[The following article is reprinted from Title Insurance Law Newsletter, with permission. We would like to thank Woodridge Legal Publishers and J. Bushnell Nielsen for allowing us to bring this important information to the attention of our readers.]
Fidelity Nat'l Title Ins. Co. of New York v. Suburban West Abstractors, ___ A.2d ___, 2004 WL 1147076 (Pa.Super.).
A Pennsylvania court has affirmed a jury verdict permitting a title insurer to collect $176,000 against a title searcher that missed a judgment. The jury ignored the liability limitation statement on the title search.
Suburban West Abstractors did a last owner search for Fidelity National Title, which the insurer used to issue a $318,750 loan policy. Suburban missed a $380,000 judgment against the seller. Fidelity paid off the insured lender in full, then settled with the judgment creditor. It sued Suburban for its net loss of about $176,000.
Suburban had stated on the search report that its liability was limited to $25. It also had given a price list to Fidelity that said that errors and omissions insurance for the search was limited to $10,000. Suburban wanted to use these documents as evidence at trial. Fidelity countered that the parties had always intended for Appellant to bear the risk of loss, and that Suburban had agreed to carry errors and omissions insurance of $250,000. The trial court allowed Fidelity to introduce a vendor information sheet in support of this contention.
The jury returned a verdict granting judgment to Fidelity in the full amount of its loss. Suburban argued on appeal that the trial court erred in allowing Fidelity to introduce information about Suburban's insurance coverage. Pennsylvania does not allow evidence of insurance to establish liability, but does permit such evidence "when offered for another purpose ...." The court found Fidelity's offering of proof of insurance was permissible, because it was Suburban that opened up the issue:
"[Suburban] understood the contingent nature of this permission, yet made the conscious decision to introduce the [liability limitation] defense anyway. … It cannot now object to the inclusion of evidence which it voluntarily introduced. Moreover, [Suburban's] price sheet and [Fidelity's] vendor information sheet both confirm the existence of errors and omissions insurance. Neither document indicates whether the insurance is to be provided by a third party. In fact, the only difference between the two documents is the amount of liability assumed; thus it is clear that the evidence was offered for the sole purpose of determining whether the parties had agreed to restrict liability, and, if so, to what amount … "
Suburban also argued that Fidelity should have ordered a better search if it wanted to hold the abstractor liable, raising a hot issue in the current state of the industry. The court rejected the argument.
"[Suburban's] final issue questions the trial court's refusal to instruct the jury on [Fidelity's] contributory negligence. [Suburban] claims that industry standards establish [Fidelity's] negligence in ordering only a last owner search rather than a full title search before deciding to provide a $300,000.00 title insurance policy. … Here, there is no evidence of [Fidelity's] contributory negligence as the missed judgment was against the owner and should have been discovered in the last owner search. Thus, [Fidelity] could not have avoided its damages by ordering a full title search. Finally, [Fidelity] was entitled to rely on the accuracy of the search absent any evidence to the contrary. "
The lesson for title companies is that even the cheapest search product has real liability attached to it. If the title company wishes to have an enforceable liability limitation, it must be in writing, be in a reasonable amount, and all documents must be consistent. Do not refer to errors and omissions coverage. That coverage is not for the benefit of the customer, but to protect the title company from liability to the customer.