Archambo v. Lawyers Title Ins. Corp.
| Decision Date | 25 June 2002 |
| Docket Number | Docket No. 118508, Calendar No. 4. |
| Citation | 466 Mich. 402,646 N.W.2d 170 |
| Parties | Clarence G. ARCHAMBO, III, Plaintiff-Appellant, v. LAWYERS TITLE INSURANCE CORPORATION and Cheboygan Title Company, Defendants-Appellees. |
| Court | Michigan Supreme Court |
Timothy P. MacArthur, Cheboygan, for the plaintiff-appellant.
Powers & Hilal (by Bridget Brown Powers), Petoskey, and Richard A. Smith, Cheboygan, for the defendants-appellees.
Mark F. Makower, Farmington Hills, and Pepper, Hamilton & Scheetz L.L.P. (by Vicki R. Harding), Detroit, for the Real Property Law Section of the State Bar of Michigan.
We granted leave to appeal in this case to consider whether defendants, a title search company and a title insurer, are liable to plaintiff under a policy of title insurance, where plaintiff failed to disclose to defendants a known recorded tax lien as required by the title insurance commitment, but not required by the subsequently issued title insurance policy. Following a bench trial, the trial court ruled in plaintiff's favor, concluding that the policy is controlling, and thus that plaintiff is not excluded from coverage for failing to disclose a known recorded tax lien. The Court of Appeals reversed the judgment of the trial court and held that the commitment is controlling, and thus that plaintiff is excluded from coverage for failing to make such a disclosure. This Court then remanded this case to the Court of Appeals for it to consider whether it had erred in relying on the commitment in light of the integration clause in the policy. On remand, the Court of Appeals concluded that the policy "never became effective" because of "plaintiff's breach of the conditions precedent in the title insurance commitment." We disagree.
The commitment provides that nondisclosure of "any defect, objection, lien or encumbrance" of which the insured has "personal knowledge or intimation" shall render the policy null and void as to that undisclosed "defect, objection, lien or encumbrance." 1 This language is not, as the Court of Appeals held, a condition precedent to the effectiveness of the policy; instead, it attempts to impose a condition subsequent because, rather than attempting to prevent the policy from becoming effective, it attempts to render an already effective policy null and void as to any undisclosed known liens. Accordingly, plaintiff's failure to disclose the known lien did not prevent the policy that the defendants issued from becoming effective. Further, because the policy contains an integration clause that evidences an intent to abrogate the commitment, the policy supersedes the commitment. Therefore, plaintiff is not excluded from coverage under § 3(b) of the policy for failing to disclose the known tax lien because the policy does not require such disclosure. Accordingly, we reverse the decision of the Court of Appeals and remand this case to that Court to decide whether coverage is excluded under § 3(a) of the policy, which excludes coverage for liens "created, suffered, assumed or agreed to by the insured claimant ...," an issue that was raised by defendants, but not addressed by the Court of Appeals, given its conclusion that coverage is excluded under § 3(b).
Plaintiff was one of three shareholders of a corporation that was formed in or about 1980 and that has ceased to exist since 1985. Plaintiff apparently had no role in the payment of corporate taxes or in the handling of the corporation's books and records,2 and thus was unaware that the corporation had failed to pay its withholding taxes for the year of 1985. However, because of the corporation's failure to pay such taxes, the Internal Revenue Service in 1987 filed a lien against plaintiff, as well as the other two shareholders.3
After the corporation's demise, plaintiff formed a new company. This new company built a home for Victoria Bonus. In 1992, when a dispute arose regarding Ms. Bonus' ability to pay for the home, plaintiff purchased the home from her. At this point, plaintiff allegedly believed that there was no longer a tax lien in his name.4
First of America Bank financed plaintiff's purchase of the home and obtained title insurance from Cheboygan Title Company, an agency of Lawyers Title Insurance Corporation, which failed to discover the tax lien.5 The commitment and policy ordered by the bank insured plaintiff's interest as owner of the home.6 When plaintiff subsequently sold the property to Mr. and Mrs. Roberts, in 1993, the tax lien was discovered.7 In order to clear the title, plaintiff had to borrow money from the bank in order to pay the IRS. Plaintiff subsequently brought suit against defendants to recover this payment and the interest that he has had to pay on that loan.
The commitment between the parties required disclosure of known liens, whether publicly recorded or not.8 It specifically provided:
This commitment is delivered and accepted upon the understanding that the party to be insured has no personal knowledge or intimation of any defect, objection, lien or encumbrance affecting subject land other than these set forth herein and in the title insurance application. Failure to disclose such information shall render this commitment and any policy issued pursuant thereto, null and void as to such defect, objection, lien or encumbrance.
The subsequently issued policy, however, only required disclosure of known unrecorded liens.9 The policy also included an integration clause.10
Following a bench trial, the trial court ruled in plaintiff's favor, holding that the policy controlled. The Court of Appeals, in a split decision, reversed, holding that the commitment breached by plaintiff in not disclosing the known tax lien effectively voided the policy. The dissenting judge stated that the policy controlled because of the integration clause. Plaintiff filed a motion for rehearing, which was also denied in a split decision. This Court then remanded this case to the Court of Appeals,11 which affirmed its previous decision, with the original dissenting judge again dissenting. Subsequently, this Court granted plaintiff's application for leave to appeal. 465 Mich. 884, 636 N.W.2d 137 (2001).
This case involves issues concerning the proper interpretation of contracts, which are questions of law that are subject to de novo review by this Court. Henderson v. State Farm Fire and Casualty Co., 460 Mich. 348, 353, 596 N.W.2d 190; 460 Mich. 348, 596 N.W.2d 190 (1999).
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...
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