Court Opinion

ID: 9675021
Source: CourtListenerOpinion
Date Created: 2023-08-24 04:39:28.222718+00
Date Added: 2024-06-11T18:16:30.932017
License: Public Domain

HECHT, Justice,
dissenting.
If someone says, “there is no restrictive covenant on your property,” when actually there is, the statement is a misrepresentation. It asserts as fact what is demonstrably false. But if someone says, “I will pay you damages if there is a restrictive covenant on your property,” that statement is not a representation that no such covenant exists; rather, it is a promise that if a covenant does exist, any resulting harm will be paid for. And if the promise is kept, the statement was not false but true. The Court does not appear to grasp the distinction between these two statements. It treats the promise of insurance as the equivalent of a statement that no restrictive covenants exist. Because the distinction is important in the law as well as this ease, I dissent.
In this case, Charles and Dorinda Garrett paid $46,318.20 for a 9.081-acre tract of land on which they intended to operate an auto wrecking and salvage yard. The Garretts sought and received from their sellers assurances that no restrictive covenant on the property prevented their intended operation. One of the sellers obtained from First Title Company of Waco the commitment of its principal, Alamo Title Insurance of Texas, to issue a policy of title insurance. That commitment stated:
SCHEDULE B OF THE POLICY OR POLICIES TO BE ISSUED WILL ALSO CONTAIN THE FOLLOWING EXCLUSIONS AND EXCEPTIONS:
THE POLICY WILL BE SUBJECT TO ... THE FOLLOWING MATTERS WHICH WILL BE ADDITIONAL EXCEPTIONS FROM THE COVERAGE OF THE POLICY:
1. THE FOLLOWING RESTRICTIVE COVENANTS OF RECORD ITEMIZED BELOW ...: NONE OF RECORD
The commitment does not say that there are no restrictive covenants of record on the property the Garretts proposed to buy. It says that a title policy will issue which will not except any restrictive covenants of record. The statement was true: at the closing of the sale, Alamo Title issued the Garretts its title insurance policy in accordance with *80its commitment. The Garretts paid the premium for the policy.
Documents in First Title’s files, which it overlooked, showed that the Garretts’ property was subject to a restrictive covenant prohibiting the operation of an auto salvage yard on the property. Shortly after the Gar-retts opened their business, a neighboring landowner complained and eventually obtained an injunction against their operation. The Garretts sued their sellers and obtained $69,000.00 in settlement of their claims. The Garretts then brought this suit against Alamo Title and its agent, First Title. In addition to their claim against Alamo Title under its policy for the reduction in market value of the property due to the restrictive covenant, which the parties stipulate to be $4,618.00, the Garretts assert two other causes of action against both defendants. The Garretts allege that the title insurance commitment misrepresented that there were no restrictive covenants on the property, and that defendants are liable under the Texas Deceptive Trade Practices and Consumer Protection Act, Tex.Bus. & Com.Code §§ 17.41-63 (“DTPA”), for damages caused by this misrepresentation. The Garretts also allege that defendants were negligent in failing to disclose the existence of the restrictive covenant.
Trial was to a jury, which found that the title insurance commitment represented that the Garretts’ property “had approval, characteristics, uses, benefits, or qualities that it did not have”, and “was of a particular standard, quality, or grade, if it was of another”. See id. § 17.46(5), (7). The jury also found that First Title was negligent in failing to discover the restrictive covenant and disclose it in the commitment. The jury found that the misrepresentations and negligence caused the Garretts to sustain damages totaling $85,500.00: $8,000.00 interest, $8,000.00 past mental anguish, $30,000.00 lost profits, and $39,500.00 for “the difference between the current fair market value of the property as improved and the reasonable amount paid for the property and any necessary improvements.” The trial court rendered judgment for the Garretts for $200,413.69: $85,500.00 awarded by the jury, $2,000.00 statutory damages under the DTPA, $4,618.00 on the policy, $15,000.00 attorney fees in the suit against the sellers, $50,000.00 attorney fees for trial of this suit, $35,000.00 attorney fees for appeal of this suit, and $16,295.69 prejudgment interest, less $8,000.00 previously paid by defendants. In sum, for a title defect which reduced the value of their property by $4,618.00, the Garretts recovered damages, attorney fees, interest and a settlement totaling $277,413.69.
On appeal, defendants contend not only that they are entitled to a credit on the Garretts’ judgment against them for the $69,-000.00 recovered from the sellers, but that they are not liable at all under the DTPA or in negligence. The court of appeals rejected all defendants’ arguments. Regarding liability for negligence, the court acknowledged: “Ordinarily, a title insurance company does not owe a duty to the insured to discover and disclose a title defect. Stewart Title Guar. Co. v. Cheatham, 764 S.W.2d 315, 319 (Tex.App. — Texarkana 1988, wilt denied).” 802 S.W.2d at 257. Nevertheless, the court held that a State Board of Insurance rule “places a duty on the insurer to discover and disclose restrictive covenants, and creates an exception to the general rule of no duty to disclose.” Id. ■ The court also held that the general rule does not preclude liability for misrepresentations under the DTPA:
Thus, a title insurer can be liable under the DTPA for affirmatively misrepresenting that a title defect does not exist, even if it owes no duty to discover and disclose the defect- Alamo Title’s misrepresentation, that no restrictive covenants appeared of record, was actionable under the DTPA regardless of whether it owed a duty to disclose the defect to the Garretts.
Id. at 257-58 (citations omitted). The appeals court affirmed the trial court’s judgment.
I agree with the Court that defendants are entitled to a credit for the $69,000.00 which the Garretts’ sellers paid in settlement. I would also hold, however, that the Garretts may recover only on their title insurance policy and not under the DTPA or for negligence.
*81The Garretts’ DTPA action is based upon their assertion that the language in the title insurance commitment which I have quoted above misrepresents the state of the title to their property. It quite plainly does not. In fact, it says nothing at all about title to the property. It contains the words, “none of record” in the same sentence with the words “restrictive covenants”, but the mere physical proximity of these phrases does not say that there are no restrictive covenants of record. One must read the rest of the sentence. The quoted language says that a title policy will issue excepting and excluding no restrictive covenants of record. This statement (about a future event) was absolutely true: a policy did issue which excepted no restrictive covenants. The statement in the commitment misrepresents nothing; to the contrary, it states exactly what occurred.
The Garretts assert that they were very concerned about the existence of restrictive covenants on the property, and that they took from the statement in the title insurance commitment that no such covenants existed. There is no reason to question these assertions, but the Garretts’ anxieties and expectations cannot transform a statement about what will be excluded from a title policy into a statement about the title of property. The Garretts may have misunderstood the commitment, but they could not have been misled by it.
The Court cites testimony of First Title’s president to the effect that it is customary and usual for people to rely upon a title policy commitment to state the public record of title. From this testimony the Court concludes that the purpose of the commitment is to represent the status of title to the parties to a transaction. This conclusion does not follow from the testimony on which it is based. The reason one may suppose that a title policy commitment lists restrictions or defects in the title to property is that the title company has a financial interest in not insuring against certain contingencies. Since it is in the title company’s interest to list all the exceptions it will not insure against, one may usually suppose the list to be complete. That supposition, although entirely reasonable in most instances, does not transform a statement about what the title insurance will cover to one about what the status of title is.
The existence of a restrictive covenant on the Garretts’ property which defendants did not acknowledge when they issued the title policy does not violate the DTPA. If it did, every claim against a title policy would also be a DTPA claim against the insurer. The purpose of the policy is to indemnify the insured against the possibility that there are title defects unrecognized at the time the policy issues. The policy does not represent that no defects exist, only that if they do, the insurer will pay specified damages. The issuance of a policy that may require payment of a claim is the purpose of title insurance; it is not a violation of the DTPA. See Cheatham, 764 S.W.2d at 318-20.
Of course, this does not mean that title insurers are immune from liability under the DTPA. They may be liable under that statute as any other person. Had defendants told the Garretts that there were no restrictive covenants of record, they could be liable under the DTPA for that misrepresentation. But the commitment does not make that representation, and it is the only communication the Garretts claim to have had with defendants. In the circumstances of this case, there is no evidence that defendants violated the DTPA.
The Garretts also contend, and the jury found, that defendants were negligent in failing to discover and disclose the existence of the restrictive covenant. The Court does not address this contention, which is without merit. Before the Garretts can recover for negligence, they must demonstrate that defendants had a duty to discover and disclose defects in title, which they breached. As the court of appeals recognized, as a rule, title insurers have no such duty. There is no reported decision in Texas to the contrary. Most recently, in Martinka v. Commonwealth Land Title Ins. Co. 836 S.W.2d 773, 777-78 (Tex.App. — Houston [1st Dist.] 1992, writ denied), the court summarized the several cases which have addressed the issue as follows:
Title insurance is a contract of indemnity. [Southern Title Guar. Co. v. Prendergast, 494 S.W.2d 154, 158 (Tex.1973), aff'g 478 *82S.W.2d 806 (Tex.Civ.App. — Houston [14th Dist.] 1972)]; Tamburine v. Center Sav. Ass’n, 583 S.W.2d 942, 947 (Tex.Civ.App.— Tyler 1979, writ ref'd n.r.e.). The relationship between the parties to the contract is basically limited to that of indemnitor and indemnitee. Houston Title Co. v. Ojeda De Toca, 733 S.W.2d 325, 327 (Tex.App.— Houston [14th Dist.] 1987), rev’d on other grounds [sub nom. Ojeda de Toca v. Wise], 748 S.W.2d 449 (Tex.1988), aff'd as modified, 761 S.W.2d 467 (Tex.App. — Houston [14th Dist.] 1988, no writ); Tamburine, 583 S.W.2d at 947.
A title insurance company is not a title abstractor and owes no duty to examine title. See Tamburine, 583 S.W.2d at 947. Further, the only duty a title insurance company has to its insured is to indemnify him against loss suffered by defects in title; the title insurance company owes no duty to point out any outstanding encumbrances. Ojeda De Toca, 733 S.W.2d at 327, citing Wolff v. Commercial Standard Ins. Co., 345 S.W.2d 565, 569 (Tex.Civ.App. — Houston 1961, writ ref'd n.r.e.); Tamburine, 583 S.W.2d at 947. In other words, the title insurance company is not employed to examine title, rather it is employed only to guarantee the status of title and to insure against existing defects. Ojeda De Toca, 733 S.W.2d at 327. As the court in Tamburine correctly stated:
[The title insurance] company, before issuing a policy of title insurance, must necessarily take steps to inform itself of the status of the title to be insured. In the search for the information upon which must depend the decision to either issue or decline to commit itself to a policy, the insurance company obviously investigates the title for its own use and benefit to determine whether it will undertake the risk. The title information on which the company bases its decision relates to the condition of the title held by the grantor and is not made for the prospective grantee or lienholder to whom the policy will finally issue.
Tamburine, 583 S.W.2d at 948-49.
Similarly, the court stated in Stone v. Lawyers Title Ins. Corp., 537 S.W.2d 55, 65 (Tex.Civ.App. — Corpus Christi 1976), rev’d on other grounds, 554 S.W.2d 183 (Tex.1977): “No cause of action for negligence exists against a title company for failure to discover defects in title prior to the issuance of the title policy. The very nature of the relationship between the parties precludes any recovery for negligence.”
Notwithstanding the general rule that title insurers have no duty to discover and disclose title defects, the court of appeals found an exception for restrictive covenants under Rule P-4 of the “Procedural Rules and Definitions” adopted by the State Board of Insurance pursuant to 28 TexAdmin.Code § 9.1 (West 1988). That rule states in pertinent part: “When the examination [i.e., title examination] does not disclose that restrictive covenants affect the applicable land, lien or estate, the [title insurance] Company shall indicate “None of Record” after the restrictive covenant exception prescribed in policy forms.” This rule imposes no duty of discovery on title insurers. No examination is mandated, and no standards for any examination conducted are set. The rule does require disclosure, but only of the results of the examination, not of the state of the title. It does not require the title insurer to state that it has determined that there are no restrictive covenants of record, only that its examination has not disclosed such covenants. The court of appeals’ conclusion that Rule P-4 creates a general duty of discovery and disclosure simply has no support in the language of the rule. Moreover, defendants in this case fully complied with Rule P-4. Their examination did not disclose a restrictive covenant, and accordingly they indicated “None of Record” after the restrictive covenant exception in the commitment form, just as the rule required.
Although the law imposes no duty on title insurers to discover and disclose title defects, they may undertake such a duty, just as abstractors do. Thus, in Great American Mortgage Investors v. Louisville Title Ins. Co., 597 S.W.2d 425 (Tex.Civ.App. — Fort Worth 1980, writ ref'd n.r.e.), the court determined that a title insurer had not merely failed to except a deed restriction from the title policy, but had erroneously stated that *83no restrictions existed. Assuming the accuracy of that determination (the basis of which is not disclosed in the court’s opinion), the court correctly concluded that the title company could be liable for its misstatement:
It is well settled that even though one does not have a duty to act, if one acts voluntarily, he must do so with due care and is generally liable for negligence. In our case whether the title insurer had the duty to disclose the existence of the deed restrictions is immaterial because the [mortgage information letter] and the title binder actually represented that no deed restrictions were in existence. Having made the representation the title insurer is held to the standard of reasonable care and may under the proper circumstances be liable in tort for damages caused by a negligent misrepresentation. In other words, under the proper circumstances the tort of negligent misrepresentation can apply to title insurers.
Id. at 430. By contrast, defendants in this case made no such representations.
Persons who undertake to represent the state of title to property may be liable for their misrepresentations. Title abstractors accept this undertaking regularly. Title insurance companies do not. The purpose of title insurance is not to describe the state of title but to insure against a loss in value due to undisclosed defects. To impose upon title insurers the same responsibility undertaken by abstractors would be to render title insurance useless. Having chosen a title policy, one cannot impose upon the insurer the same duty an abstractor would have assumed.
For these reasons, I would reverse the judgment against First Title and Alamo Title awarding damages for negligence and under the DTP A. I therefore dissent.
Chief Justice PHILLIPS, Justice CORNYN, and Justice ENOCH join in this Dissenting Opinion.