Opinion ID: 2516001
Heading Depth: 1
Heading Rank: 9

Heading: Claims against defendants First American

Text: [¶ 36] The Hulses contend that defendants First American owed them a duty, as the insureds under defendants' issued title policy, to search and disclose any reasonably discoverable defects and encumbrances of title. They further contend this duty was breached when First American failed to list the recorded Neiman restricted easement on the commitment or policy and that this nondisclosure caused them substantial damages. Essential to any negligence cause of action is proof of facts which impose a duty upon defendant. The question of the existence of a duty is a matter of law for the court to decide. Hamilton v. Natrona County Education Ass'n, 901 P.2d 381, 384 (Wyo.1995) (quoting Goodrich v. Seamands, 870 P.2d 1061, 1064 (Wyo.1994)). A duty may arise by contract, statute, common law, or when the relationship of the parties is such that the law imposes an obligation on the defendant to act reasonably for the protection of the plaintiff. Hamilton, 901 P.2d at 384; Goodrich, 870 P.2d at 1064; Caterpillar Tractor Co. v. Donahue, 674 P.2d 1276, 1280 (Wyo.1983). [¶ 37] The Hulses first argue that the defendants' duty to search and disclose is implied by the contract itself, either from First American's issuance of its preliminary commitment or its listing of some defects in the title as implying to the insured that a search was made to uncover those defects. We disagree. This court has often stated when interpreting an insurance contract, we follow general tenets of contract construction. Ahrenholtz v. Time Ins. Co., 968 P.2d 946, 949 (Wyo.1998); Squillace v. Wyo. State Employees' and Officials' Group Ins. Bd., 933 P.2d 488, 491 (Wyo.1997). We delineated our rules of insurance contract construction in St. Paul Fire & Marine Ins. Co. v. Albany County Sch. Dist. No. 1, 763 P.2d 1255, 1258 (Wyo.1988) (citations omitted): The interpretation of a written contract is done by the court as a matter of law. An exception to construing insurance policies as other contracts has been observed by this Court where the language of the policy is ambiguous, in which case the policy must be strictly construed against the insurer. Ambiguity, however, is not generated by a subsequent disagreement between the parties as to the meaning of the policy. Further, the language of an insurance policy will not be tortured in order to create an ambiguity. If the policy language is clear and unambiguous, the rule of strict construction against the insurer does not apply, and the policy must be interpreted in accordance with the ordinary and usual meaning of its terms. The parties to an insurance contract are free to incorporate within the policy whatever lawful terms they desire, and the courts are not at liberty, under the guise of judicial construction, to rewrite the policy. [¶ 38] We have carefully read both the Commitment and the Policy issued by the defendant First American and cannot find any language expressing an intent to impose a duty to search the records for benefit of the insured, nor any language from which such a duty may be implied. The information page attached to the Commitment expressly stated: the Title Insurance Commitment is a legal contract between you and the Company. It is issued to show the basis on which we will issue a Title Insurance Policy to you. The Policy will insure you against certain risks to the land title, subject to the limitations shown in the Policy. [¶ 39] Plaintiffs point to the decisions of other courts holding that title insurance policies must be construed so as to give the insured the protection which they reasonably had a right to expect, thus implying a duty to search the record and disclose its findings to the insured. However, this court has declined to apply the reasonable expectations theory of recovery in insurance contract cases in the face of clear and unambiguous policy terms. See Ahrenholtz v. Time Ins. Co., 968 P.2d 946, 949-50 (Wyo.1998); Pribble v. State Farm Mutual Auto. Ins. Co., 933 P.2d 1108, 1113-14 (Wyo.1997). In the instant case, we find nothing in the language of the contracts between the parties which gives rise to even an ambiguity as to the defendants' obligation to search the record for the benefit of the insured; therefore, the doctrine of reasonable expectations is inapplicable. Defendant First American clearly had no duty, express or implied, under the Commitment or the Policy to search the records, and any search it may have actually undertaken was undertaken solely for its own protection as indemnitor against losses covered by its policy. Therefore, we hold that First American breached no contractual duty to the Hulses by failing to list the recorded Neiman restricted easement on either the Commitment or Title Insurance Policy issued to them. [¶ 40] The plaintiffs alternatively urge this court to recognize that the defendant American Title Insurance Company had a duty arising in tort to make a reasonable search of the record and disclose any defects and encumbrances of title to them as the insureds. Whether a title insurer may be liable in tort for negligently failing to discover and disclose defects in title has been the subject of debate in many courts and commentary but is an issue of first impression before this court. Courts in other jurisdictions are split on the question. Some have concluded that a title company should be liable in tort if it negligently fails to discover and disclose a defect. See e.g., Title Ins. Co. of Minnesota v. Costain Arizona, Inc., 164 Ariz. 203, 791 P.2d 1086, 1090 (App.1990); Shada v. Title & Trust Co. of Florida, 457 So.2d 553, 557 (Fla.App.1984); Ford v. Guarantee Abstract & Title Co., Inc., 220 Kan. 244, 553 P.2d 254, 266 (1976); Heyd v. Chicago Title Ins. Co., 218 Neb. 296, 354 N.W.2d 154, 158 (1984). See generally, Joyce Dickey Palomar, Title Insurance Companies' Liability for Failure to Search Title and Disclose Record Title, 20 Creighton L.Rev. 455 (1987). The theory is that once the title insurer takes on the responsibility of doing some type of title search and disclosing some defects, the company has a duty to one it knows may rely on those services to search and disclose fully and accurately. See Jay M. Zitter, Annotation, Title Insurer's Negligent Failure to Discover and Disclose Defect as Basis for Liability in Tort, 19 A.L.R.5th 786 (1994). [¶ 41] In contrast, other courts have refused to impose tort liability on title insurance companies. See e.g,. Brown's Tie & Lumber Co. v. Chicago Title Co. of Idaho, 115 Idaho 56, 764 P.2d 423, 427 (1988); Horn v. Lawyers Title Ins. Corp., 89 N.M. 709, 557 P.2d 206, 208 (1976); Stewart Title Guaranty Co. v. Cheatham, 764 S.W.2d 315, 319 (Tex.App.1988); Greenberg v. Stewart Title Guaranty Co., 171 Wis.2d 485, 492 N.W.2d 147, 152 (1992). These courts reason that because a title insurer does not purport to act as anything other than an insurance company, no tort liability exists unless the insurer has voluntarily assumed a duty of searching title for the insured's benefit in addition to the contract to insure title. They further conclude that the issuance of a preliminary report or title commitment is not an independent assumption of a duty to search and disclose reasonably discoverable defects. We find this reasoning persuasive especially in light of our own state statutes on the subject of title insurance. [¶ 42] Wyo. Stat. Ann. § 26-23-303(a)(xvii) (LexisNexis 2001) defines a commitment as synonymous with the term report. If issued prior to the issuance of a policy, the commitment constitutes a statement of the terms and conditions upon which the insurer is willing to issue its policy but is not a title policy. Neither a title policy nor a report issued prior to the issuance of a title insurance policy is an abstract of title. Some courts have recognized a title insurer's tort liability on the basis that the issuance of a preliminary commitment occurs weeks prior to the actual issuance of the insurance policy. In doing so, they have equated the commitment to an abstract of title and thus the title insurance company's duty of care to that of an abstractor. See e.g., First American Title Ins. Co., Inc. v. First Title Serv. Co. of the Florida Keys, Inc., 457 So.2d 467, 472-74 (Fla.1984); Heyd, 354 N.W.2d at 158. Wyoming statute clearly prevents this court from making that analogy. We cannot premise a title insurer's tort liability on the mere fact of issuance of a title insurance commitment. [7] [¶ 43] Moreover, we think the better analysis in determining whether to establish a title insurer's tort duty for reasonable search and disclosure recognizes that the relationship between the insured and the title insurance company is essentially contractual. Accordingly, we hereby adopt the reasoning of the New Jersey Supreme Court in Walker Rogge, Inc. v. Chelsea Title & Guaranty Co., 116 N.J. 517, 562 A.2d 208, 220 (1989): Although we recognize that an insured expects that a title company will conduct a reasonable title examination, the relationship between the company and the insured is essentially contractual. The end result of the relationship between the title company and the insured is the issuance of the policy. To this extent, the relationship differs from other relationships conceivably sounding in both tort and contract, such as the relationship between physician and patient .... By contrast, the title company is providing not services, but a policy of insurance. That policy appropriately limits the rights and duties of the parties. From this perspective, the insured expects that in consideration for payment of the premium, it will receive a policy of insurance. The insurer's expectation is that in exchange for that premium it will insure against certain risks subject to the terms of the policy. If the title company fails to conduct a reasonable title examination or, having conducted such an examination, fails to disclose the results to the insured, then it runs the risk of liability under the policy. In many, if not most, cases conduct that would constitute the failure to make a reasonable title search would also result in a breach of the terms of the policy. [¶ 44] This analysis is supported by Wyo. Stat. Ann. § 26-23-303(a)(xxi) which defines a title insurance policy as: [A] contract wherein, subject to the stated terms and conditions, a title insurer insures, guarantees or indemnifies owners of real or personal property or the holders of liens or encumbrances thereon or others interested therein against loss or damage suffered by reason of: (A) Defects in, adverse claims, liens or encumbrances in the title to the stated property; (B) Unmarketability of the title to the stated property; (C) Guaranteeing, warranting or otherwise insuring by a title insurance company the correctness of searches relating to the title to property; (D) Defects in the authorization, execution or delivery of an encumbrance upon such property; (E) The insuring by a title insurance company the validity and enforceability of evidences of indebtedness secured by an encumbrance upon the title or interest in such property; (F) The invalidity, unenforceability or loss of priority of an insured mortgage resulting from a change in rate of interest or principal balance, or both, which change is in accordance with the provisions of the insured mortgage. [¶ 45] Clearly, according to the plain language of Wyoming statute, the duty owed to an insured that arises through the issuance of a title insurance policy is contractual and subject to the policy's stated terms and conditions. Subsection (C) demonstrates that a title insurance policy may guarantee by a title insurance company the correctness of searches relating to the property, however, as in general, this particular guarantee is subject to the terms and conditions of the policy. In Snyder v. Lovercheck , we declined to recognize the tort of negligent misrepresentation against a seller arising from a contract between sellers and purchasers of real estate. We cited with approval Ford Motor Credit Co. v. Suburban Ford, 237 Kan. 195, 699 P.2d 992, 998 (1985) cert. denied, 474 U.S. 995, 106 S.Ct. 409, 88 L.Ed.2d 360 (1985), for the proposition that, a contract action cannot become a tort action by simply saying so ... when parties' difficulties arise directly from a contractual relationship, the resulting litigation concerning those difficulties is one in contract no matter what words the plaintiff may wish to use in describing it. Snyder v. Lovercheck, 992 P.2d 1079, 1088 (Wyo.1999). [¶ 46] Finally, some courts have recognized a title insurer's duty in tort to undertake a reasonable search and disclosure for the benefit of the insured. These cases are premised in part upon state underwriting standards statutes which provide generally that no title insurance policy may be written unless and until the title insurance company has caused to be conducted a reasonable examination of the title. Ruiz v. Garcia, 115 N.M. 269, 850 P.2d 972, 975 (1993); Cottonwood Enterprises v. McAlpin, 111 N.M. 793, 810 P.2d 812, 815 (1991). However, Wyoming's underwriting standard statute § 26-23-308(a) (LexisNexis 2001) merely provides that [n]o title insurance policy as to property in this state shall be written unless it is based upon adequate evidence of the current condition of title certified in writing as of the date of the policy .... (Emphasis added.) Even were we somehow to find that this statutory language imposed a duty on insurers to reasonably search the public record and disclose their findings, Wyoming Statute § 26-23-334(b) (LexisNexis 2001) precludes us from creating a private cause of action on this basis when it expressly states, [t]his article is enforceable only by the commissioner and shall not create any private cause of action or other private legal recourse. [¶ 47] In conclusion, should the Wyoming Legislature choose to recognize a public policy behind requiring title insurance companies to conduct title searches with reasonable care and disclose those results to their insured, they may create that duty by statute. However, at this time, for the foregoing reasons, we decline to do so by judicial enactment. [¶ 48] The Hulses next contend that First American committed fraud when its employee Marie Jackson deliberately removed the Neiman restricted easement from the title commitment and subsequently issued title policy. They further contend they were damaged when they relied on this information or, more accurately, lack of information. This contention amounts to a claim of fraudulent nondisclosure and fraudulent concealment. Sundown, Inc. v. Pearson Real Estate Co., Inc., 8 P.3d 324, 331 (Wyo.2000); Richey v. Patrick, 904 P.2d 798, 801 (Wyo.1995) (citing Restatement (Second) Torts § 551, 550 (1977)). We recently said in Sundown, [b]efore nondisclosure or fraudulent concealment can be considered, [the plaintiff] must show that [the defendant] had a duty to disclose the information. Id. 8 P.3d at 331 (citing Burman v. Richmond Homes Ltd., 821 P.2d 913, 918 (Colo.App.1991)). As we have previously discussed within this opinion, First American owed no duty to disclose the restricted easement to its insureds, the Hulses, thus they committed no fraud by failing to do so. Further, we note as a purely factual matter because the contract between the parties is one of indemnity, by choosing not to list the restricted easement as an exception to the policy, First American increased its own risk of coverage under the contract in insuring against a lack of access to and from the land. This action can hardly be deemed to have harmed the Hulses. [¶ 49] The Hulses next contend that First American acted in bad faith by denying coverage under its policy for lack of a right of access to and from the land without a reasonable basis for doing so. This court adopted the tort of bad faith in regard to denial of claims by insurance companies in McCullough v. Golden Rule Ins. Co., 789 P.2d 855 (Wyo.1990). There we said the appropriate test to determine bad faith is the objective standard that the validity of the denied claim was not fairly debatable. Id. at 860. We explained that the fairly debatable standard is premised upon the logic that if a realistic question of liability does exist, the insurance carrier is entitled to reasonably pursue that debate without exposure to a claim of violation of its duty of good faith and fair dealing. Id. Following McCullough, we have reiterated our support for the fairly debatable standard, continuing to hold that [t]he tort of bad faith can be alleged only if the facts pleaded would, on the basis of an objective standard, show the absence of a reasonable basis for denying the claim, i.e., would a reasonable insurer under the circumstances have denied or delayed payment of the claim under the facts and circumstances. Id. (citing Anderson v. Continental Ins. Co., 85 Wis.2d 675, 271 N.W.2d 368, 376-77 (1978)); Kirkwood v. CUNA Mutual Ins. Society, 937 P.2d 206, 211 (Wyo.1997); Darlow v. Farmers Ins. Exch., 822 P.2d 820, 823 (Wyo.1991). [¶ 50] Under this standard, the district court was correct in granting summary judgment to the defendants First American. Even if viewing the facts in the light most favorable to the Hulses, we cannot but conclude that any reasonable insurer would have denied or delayed payment under the facts and circumstances before us. Title Policy No. 18-03038-0 issued by defendants First American insured against loss or damage by reason of a lack of a right of access to and from the land. However, at no point in the Hulses' possession of the Tumbling T did they ever lack a right of access to and from the land. As previously discussed, the Russell Private Road was never effectively vacated. The Hulses maintained, and continue to maintain, legally enforceable unrestricted access across the Neiman property by way of this road. While its physical condition may not be satisfactory to them, the policy does not insure the physical condition of the roadway, but rather whether it provides a legal right of access. Only defects shown in the public record relating to a legal right of access are covered under the policy. [8] See Hocking v. Title Ins. & Trust Co., 37 Cal.2d 644, 234 P.2d 625 (1951); see generally, Charles Plovanich, Annotation, Defect in, or Condition of Adjacent Land or Way as Within Coverage of Title Insurance Policy, 8 A.L.R.4th 1246 § 4[c] (1981). In summary, having determined there is no genuine issue as to any material fact on the plaintiffs' claims against defendants First American, we affirm the district court's grant of summary judgment in their favor.