Opinion ID: 848901
Heading Depth: 2
Heading Rank: 1

Heading: effectiveness of policy

Text: The commitment requires disclosure of all known liens, while the subsequently issued policy only requires disclosure of known unrecorded liens. In this case, plaintiff failed to disclose a known recorded tax lien, [12] and thus it can be argued that he breached the commitment while not breaching the policy. The Court of Appeals held that the policy never took effect because of plaintiff's breach of the commitment. We respectfully disagree. MCL 500.7301(d) defines title insurance commitment as a document issued by a duly authorized title insurer offering to issue a title insurance policy upon performance of the conditions set forth in the document. Thus, a commitment is an agreement between an insurance company and a potential insured that, if the potential insured meets certain conditions, the insurance company will issue a policy. Such conditions are ones that the insured must meet before the insurer is obligated to fulfill his contractual duty under the commitment to issue a policy. In other words, such conditions relate to whether the insurer must issue a policy to the insured. Accordingly, such conditions do not serve as conditions precedent to the effectiveness of a policy; rather, they serve as conditions precedent to the insurance company's obligation to issue a policy. Therefore, in the normal situation which, as explained below, we do not deal with here, when an insured fails to meet one of these conditions, the insurer has no obligation to issue a policy; but if, despite this failure, the insurer does issue a policy, the policy is nonetheless effective. In this case, the Court of Appeals held that a condition precedent contained in the commitment was not met, and thus that the policy never became effective. We do not agree. The relevant language of the commitment provides that [f]ailure to disclose [the known lien] shall render ... any policy ... null and void as to such ... lien ... (Emphasis added.) First, clearly this is not a condition precedent to the insurance company's obligation to issue a policy. The condition speaks to voiding part of a subsequently issued policy, not to avoiding the obligation to issue a policy. Second, this condition is also not a condition precedent to the effectiveness of the entire policy. That is, if this condition was not met, the policy would nevertheless become effective when issued. Rather, this condition is an attempt to render the policy, as to those liens of which a claimant had knowledge and failed to disclose, null and void. [13] In other words, this condition is an attempt to render the policy null and void, as to an undisclosed lien, upon the failure to disclose such lien. But, it is not an attempt to render the entire policy null and void as to all liens upon such a failure. The Court of Appeals majority provided: In the instant case, the title insurance commitment contained a specific reservation of rights to void the policy if plaintiff failed to disclose the existence of a lien. Plaintiff acknowledged at trial that he did not disclose the federal tax lien to his insurers. Therefore, pursuant to the explicit language of the title commitment, the resulting policy was void with regard to the federal lien. [Slip op. at 2 (emphasis added).] In our judgment, this paragraph contains two inconsistent statements. First, the Court of Appeals provides that the failure to disclose the tax lien void[s] the policy. But, in the very next breath, the Court provides that a failure to disclose only voids the policy with regard to the undisclosed lien, thereby acknowledging that the commitment did not attempt to render the entire policy void for failure to disclose. Rather, the commitment merely attempts to exclude coverage for that undisclosed lien. Accordingly, the failure to meet this condition does not prevent the issued policy from taking effect. [14] Finally, and most importantly, the condition contained in the commitment is not a condition precedent of any sort. Rather, it is an attempt to make null and void some coverages in a subsequently issued policy after that policy becomes effective. Hence, it is an attempt at a condition subsequent. A condition precedent is a condition that must be met by one party before the other party is obligated to perform; a condition subsequent is a condition that, if not met by one party, abrogates the other party's obligation to perform. See 8 Corbin, Contracts (rev. ed.), Conditions, § 30.7, p. 14; Black's Law Dictionary (6th ed.). In this case, the condition provided that, if the insured failed to disclose a known lien, the policy would be rendered null and void as to that undisclosed lien. Accordingly, this is not a condition precedent, as the Court of Appeals asserted. It is an attempt at a condition subsequent. Therefore, the Court of Appeals erred in concluding that, because this condition was not met, the policy did not take effect. Rather, after issuing a commitment, the insurance company issued a policy, and that policy took effect, despite the insured's failure to meet the condition in the commitment.