Bank v. Integrity Land Title Corp.

• Decision Date: 29 June 2010
• Docket Number: No. 17S03-1002-CV-120.,17S03-1002-CV-120.
• Parties: U.S. BANK, N.A., Appellant (Plaintiff below),v.INTEGRITY LAND TITLE CORP., Appellee (Defendant below).
• Court: Indiana Supreme Court

929 N.E.2d 742

U.S. BANK, N.A., Appellant (Plaintiff below),v.INTEGRITY LAND TITLE CORP., Appellee (Defendant below).

No. 17S03-1002-CV-120.

Supreme Court of Indiana.

June 29, 2010.

Septtimous Taylor, Owensboro, KY, Attorney for Appellant.

Bryce H. Bennett, Jr., Elizabeth C. Green, Indianapolis, IN, Attorneys for Appellee.

On Petition to Transfer from the Indiana Court of Appeals, No. 17A03-0812-CV-577

SULLIVAN, Justice.

A lender seeks to hold a title commitment issuer, with which it had no contractual privity, liable for negligence in failing to uncover a defect during the title search. The title company claims it has no contractual obligation to lender, and that the so-called “economic loss rule” prevents lender from recovering in tort. We provide extensive background on the economic loss rule, a rule that prevents recovery in tort for purely pecuniary harm, and the exceptions to the rule in another case we decide today Indianapolis-Marion County Public Library v. Charlier Clark & Linard, P.C., 929 N.E.2d 722 (Ind.2010). Because we find that the facts of this case fit within one of the exceptions to the economic loss rule, namely the tort of negligent misrepresentation, we hold that applicable tort law permits U.S. Bank's tort claim to go forward.

Background

The facts most favorable to U.S. Bank, N.A. (“U.S.Bank”), the opponent of the summary judgment motion on appeal in this case, indicate that in January 2006, a buyer of real property secured a mortgage loan from lender Texcorp Mortgage Bankers (“Texcorp”) ¹. Prior to the release of funds, Texcorp contracted with Integrity Land Title Corp. (“Integrity”) to prepare a title commitment, conduct the mortgage closing, and provide Texcorp, “its successors and/or assigns, with an insured first and superior mortgage lien against the subject real property.” (Appellant's App. at 331.) Based on its title search, Integrity issued a title commitment which indicated that the title search had uncovered no judgments against the seller of the real property. Based on Integrity's commitment, Southern National Title Insurance Corporation (“Southern”) issued and underwrote a mortgage insurance policy (“the Policy”) naming Texcorp and its successors and/or assigns as the insured. Texcorp approved a mortgage loan in the amount of $123,090.00. In February 2006, the closing was held at Integrity's office in Fort Wayne. Integrity received payment for conducting the closing and the title search, as well as the premium for the Policy.²

Integrity's title search had not revealed a 1998 foreclosure judgment on the property from LPP Mortgage LTD (“LPP”) and in August 2006, LPP filed suit against the owner of the property and Texcorp to enforce and foreclose the 1998 judgment lien. Subsequently, U.S. Bank succeeded Texcorp's interests and intervened in the action. U.S. Bank filed a third-party claim against Integrity and Southern, asserting the following claims: (1) breach of contract, and (2) the tort of negligent real estate closing. In February 2008, the trial court entered judgment and final decree in favor of LPP, and the property was later sold to satisfy the judgment. LPP's lien was adjudicated as a first and superior lien against the property and LPP received all the proceeds from the sale, leaving U.S. Bank without any recourse on its mortgage loan.

The case was next presented to the trial court on U.S. Bank and Integrity's cross-motions for summary judgment. The trial court granted U.S. Bank's motion as to Southern ³ and denied its motion as to Integrity. The court also granted Integrity's motion, stating it was not in breach of contract because it was not a party to the title insurance policy, issued by Southern, and it was not negligent because it owed no duty to U.S. Bank in tort.

U.S. Bank appealed. Initially, the Court of Appeals affirmed in part, and reversed in part. U.S. Bank. N.A. v. Integrity Land Title Corp., 907 N.E.2d 616 (Ind.Ct.App.2009). On the tort claim, the Court of Appeals affirmed, stating under Indiana precedent Integrity owed no duty in tort to U.S. Bank. On the contract claim, the Court of Appeals reversed. However, upon rehearing, the Court of Appeals affirmed its ruling on U.S. Bank's tort claim but vacated its reversal of summary judgment on U.S. Bank's contract claim, thereby affirming the trial court in all respects. U.S. Bank. N.A. v. Integrity Land Title Corp., 907 N.E.2d 616 (Ind.Ct.App.2009) vacated in part on reh'g, 914 N.E.2d 320 (Ind.Ct.App.2009). U.S. Bank sought, and we granted, transfer, thereby vacating the opinion of the Court of Appeals. Ind. Appellate Rule 58(A).

Discussion

I

Integrity has argued at every stage of this litigation that it was not in contractual privity with U.S. Bank. This is a critical point. Were there to be a contract between Integrity and U.S. Bank, the parties in all likelihood would be relegated to their contractual remedies. See Indianapolis-Marion County Pub. Library, 929 N.E.2d at 729 (quoting Miller v. U.S. Steel Corp., 902 F.2d 573, 574 (7th Cir.1990) (Posner, J.)). We adopt Integrity's position that it was not in contractual privity with U.S. Bank, and we summarily affirm the decision of the Court of Appeals as to this issue. Ind. Appellate Rule 58(A)(2).

Given the absence of privity, we turn to U.S. Bank's tort claim. U.S. Bank argues that this is an issue of first impression in Indiana, namely, “whether or not a title company, after issuing an incorrect title commitment in which the recipient ( [lender] ) relied upon to its detriment, owes a duty [in tort] to the recipient to [which] it certified clear title to the subject real property.” (Appellant's Br. at 13.) Integrity responds that under Indiana law, U.S. Bank had no tort cause of action against Integrity because there is no independent tort cause of action for a mortgage company against a title company that issues an incorrect title insurance commitment to the underwriter of the insurance policy.

As we explain in detail in Indianapolis-Marion County Public Library, under longstanding Indiana law, “a defendant is not liable under a tort theory for any purely economic loss caused by its negligence (including, in the case of a defective product or service, damage to the product or service itself).” 929 N.E.2d at 726-27. We go on to note that “[t]his rule precluding tort liability for purely economic loss-that is, pecuniary loss unaccompanied by any property damage or personal injury (other than damage to the product or service itself)-has become known as the ‘economic loss rule [,]’ ” and where injury to a product or service results in purely pecuniary loss, the economic loss rule prevents any recovery. Id. at 727. However, we cautioned that the economic loss rule admits of certain exceptions for purely commercial loss in several special circumstances. See id. at 730-31 “Indiana courts should recognize that the rule is a general rule and be open to appropriate exceptions, such as (for purposes of illustration only) lawyer malpractice, breach of a duty of care owed to a plaintiff by a fiduciary, breach of a duty to settle owed by a liability insurer to the insured, and negligent misstatement.” Id. at 736. See also Restatement (Third) of Economic Torts and Related Wrongs § 12 (Council Draft No. 2, 2007). ⁴

The precise issue presented here concerns the exception of negligent misrepresentation: whether the issuance of a title commitment and subsequently issued title insurance policy give rise in Indiana to a tort cause of action for negligent misrepresentation against a title insurer or commitment issuer, separate and apart from the contractual obligations of the title policy. Courts in our sister jurisdictions are split on the question of whether a title insurer or a commitment issuer can be exposed to liability in tort for negligent misrepresentation regarding the search of title records. Some jurisdictions have refused to impose tort liability on a title insurance company or a commitment issuer. See Brown's Tie & Lumber v. Chi. Title Co. of Idaho, 115 Idaho 56, 764 P.2d 423 (1988) (no claim in tort against both the title insurer and the title commitment issuer for negligent search of the title records); Greenberg v. Stewart Title Guar. Co., 171 Wis.2d 485, 492 N.W.2d 147 (1992) (same). 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. Greenberg, 492 N.W.2d at 151 (“ ‘The title insurance company is not, as is an abstract company, employed to examine title; rather, the title insurance company is employed to guarantee the status of title and to insure against existing defects. Thus, the relationship between the parties is limited to that of indemnitor and indemnitee.’ ”). As to the title commitment issuer, 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 and thus no liability in tort exists for the commitment issuer. Id.

Other jurisdictions have concluded that a title insurance company and the commitment issuer have duties in tort to search for and disclose all recorded title defects and base that duty on the relationship between the parties, rather than on any agreement between them. See Bank of Cal., N.A. v. First Am. Title Ins. Co., 826 P.2d 1126 (Alaska 1992) (holding that a title insurance company and a commitment issuer are subject to liability for negligent misrepresentation when the commitment issuer negligently supplies inaccurate information regarding the state of title in a preliminary commitment); Title Ins. Co. of Minn. v. Costain Ariz., Inc., 164 Ariz. 203, 791 P.2d 1086, 1090 (1990) (remarking that a title company's duty in inspecting records and preparing title reports is...