NO. 81-37 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1982 

JOHN Y. LIPINSKI, 

Plaintiff and Respondent, 

THE TITLE INSURANCE COMPANY, an Idaho 

Corporation, and FLATHEAD COUNTY TITLE 

COMPANY, a Montana Corporation, 

Defendants and Appellants. 

Appeal from: District Court of the Eieventh Judicial District, 

In and for the County of Flathead 

Honorable Robert Sykes, Judge presiding. 

Counsel of Record: 

For Appellants: 

Richard DeJana argued, Kalispell, Montana 

For Respondent: 

Jonkel and Kemmis, Missoula, Montana 

Daniel Kemmis argued, Missoula, Montana 

Submitted: May 14, 1982 

Decided: December 23, 1982 
Mr. Justice Daniel J. Shea delivered the Opinion of the Court. 

The defendant title insurance companies appeal a 

judgment of the Flathead County District Court in which they 

were found liable to Lipinski for damages caused by their 

failure to determine and disclose certain ditch rights 

easements, and because they failed to defend Lipinski in 

lawsuits brought as a result of those undisclosed rights. 

Three lawsuits were brought against Lipinski. The insurance 

companies defended the first lawsuit under a reservation of 

rights, and eventually contributed $2,500 to settle that 

lawsuit (referred to as the Maris settlement). Later, two 

more lawsuits were filed against Lipinski and the title 

companies refused to defend both lawsuits. Lipinski sued the 

title companies for damages arising from the existence of 

the undisclosed easements, and for punitive damages because the 

title companies were in bad faith in refusing to defend the 

lawsuits. We affirm in part, reverse in part, and remand 

for further proceedings. 

Although the issues raised by the title companies are 

rambling and disjointed, it appears that their appeal centers 

on three areas of the trial court's judgment. The first 

area concerns the trial court's ruling that the title companies 

were liable to Lipinski up to the face amount of the policy for 

their failure to discover and disclose, or insure against, 

the existence of the easements. Lipinski paid $46,000 to 

purchase the easement rights, and the trial court held that 

the amount paid to remove the defect was the measure of 

damages. The trial court therefore awarded the damages up 

to the face amount of the policy, $25,000. The title companies 

pose three arguments as to why Lipinski is not entitled to 

damages. We affirm except that we hold that $2,500 paid the 
title companies to settle the Maris lawsuit must be deducted 

from the amount ordered to be paid. 

The second area of appeal concerns the trial court's 

assessment of $15,000 punitive damages against the title 

companies for their refusal to defend two lawsuits against 

Lipinski--referred to as O'Neil - I and O'Neil 11. The title 

companies argue in effect that punitive damages cannot be 

imposed against an insurance company based on findings and 

conclusions that the companies were in bad faith in refusing 

to defend Lipinski. The title companies further argue that 

punitive damages could not be imposed because the trial 

court failed to find any actual damages, incurred by Lipinslti, 

that were separate from the costs incurred in defending the 

lawsuits caused by their breach of a contract to defend. 

The trial court awarded a lump sum of $15,000 for refusal to 

defend O'Neil I and O'Neil - 11. We hold that the title 

companies had only a duty to defend O'Neil - I, and because 

the damages were not assessed separately, we remand for a 

redetermination of punitive damages for refusal to defend 

O'Neil - I. We further hold that Lipinski can recover his 

costs incurred for defending O'fJeil - I and that he cannot 

recover his costs incurred for defending O'Neil - 11, which 

defense was occasioned by Lipinski's own refusal to abide by 

a settlement he reached in O'Neil - I. 

The third area of damages concerns prejudgment interest 

awarded on costs incurred to defend OfNeil - I and O'1Jei.l - 11, 

and surveying and engineering costs incurred in defending 

O'Neil - I and O'Neil - 11. The trial court awarded prejudgment 

interest at the rate of 10 percent per annum, and the title 

companies argue that 6 percent per annum is the proper 

interest rate. Lipinski concedes error on this issue. 

Because we have held that costs incurred in defending O'Neil 
- I1 are not recoverable, we remand for a redetermination of 

interest on costs incurred in defending O'Neil - I only. 

The trial courts also awarded costs for surveying and 

engineering expenses incurred in defending O'Neil - I and 

OfNeil - 11--the costs were not apportioned by the trial court 

in its findings or in its judgment. Because no costs are 

recoverable for defending O'Neil - 11, we remand for a determination 

of the survey and engineering costs incurred for defending 

O'Lieil - I only. 

The chain of events leading to this appeal started in 

1961 when Lipinski purchased land near Kalispell for $25,000. 

Before buying the land, Lipinski had the property surveyed. 

He knew there were irrigation ditches on the property and 

that one of them, known as the "Griedj" ditch, had been 

repaired recently, but he did not know that easements accompanied 

the ditches. He began building a home on the land. Before 

the title companies issued him a title policy in February 

1963, he knew that a neighbor was using the "Grieg" ditch 

which passed through his land. The neighbor, Jack Maris, 

was leasing the adjoining property and asked to enter on 

Lipinski's land to maintain the ditches. Lipinski denied 

him access and relied on the title policy which showed no 

easements. This resulted in Maris bringing suit against 

Lipinski for interference with the easement. 

The lawsuit was settled for $6,000, with the title 

companies paying $2,500 of their total $25,000 exposure, and 

with Lipinski paying $3,500. 

Shortly after the Maris settlement, O'Neil, the owner 

of the adjoining property, filed suit against Lipinski for 

interference with his easement rights and for other relief. 

Lipinski requested the title companies to defend him but 
they refused to do so. Lipinski hired his own counsel and 

eventually the O1Neil suit was settled, although not for 

long. Lipinski refused to abide by the settlement agreement 

and O'Neil again sued Lipinski, this time for specific 

performance. Lipinski again asked the title companies to 

defend the lawsuit but they refused to do so. 

The trial court granted specific performance in O'Neil 

- 

11, and this Court affirmed. OINeil v. Lipinski (1977), 173 

Mont. 332, 567 P.2d 909. After remand, Lipinski and O'Neil, 

rather than proceed with the terms of the specific performance 

agreement, agreed that Lipinski would purchase O'Neil's 

ditch rights for $46,000 and the O'Neil's would quitclaim 

their interest in the ditch rights to Lipinski. The parties 

performed this agreement. 

The present litigation involves Lipinski's suit against 

the title companies and the resulting judgment against the 

title companies. Part of the lawsuit involves the language 

of an agreement between the title companies and Lipinski 

when the Maris suit was settled. Paragraph two of that 

agreement stated: 

"2. That the second parties [the title companies] 

shall not be liable for any claim or claims brought 

directly by first party [Lipinski] as a result of 

the presence of either of the two ditches on his lands, 

which ditches were the subject of the above referred to 

lawsuit. " 

Lipinski signed this agreement and sent it back to the title 

companies. Before signing the agreement, however, the 

title companies inserted the phrase "see insert below" next to 

paragraph two and then placed the following insertion underneath the signatures: 

"Insert: 'except that the payment hereunder 

by the [title companies] shall be deemed to be 

in full compensation for any reduction in the 

value of the insured property of . . . [Lipinski] 

caused by the existence of the two ditches thereon."' 
Lipinski's title policy obligated the title companies 

to defend Lipinski at their own cost in any litigation 

". . . founded upon a defect, lien, encumbrance, or other 

matter insured against by this policy." In checking the 

records before issuing the policy, the title companies 

failed to find, or note on the policy, that a 1944 warranty 

deed existed in Lipinski's chain of title which contained 

the recital: " . . . subject - to rights established by - 

irrigation ditch . . ." the Maris lawsuit and the O'Neil 

lawsuits were based on an underlying easement relating to 

the irrigation ditch and the rights of the owner of the 

easement to maintain and repair the irrigation ditch. 

The first OINeil suit was based on contentions that 

Lipinski had wrongfully interfered with the O'Neil's primary 

easement to transport water across Lipinski's lands and a 

secondary easement to maintain a dam and two irrigation 

ditches. The title companies refused to defend Lipinski in 

that action. We hold that the title companies were obligated 

to defend Lipinski. The second O'Neil suit, however, was 

brought to enforce the agreement reached between O'Neil and 

Lipinski to settle the first suit. We hold that the title 

companies were not obligated to defend that lawsuit because 

Llpinski invited this lawsuit by refusing to abide by the 

settlement terms of the first O1Neil suit. 

As we have previously stated, the trial court found 

that Lipinski had been damaged in the amount of $46,000 (the 

amount he paid to buy the easement rights from OINeil), but limited 

recovery to the face amount of the policy--$25,000. The 

court further ruled that the title companies' refusal to 

defend O'Neil - I and O'Neil - I1 was both a breach of contract 

and an act of bad faith. The court held that the refusal to 
defend "was an act done without justification, was willful, 

malicious, oppressive, and constituted bad faith on the part ------ 

-- of the defendants." The court assessed $15,000 punitive 

damages against the title companies. The trial court also 

awarded Lipinski his costs incurred for defending O'Neil I - 

and O'Neil - 11, including attorney fees, survey and engineering 

expenses, and prejudgment interest on these amounts from the 

time the costs were incurred. 

EFFECT OF THE FAILURE TO DISCOVER THE EASEMENTS: 

The title companies argue that under the policy terms 

they-had no duty to discover the ditch right easements. 

First, they argue that the easements were not of record and 

therefore they should not be held responsible for reporting 

their existence to Lipinski. Second, they argue that the 

title insurance contract expressly excludes water rights, 

that the basis of the easement is an underlying water right, 

and therefore that coverage is precluded. Third, they argue 

that Lipinski had or should have had personal knowledge of 

the easements and his failure to report them to the title 

insurance companies should preclude his right to recover. 

A 1944 warranty deed in Lipinski's chain of title 

recited that the grant was "subject - to rights established - by 

irrigation ditch." The question is whether this recital put 

the title companies sufficiently on notice that a duty was 

imposed to further determine the nature of that right recited 

in the deed. The policy expressly excludes coverage for 

". . . easements . . . not shown by the public records 

. . ." Because the warranty deed recital did not state that 

an easement existed, the title companies argue that the 

policy does not insure against that undisclosed easement. 
We hold, however, that the ditch rights were sufficiently 

mentioned in the recorded 1944 warranty deed to put the 

title companies on notice that there might also be easements 

accompanying those ditch rights. These possibilities should 

have been brought to Lipinski's attention and either specifically 

insured or specifically excluded from insurance coverage. 

Nor do we agree that coverage should be denied because 

the basis of the easement was an underlying water right 

specifically excluded by the policy. Lipinski did not claim 

damages and damages were not awarded because of the existence 

of an undisclosed water right, but rather for the existence 

of an undisclosed easement accompanying those water rights. 

The existence of the ditch rights--here accompanied by 

easements--is necessarily derived from the existence of the 

water rights, and findings and conclusions concerning those 

water rights could hardly be avoided. The trial court, 

however, awarded damages because there was sufficient notice 

of possible ditch rights--accompanied by easements--which 

the title companies should have, hut did not, call to Lipinski's 

attention. 

The title companies next argue that Lipinski should be 

denied recovery under the policy because he had actual 

knowledge of the easements sufficient to require him to 

bring it to the title companies' attention or be excluded 

from coverage. Lipinski admitted knowledge of the existence 

of the ditches, but he denied having any knowledge that 

anyone had a right to enter upon his land. He stated that 

he relied on the title report to tell him whether anyone had 

such a right to enter his land in order to maintain the 

ditches. Lipinslci, as a layman with no knowledge of easements, 

could reasonably rely on the specialized knowledge of the 

title insurance business to reveal and explain to him any 

title defects and their consequences. 
Although title insurance applicants are interested in 

obtaining insurance coverage, their primary interest is in 

what the examination discloses. For this they rely on the 

title companies to tell them of any risks. Risks usually 

covered by title insurance policies include errors in the 

title examination, including the negligent failure to note a 

title defect. A title company, as insurer, owes its clients 

the duty of conducting a title search with reasonable care. 

Although liability does not attach for failure to discover 

defects which cannot be discovered with reasonable care, 

here a title examiner conducting a title search should have 

been alerted to the possible consequences of the recital in 

the 1944 warranty deed. An examination of the premises 

should have revealed the very real possibility that an 

easement existed to give effect to the irrigation ditch 

recital in the 1944 warranty deed. Examination would have 

revealed that water on Lipinski's property was being dammed 

and conducted away from his land through irrigation pipes or 

canals leading onto a neighbor's land. A title insurer 

cannot simply ignore a recital that puts it on notice of a 

possible defect in the title. 

We hold, therefore, that the title policy covered the 

existence of the defects. 

THE KEASURE OF DAMAGES FOR FAILURE TO DISCOVER OR DISCLOSE 

THE DEFECT: 

The title companies advance three arguments on the 

question of damages caused by the existence of the easements. 

Flrst, they argue that the policy covers only pecuniary loss, 

that Lipinski suffered only an aesthetic loss, and therefore 

that Lipinski cannot recover damages. Second, they argue 

that a provision of the Maris settlement agreement (that 
agreement between the title companies and Lipinski), expressly 

precludes any recovery for diminution of value or any other 

form of recovery of damages. Third, assuming it was proper 

to apply a diminution of value theory, they argue that the 

wrong test was used in application of their theory and 

therefore that the damages should only be $3,557.50 at most. 

I11 arguing that Lipinski's land sustained only an 

aesthetic loss as opposed to a pecuniary loss, the title 

companies put forth no real argument. While undoubtedly 

aesthetic loss was suffered, there is no question that the 

undisclosed ditch rights and the attendant right to enter 

upon and alter Lipinski's land caused Lipinski to suffer a 

substantial pecuniary loss. We note, furthermore, that the 

title companies, in making its aesthetic damages argument, 

assume that the trial court awarded damages based on a 

reduction in value. Although there was evidence that the 

value of the land was reduced by $55,000 because of the 

existence of the easements, the fact ignored by the title 

companies is that the trial court awarded damages based not 

on a reduction of value, but on what it cost Lipinski to 

remove the title defects. Lipinski paid $46,000 to O'Neil 

to remove the title defects (he purchased O'Neil's easement 

rights), and the trial court established $46,000 as the 

amount of the loss. 

The title companies next argue that the ~aris settlement 

agreement (the agreement between the title companies and 

~ipinski) precludes recovery for diminution of value of 

Lipinski's property caused by the existence of the easements. 

They rely on paragraph two of the Maris settlement agreement 

that the title companies ". . . shall not be liable for any 

claim or claims brought directly by [~ipinski] as a result 
of the presence of either of the two ditches on his lands, 

which ditches were the subject of the . . . [~aris] lawsuit." 

Although the title companies tacitly acknowledge an improper 

alteration of the agreement by the insertion without the 

knowledge or consent of Lipinski, that no recovery would be 

permitted for "diminution of value," they argue that this 

alteration does nothing more than clarify paragraph two of 

the agreement which precludes any kind of recovery. 

Lipinski argues, on the other hand, that the title 

companies cannot rely on paragraph two of the Maris settlement 

agreement because in altering the agreement without Lipinski's 

knowledge or consent, the title companies violated section 

28-2-1703(1), MCA. That statute provides: 

"The intentional destruction, cancellation, 

or material alteration of a written contract 

by a party entitled to any benefit under it or 

with his consent extinguishes all the executory 

obligations of the contract in his favor against 

parties who do not consent to the act." 

Applied here, this statute makes clear that if the insertion 

explaining or expanding on paragraph 2 was a material alteration 

the title companies cannot claim the benefit of the P4aris 

settlement terms in seeking to avoid damages caused by 

their failure to discover the existence of the easements. 

The trial court found that in refusing to defend the 

O'Neil lawsuits the title companies relied in part on the 

altered language contained in the insertion. The title 

companies have not appealed from that finding. Lipinski 

clearly suffered detriment because had the title companies 

not relied on the altered agreement they may have defended 

him in the first O'Neil suit. Instead, the title companies 

refused to defend and Lipinski was forced to hire counsel 

and to pay the costs of litigation. We therefore hold that 

the title companies had no right to avail themselves of 
paragraph two of the Maris settlement agreement in an 

attempt to avoid paying damages caused by their failure to 

discover the easements. 

We further question, although we do not expressly rule, 

whether the title companies could, after issuing the policy 

to Lipinski, contract with Lipinski to take away the coverage 

already bargained for--the $25,000 limits. Settlement of 

the Maris case, with or without a reservation of rights, 

should not have affected Lipinski's rights to assert his 

rights against the title companies for damages sustained 

because of their failure to discover the easements. 

In essence, the title companies'agreement with Lipinski was 

that it would contribute to the Maris settlement only if 

Lipinski gave up his rights under the policy to recover 

damages by the title companies' failure to discover the 

easements. This agreement may well contravene public policy. 

Third and finally, in an argument which assumes the 

right to recover for diminution of damages, the title companies 

devote seven pages of their brief explaining that the trial 

court found the wrong amount. They contend Lipinski would 

be permitted to recover $3,577.50 at most. ~ipinski, on the 

other hand, devotes several pages of his brief to explaining 

why he should be able to recover for diminution of value to 

his property and why the amount set by the trial court is 

proper. Neither the title company nor Lipinski cite any 

authority. However, both parties have missed the basis of 

the trial court's decision awarding damages caused by nondisclosure of the easement: the trial court ruled that the 

measure of damages for an undisclosed easement should be 

"the amount required - to remove such defect." 
The posture of this case on appeal, therefore, is that 

the measure of damages formula adopted by the trial court 

has not been appealed. We further note that the trial court 

had a legal basis for this decision. In a situation where a 

partial loss has resulted from an encumbrance or encroachment, 

courts have adopted three tests for the measure of damages. 

One of those tests is "the amount necessary to remove the 

existing encumbrance or lien." 44 Am.Jur.2d Insurance § 

1566 at 573. Whether it was the proper measure of loss In 

this case is an issue that has not been appealed and we 

therefore affirm the measure of damages adopted. 

THE IMPOSITION OF PUNITIVE DAMAGES: 

The title companies attack the imposition of punitive 

damages on two grounds. First, they argue that punitive 

damages cannot be imposed where the underlying cause has 

been a breach of contract. Second, they argue that because 

no actual damages were found because of their act of bad 

faith, there was no basis to impose punitive damages. 

The trial court found that the refusal of the title 

compa.nies to defend O'Neil - I and O1Z\Jeil -- I1 was not only a 

breach of contract but also was an act of bad faith. Specifically, 

the trial court found that the refusal was: 

"a breach of contract which sustains the award 

of actual damages [and that the] refusal to 

defend was an act done without justification, 

was willful, malicious, oppressive, -- and constituted bad faith." (Emphasis added.) 

Based on this conclusion, the trial court ordered the title 

companies to pay $15,000 punitive damages to Lipinski. 

The title companies have not challenged the evidence on 

which the trial court based its decision to impose punitive 

damages. Rather, they argue that punitive damages were 

imposed for a breach of contract and that section 27-1-221, 
MCA, prohibits imposition of punitive damages arising from a 

breach of contract. That statute provides: 

"In any action for a breach of an obligation -- -- not arising from contract where the defendant 

has been guilty of oppression, fraud, or malice, 

actual or presumed, the jury, in addition to 

the actual damages, may give damages for the sake 

of example and by way of punishing the defendant." 

(Emphasis added.) 

The title companies argue that if there had been no contract 

there would have been no breach, and therefore section 27- 

1-221, MCA, prohibits the assessment of punitive damages. 

The title companies concede that punitive damages can 

be awarded to an insured for breach of duty owed to its 

insured, but they argue that it can only be done where, 

independent of its contract, the insurance company has 

violated a provision of the insurance code. Because no 

insurance code violation exists here they argue therefore 

that punitive damages cannot be imposed. But this Court has 

never held that punitive damages can be imposed against an 

insurance company only if it has violated a provision of the 

insurance code. The trial court held that the title companies, 

in refusing to defend Lipinski, acted in bad faith. We hold 

that this is a basis, independent of contract, and independent 

of the insurance code, on which punitive damages can properly 

be assessed. 

In seeking to distinguish First Security Bank v. Goddard 

(1979), 181 Mont. 407, 593 P.2d 1040, the title companies 

fail to meet the issue of whether they have an independent 

duty of good faith. in dealings with their insureds. In 

Goddard, we stated: "It is the breach of the statutory 

requirement, a duty independent of the insurance contract, 

that gives rise to that liability in ----- the case at bar." 533 
P.2d at 1047. (Emphasis added.) From this holding the 

title companies jump to the unsupportable conclusion that 

punitive damages can only be assessed against an insurance 

company where, aside from a contract breach, there has been 

a violation of the insurance code. But that is not our 

holding in Goddard. In fact, we clearly sent a message in 

Goddard that an insurer may well have a duty independent 

of contract, and independent of - - statute, to act in good 

faith with its insureds. 593 P.2d at 1047. Further we held 

in Weber v. Blue Cross of Montana (1952), - Mont . - , 643 

P.2d 198, 39 St.Rep. 245, that Blue Cross, technically - not 

an insurance company under the majority analysis, had a duty 

of acting in good faith with those for whom it provided 

coverage. 643 P.2d at 203, 39 St.Rep. at 252. It would be 

nore than anomalous to now hold that insurance companies do 

not have this duty of good faith when dealing with their 

insureds. Should there be any doubt, we now expressly hold 

that insurance companies have a duty to act in good faith 

with their insureds, and that this duty exists independent 

of the insurance contract and independent of statute. Any 

statements in our cases, to the extent they may be or appear 

to be in conflict with this holding, are expressly overruled. 

The title companies' second argument is that punitive 

damages could not be awarded because the trial court did not 

find separately as a result of a prima facie tort arising 

from an act of bad faith that Lipinski had sustained any 

actual damage. Rather, the trial court found the actual 

damages based on a breach of the contract. The trial court's 

conclusion of law stated: 
"The refusal to defend . . . constituted a 

breach of contract, which sustains the award 

of actual damages granted above [the court 

allowed recovery of costs incurred in defending 

O'Neil I and O'Neil 111. In addition, said 

refusal-to defend wasan act done without 

justification, was will.fu1, malicious, 

oppressive, and constitu,ted bad faith on the 

part of the Defendants . . ." 

Because the award was based on actual damages the title 

companies argue that punitive damages cannot be sustained 

because there was no actual damages flowing from the prima 

facie tort of bad faith. 

We note first that the statute section 27-1-221, sugra, 

does not require actual damages to flow from the commission 

of the tort before punitive damages can be assessed. Nor 

have the title companies cited any authority for their 

argument. It is true here that the trial court awarded 

actual damages based on a breach of contract; however, the 

court could as easily have held that the damages flowed from 

the commission of the prima facie tort of bad faith, and 

therefore a basis for actual damages would clearly exist from 

the commission of the tort. It is likewise clear that if a 

basis for actual damages exists in the record, the fact that 

none are awarded, does not prevent the assessment of punitive 

damages. Brown v. Grenz (1953), 127 Mont. 49, 257 ~.2d 246. 

Also see Fauver v. Wilkoske (1949), 123 Mont. 228, 211 P.2d 

The title companies' argument exalts form over substance. 

The trial court did not simply hold that the title companies 

had breached their contract with Lipinski; the trial court 

held that the title companies were in bad faith in refusing 

to defend Lipinski. In other words, the title companies by 

the terms of the contract, had a clear duty to defend Lipinski, 

and in breaching that clear duty the title companies acted in 
bad faith. The damages which Lipinski incurred in defending 

OINeil - I surely flowed from that act of bad faith. The 

simple fact is that there would have been no damages if the 

title companies had acted in good faith, for if they acted 

in good faith they would have defended O1Neil I and Lipinski - 

would have incurred no costs. 

Despite our holding on the issue of punitive damages, 

we must vacate the award and remand for a further determination 

of the amount of damages to be assessed. The trial court in 

assessing punitive damages, awarded a lump sum of $15,000 as 

damages for refusal to defend OINeil - I and O'Neil - 11. The 

O'Neil - I1 lawsuit was prompted by Lipinski's failure to 

honor the terms of the OINeil - I settlement, and we hold that 

the title companies had no duty to defend that lawsuit. 

Accordingly, punitive damages must be assessed based on the 

refusal of the title companies to defend OINeil - I only. 

ACTUAL DAMAGES, SURVEYING AND ENGINEERING EXPENSES, AND 

PREJUDGMENT INTEREST: 

We have held that the title companies had no duty to 

defend O'Neil - 11, and therefore Lipinski had no right to 

recover for costs incurred (actual damages) in defending 

that action. 

The court awarded surveying and engineering expenses to 

be paid as actual damages, but did not apportion the expenses 

between O'Neil - I and OINeil -- 11. We therefore remand for a 

redetermination of survey and engineering expenses incurred 

in defending O'Neil - I only. 

In awarding all costs incurred for defending the actions, 

the trial court awarded prejudgment interest at 10 percent 

per annum. The title companies argue, and Lipinski concedes, 

that 6 percent per annum is the proper interest rate. 

Accordingly, we vacate that part of the judgment and remand 
for a proper determination of the interest amount, to be 

applied only to the costs of defending O'Neil - I. 

The judgment of the District Court is affirmed in part, 

reversed in part, and remanded for further proceedings 

consistent with this opinion. 

We Concur: 

- -- Chief Justice 

l, ."_> . - *- 

i 

a&+ 

I Justices 0 

Hon. LeRoy McKinnon, 

District Judge sitting 

for Mr. Justice Frank B. 

Morrison 
Mr. Justice Fred J. Weber concurs and dissents as follows: 

Except as herein specifically mentioned, I concur in 

the foregoing majority opinion. 

With regard to the first issue, I agree that the title 

insurance policy covered the existence of the ditch rights, 

resulting in an obligation to pay damages to Lipinski. The 

majority opinion states that a primary interest of a title 

insurance applicant is in what the examination discloses, 

and that applicants rely on the companies to tell them 

of any risks and that the risks covered by policies include 

errors in title examination, including negligent failure to 

note a title defect. The majority also states that a title 

company, as insurer, owes its clients the duty of conducting 

a title search with reasonable care, and then points out 

how the title examiner should even have examined the premises, 

concluding with the statement that a title insurer cannot 

ignore a recital that puts it on notice of a possible defect 

in title. 

The relationship between the parties is determined by 

the title insurance policy. In this instance, the policy 

in pertinent part states: 

"The Title Insurance Company . . . does 

hereby insure John J. Lipinski . . . against loss or damage not exceeding 

$25,000, which the insured shall sustain 

by reason of: 

1. Title to the land . . . being vested 

. . . otherwise then as herein stated; or 

2. Any defect in . . . said title existing 

at the date hereof, not shown or referred to 

in Schedule B;" 

Schedule B does not contain any reference to ditch rights, 

as mentioned in the majority opinion. The ditch rights 

therefore fall within the foregoing provisions of the policy. 

The policy provides that the company shall defend the insured 

in all litigation founded upon a defect, lien, encumbrance 

or other matter insured against by this policy. Among other 
contract rights, the Company reserves the option to pay or 

compromise any claim or pay this policy in full at any time. 

Payment of the full amount of the policy "shall terminate 

all liability of the Company". The contract does not contain 

a requirement that the insurance company examine the title 

records nor that the insurance company in any manner examine 

the ground itself. I find no basis for the conclusion of the 

majority that there is a duty to make a title search, or 

that a claim of relief arises from a negligent title examination. No authority is cited for these conclusions which 

certainly do not arise from the title insurance policy. I 

would exclude such conclusions from the opinion. 

Mr. Chief Justice Frank I. Haswell: 

I concur in the foregoing dissent of Mr. Justice 

Weber. The majority have created a new duty on the part 

of title insurance companies beyond the coverage of the 

title insurance policy. 

3~4 &W* 

Chief Justice 

I concur in the dissent of Mr. Justice Weber. 

Hon. LeNY L. McKINNON 

~istricf Judge sitting for 

Mr. Justice Morrison.