In an industry dominated by short searches it seems rather odd to see an underwriter sue an agent for professional negligence for only searching 40 years, rather than 60.  But that is exactly what is happening in Putnam County, West Virginia.  When an attorney, acting as an agent for First American, missed a corrective deed filed in 1958, First American paid the claim and filed suit against him.

According to an article on The West Virginia Record, attorney Alexander Ross issued a $495,000 policy on a small strip mall.  The policy insured a 0.69 acre parcel, but Ross's search failed to discover a corrective deed file in 1958 which reduced the acreage by 0.2 acres.

Unfortunately for Ross, his agreement with First American only authorized him to issue policies up to $250,000 without prior approval.  In addition, First American alleges that Ross failed to conduct the customary 60-year search.

Because the outconveyance was not discovered in Ross' title search, and he insured the $495,000 without their authorization, First American says they had to pay a claim [the insured] made against them.

The claim, records show, was settled in April.

Because Ross did not first obtain their consent to insure a purchase exceeding $250,000 or conduct a 60-year title search, First American alleges he committed both breach of agency agreement, and professional negligence. As a result, First American is asking it be awarded unspecified damages, attorney fees, court costs and interest.

Granted, this was commercial property, which generally means a more thorough search is warranted.  However, it is getting harder to determine what is customary in the title industry.  At one time, in my part of Ohio it was customary to do at least 42-year searches on everything that was to be insured.  For acreage parcels and commercial searches it was customary to extend that search back 60-years or more, determined by local knowledge of utility easements and oil & gas leases. 

Today, custom has been thrown out the window and most insured transactions are based on short searches.  Sometimes that means a a current owner, two owner, or three owner search.  More common now, it may only entail updating from a prior loan policy.  Short searches used to be limited to the equity market for uninsured products, but they have made their way in to the residential title insurance market, and even foreclosures. 

From my perspective, it was the underwriters that led the charge to do less thorough title searches.  As I recall from my title abstracting experience, First American was among the first of the underwriters to adopt short-search standards.  It came during the refi-boom when there simply wasn't time to do full searches on everything and appease the busy loan originators and Realtors.  Up against demanding pressure and expiring rate-locks on loan approvals, the industry abandoned "customary" search standards and took the risk that a short search was "adequate."

Though most underwriting agreements still leave the agent on the hook for claims relating to "searching errors," it seems rather disingenuous for First American to sue an agent over a 40-year search, calling it "inadequate." 

After more than a decade of eroding search standards, how is anyone to know what the "customary" search standards are anymore?  First American may be sending mixed signals to their agents with this type of lawsuit.  On one hand, they have been indicating for years that a short search is acceptable.  On the other, they seem to saying that if you conduct short searches, you do so at your own risk.

Even though this was commercial property, the same thing could happen on a residential policy.  The coverage amount wasn't even beyond the realm of what we see on residential property these days.

I wonder what would have happened if Ross had sought approval from First American before insuring the transaction, as he should have.  From my experience, an excess risk approval generally entails answering some basic questions about the transaction and forwarding a copy of the search to the underwriter for review.  Had Ross complied, would First American have declined to approve the issuance of the policy and required a 60-year search?

The 40-year search probably looked fine.  Just like most of the current owners look okay on the many policies that are issued today.  Are agents opening themselves up to liability on claims if the fail to conduct a more thorough search?  Or was this situation unique because it was commercial property?

Underwriters should set more clear search standards for their agents.  Relying on what is customary just doesn't work today.  The title industry voluntarily abandoned customary practices long ago. 

Robert A. Franco
SOURCE OF TITLE