might be better to say that title insurance is an insurance policy covering many aspects of your real estate transaction"--but I think that would be even more capable of being misinterpreted than "opinion."

Neil Hulbert (Honolulu) writes:

On several occasions we have argued to courts that a title policy is not an "opinion" or "representation" or "guarantee" of title in order to defeat abstractor negligence and misrepresentation claims. One reason it is not an opinion of title is that some of the more drastic title defects are excluded form coverage.

We find it easier to just describe the policy as any insurance policy...that FAM will pay the loss incurred, subject to the exclusions and exceptions, resulting from title being other than as insured. A fire policy is not an opinion about the fire resistance of your house nor does it insure that your house will not burn down. It will pay the loss if it does.

I think people and the courts understand and are more familiar with insurance concepts than title concepts.

Jon Reynolds (Phoenix) writes:

Title insurance may be an opinion in some states, but, clearly, it's not-- by legislative mandate -- in others. In states which have abrogated the theory of liability formerly known as "abstractor's negligence" the theory upon which any liability under the policy rests is contract. The terms -- conditions, stipulations, exclusions, exceptions, and endorsements -- merely serve as the triggering contingencies for the indemnification of some loss associated with ownership [be it ownership of the freehold, the leasehold, or a "lienhold", or in the Civil Law perhaps, a usufructuary (?)]. These terms are -- as a matter of law --not representations as long as they are expressed within a document issued as a title policy (or a document expressing the terms under which a policy might be issued) and not a document which qualifies as an abstract.

I trust that I am express in expressing my interpretation of the law in non-abstract jurisdictions. Title insurance is NOT AN OPINION of the condition of anything, it is merely a statement of the terms of a contract of indemnification. Title insurance is, from its historical development, a contemporary substitute for an opinion or "abstract" of title. It is a commercial manifestation of society's search for expediency in real property transactions, quite the contrary of a thoroughly searched, examined, and abstracted opinion of title, executed by a lawyer and guaranteed by a cooperative fund.

"Title insurance doesn't insure whatever it is you own; it insures that you own whatever it is."

Reply to Jon: That last sentence looks like a quote--but I don't recognize it--where's it from?

Ben Knittel (Houston) writes:

Because of the possibility of treble damages under the Texas Deceptive Trade Practices Act, in Texas we are constantly on the lookout for language like this, so we can stomp it out. We are always telling insureds that the policy is not an opinion on title or a representation of any sort. Here is a fairly typical example of a letter to an insured Texan discussing the nature of title insurance.

How about something along these lines: "a title insurance policy is a contract that provides protection concerning many common adverse matters that may affect an owner's rights as to the insured property."

A recent case appears to indicate that title insurance companies may create additional liability for themselves by the statements they include in advertising materials. See, Somerset Savings Bank v. Chicago Title Ins., 649 N.E.2d 1123 (Mass. 1995). Some "on hold" advertising we use gives me fits because of this--if we say "you can rely on the trained professionals at First American to handle all the details, so you can rest assured there will be no surprises concerning the ownership of your land," have we taken a step toward converting a carefully-limited contract of indemnity into an open-ended guarantee?

Reply to Ben: Looks like you tried to attach an http link--but I didn't get (or can't find) it. Otherwise, your definition of title insurance strikes me as something that would just go over the head of the average person--what does it really tell them? (Not that the results of my "soul searching" lately are any better.) I see you have "contract" in there, but I don't know that the layperson would grasp the significance. And yes, we should be concerned about the "on hold" advertising. If a good trial lawyer ever gets the Company in front of a jury they'd love to have something from our advertising to support whatever theory of liability they're pursuing. This is how the realtors got burned in the landmark California case establishing realtor duty to examine property offered for sale, and cause disclosure of discernible defects: Plaintiff's counsel quoted the Code of Ethics of the National Assn. of Realtors--and thereby stuck 'em with a new standard they weren't ready for. This was in '85 or so.

Palma Collins (Fairfax) writes:

I have always used the Land Title Institute's definition of title insurance, which is: "Indemnity against loss resulting from defects in or liens upon a title."

Reply to Palma: Kinda dry--and if the average person doesn't know what title insurance is do you really want to spring "liens" on them? Might rearrange it to read: "Insurance against loss resulting from clouds or defects in title to real property." (???) Or, for that matter, the phrase from the video we did in '89: "Title insurance is insurance coverage against a multitude of risks when investing in real property." (Something like that.)

Alan Rubin (Uniondale, NY) writes:

I would define title insurance as: an indemnity contract whereby the insurer, in exchange for the payment of a premium, agrees to indemnify its insured--up to the amount of the policy--for any loss suffered by the insured owner caused by defects, liens, or encumbrances on the title--with the exception of those set forth in the exclusions or exceptions to coverage--that are in existence as of the date of the policy.

Reply to Alan: Technically correct--but I guess I'm hung up on trying to make this Sesame Street simple for the layperson.

Finally, Lillian Eyrich (New Orleans) writes:

I'm a firm believer in not calling title insurance policies opinions." Louisiana's definition of the practice of law includes opining or certifying as to title. While one does not have to be an attorney to be a title insurance agent, the commitment and policy issued by the agent do have to be based upon the certification or opinion of an attorney. When I teach about title insurance, I emphasize the distinctions, not only for marketing reasons, but also because I do think we could create extra-policy liability for ourselves.

As for misrepresentation, it is always my preference to describe a defect and then give an endorsement insuring over it, rather than deleting any mention of the defect. Once again, I think that people look on the policy as a statement of the condition of title as of a date, and I think we have disclosure issues (especially in loan policies, because the loan policies go to an assignee who was not a party to the original discussions).

OK, Ken Jannen, you started this--what do you think?

**********

Our quest to define title insurance has produced more replies than expected.

Cliff Morgan writes:

Bert. Title insurance should never be defined as an opinion of anything. It is in fact an insured statement of liability for loss or damage sustained by the insured should the actual condition of title be different than insured. It is not insurance that an event will not occur. Likewise it is not a guarantee that the title is in any particular condition. It has always bothered me when anyone says that title insurance is an insured statement of the condition of title.

And Karl Pister (San Francisco) writes:

Bert, this discussion makes me think of the quarterly report flyer. For many years, the "About the Company" section of that flyer defined title insurance as "an insured statement of the condition of title, or ownership, of real property."

This always language always made me a little uncomfortable, because it suggests (at least to me) that the policy insures that the condition of title is a certain way.

A year or so ago, this language was changed to "A title insurance policy protects against loss sustained due to the condition of title being other than as insured."

I like this version better, but I'd change that last word from "insured" to "stated" if I had the choice. But I'm not sure that even this statement passes your Sesame Street test!

Reply to Karl: Thanks for mentioning the flyer--we should probably try to harmonize what we say on the website with what we say to Wall Street. But I respectfully disagree that the word "insured" should be replaced by "stated." Providing insurance is primarily what we do--say it loud! Now I'm still looking for the definition that seems simple and direct--consumer friendly. How about "Title insurance protects against risk of the condition of title to real property being other than as insured." (?) Maybe we could add, "...and, it's gentle on the stomach."

(After writing the reply to Karl, above, in came another reply from Ken Jannen.)

Ken Jannen writes:

I would describe it as:

"An insurance policy covering rights in real estate. The rights may be in the form of ownership, a lease, an easement or a mortgage. It has some general limitations on coverage, called "Exclusions," and some that are specific to the particular real estate insured, called "Exceptions."

Reply to Ken: OK--point taken. Let me mull this over and get back to you. Suffice it say we should probably make a change to the Q&A. Thanks to all for your input.