Court Opinion

ID: 9851457
Source: CourtListenerOpinion
Date Created: 2023-09-24 05:13:02.023804+00
Date Added: 2024-06-11T09:20:56.706203
License: Public Domain

Reed, C.J.
(dissenting) — I believe the majority has misconstrued the exclusionary language of Commonwealth's title insurance policy. Therefore, I dissent.
The policy Commonwealth provided for the Tumwater State Bank specifically stated that Commonwealth would not be liable for "Defects, liens, encumbrances, adverse claims, or other matters (a) created, suffered, assumed or agreed to by the insured claimant ..." There is no question that at the time Tumwater accepted the original deed of trust in 1980, and at the time it renewed the loan in early 1981, it knew of the Heritage liens. Later in 1981, when the new owners sought a second title insurance policy, they were also aware that those liens had existed 6 months earlier.1 Of course, as the majority has noted, knowledge on the part of the insured is not enough to bar coverage if the encumbrance is covered by the policy. Lawyers Title Ins. Corp. v. Research Loan & Inv. Corp., 361 F.2d 764, 767-68 (8th Cir. 1966). See also Shotwell v. Transamerica Title Ins. Co., 91 Wn.2d 161, 588 P.2d 208 (1978).
However, the record here clearly demonstrates not only knowledge, but acceptance of those liens. Tumwater's chairman of the board, Bill Hamilton, testified that the bank had been willing to accept a junior lienor's position because it was given substantial additional collateral in the Burkharts' business assets. Tumwater's admitted acceptance of these encumbrances brings it squarely under the policy exclusion.
In view of this fact, whether Tumwater knew the senior liens still existed at the time it requested the Commonwealth title policy is irrelevant. Generally speaking, the parties to a title insurance policy are free to define what *175losses or encumbrances they intend to cover. Lawyers Title Ins. Corp. v. Research Loan & Inv. Corp., 361 F.2d at 768. These parties specifically agreed that encumbrances agreed to by Tumwater were not covered. Tumwater cannot now use its own failure to keep tabs on the Heritage liens to invoke coverage it never had.
Neither can this clear acceptance of the prior encumbrances be ignored because it was not acknowledged or expressed to the insurer. There is no such requirement, either in the policy or in case law. In fact, the courts that have construed such exclusions have held that such words as "accepted," "assumed," "agreed to" in exclusionary clauses like the one before us refer to the transaction between grantor and grantee, not insurer and insured. See Lawyers Title Ins. Corp. v. Research Loan & Inv. Corp., supra; Rudolph v. Title & Trust Co., 402 So. 2d 1275 (Fla. Dist. Ct. App. 1981); Malkin v. Realty Title Ins. Co., 244 Md. 112, 223 A.2d 155 (1966); First Nat'l Bank & Trust Co. v. New York Title Ins. Co., 171 Misc. 854, 12 N.Y.S.2d 703 (1939).2
This rule is not inconsistent with the result in First Nat'l Bank v. Fidelity Nat'l Title Ins. Co., 572 F.2d 155 (8th Cir. 1978), cited by the majority. In that case, there were allegations and evidence of a specific agreement between the insured and the insurer, by which the title company agreed to insure a first lien status, even though it knew First National Bank did not possess one. No collateral agreement is alleged here.
Finally, even if the Heritage liens had been covered by the policy, I cannot agree that Tumwater is entitled to damages. The bank is entitled to recover only for actual loss arising from, the causes insured against. See Miebach *176v. Safeco Title Ins. Co., 49 Wn. App. 451, 743 P.2d 845 (1987); Securities Serv., Inc. v. Transamerica Title Ins. Co., 20 Wn. App. 664, 669-70, 583 P.2d 1217, review denied, 91 Wn.2d 1008 (1978).3 It sought and acquired only a third place lienor's position, relying on other assets for security. Its investment was lost because the IRS seized those assets. Commonwealth did not insure that additional collateral and should not be held to answer for it here.
I would therefore reverse the judgment, and award Commonwealth's attorney's fees for services both in the trial court and on appeal.

Tumwater admitted, both at the trial and in its appellate brief, that it had acquired actual knowledge of these liens from the loan file maintained by its former owners.

In deciding that the mortgagee bank had not "agreed to" the invalidating of its mortgage by a bankruptcy court, the New York court observed, "The words 'assumed or agreed to' had reference to some particular defect or encumbrance assumed or agreed to by the bank by the title conveyance to it or by some collateral agreement made by the bank with reference to that specific subject-matter." First Nat'l Bank & Trust Co. v. New York Title Ins. Co., at 858.

While there continues to be some disagreement among courts regarding the nature of title insurance, the distinctions are immaterial here. Whether they define the policy as a contract of indemnity or a warranty, the courts generally have agreed that recovery can be no greater than the actual loss resulting from defects insured against. See also First Commerce Realty Investors v. Peninsular Title Ins. Co., 355 So. 2d 510 (Fla. Dist. Ct. App. 1978); Drilling Serv. Co. v. Baebler, 484 S.W.2d 1 (Mo. 1972); L. Smirlock Realty Corp. v. Title Guar. Co., 97 A.D.2d 208, 469 N.Y.S.2d 415 (1983). In Securities Serv., Inc. v. Transamerica Title Ins. Co., supra, and Miebach v. Safeco Title Ins. Co., supra, the measure of damages was different because the kinds of losses were different.