Brown's Tie & Lumber Co. v. Chicago Title Co. of Idaho

• Decision Date: 27 October 1988
• Docket Number: No. 16732,16732
• Citation: 764 P.2d 423,115 Idaho 56
• Parties: BROWN'S TIE & LUMBER COMPANY, an Idaho corporation, Plaintiff-Appellant, v. CHICAGO TITLE COMPANY OF IDAHO, an Idaho corporation; and Chicago Title Insurance Company, a Missouri corporation, Defendant-Respondents. CHICAGO TITLE COMPANY OF IDAHO, an Idaho corporation, Counterclaimant- Respondent, v. BROWN'S TIE & LUMBER COMPANY, Counterdefendant-Appellant.
• Court: Idaho Supreme Court

Page 423

764 P.2d 423

115 Idaho 56

BROWN'S TIE & LUMBER COMPANY, an Idaho corporation, Plaintiff-Appellant, v. CHICAGO TITLE COMPANY OF IDAHO, an Idaho corporation; and Chicago Title Insurance Company, a Missouri corporation, Defendant-Respondents.

CHICAGO TITLE COMPANY OF IDAHO, an Idaho corporation, Counterclaimant- Respondent, v. BROWN'S TIE & LUMBER COMPANY, Counterdefendant-Appellant.

No. 16732.

Supreme Court of Idaho.

Oct. 27, 1988.

Evans, Keane, Koontz, Boyd & Ripley, Boise, for plaintiff-appellant. Blaine F. Evans argued.

Cantrill, Skinner, Sullivan & King, Boise, Idaho, for defendant-respondent, Chicago Title Co. of Idaho. Willis E. Sullivan III argued.

Givens, McDevitt, Pursley, Webb & Buser, Boise, for defendant-respondent, Chicago Title Ins. Co. Charles F. McDevitt argued.

1988 Opinion No. 54, filed June 20, 1988, is hereby withdrawn, and this opinion is substituted therfor.

BAKES, Justice.

This case involves a defaulted land sales agreement and an erroneous reporting of title to real property that allegedly caused damage to the seller. The plaintiff, Brown's Tie & Lumber Company (Brown's Tie), contracted to sell the Quality Inn Motel in Boise, Idaho, to a group of Californians, whose interest as buyers was bought out by Terrance R. Batt. Chicago Title Company of Idaho (Local), one of the defendants here, acted as the closing agent for the sale, and was also designated as the trustee under Brown's Tie's deed of trust. In February 1981, Batt defaulted and Brown's Tie directed Local to proceed with foreclosure and to issue a commitment to insure title to the purchaser at the foreclosure sale. Early the next month, Local issued a foreclosure report and commitment for title insurance. In issuing the commitment, Local acted as agent for Chicago Title Insurance Company (National), the other defendant here. Thereafter, Local gave the required notice of a trustee's sale scheduled for August 3, 1981.

After the statutory time for curing the default had expired, Batt and Brown's Tie began negotiating a consensual cure agreement. Because a feature of the agreement was Batt's promise to cure unauthorized encumbrances against the property, Brown's Tie, in late July 1981 prior to accepting the cure, contacted an employee of Local to receive an update on all encumbrances upon the property. Local advised Brown's Tie that no subsequent liens or encumbrances had been recorded, when in fact Batt had recorded a deed of trust subsequent to issuance of the commitment without the knowledge or consent of Brown's Tie. This instrument, which the parties have termed the Hoback deed of trust, was in the amount of $880,000. Acting upon this information from Local, Brown's Tie decided not to foreclose and allowed Batt to cure.

In August 1981, Batt again defaulted, and Brown's Tie again ordered foreclosure proceedings. Local's foreclosure report and commitment for title insurance failed to report or disclose Batt's deed of trust. A second foreclosure sale was scheduled for January 7, 1982. However, in early November, Local discovered the unreported deed of trust and notified Brown's Tie of its existence. Brown's Tie thereupon made a written claim to Local and National under the title insurance commitment for damages caused by their failure to discover and report the deed of trust, and for damages that might result from any delayed foreclosure sale. Local and National responded with a joint letter dated November 5, 1981. In it they neither admitted nor denied liability. They stated that if the January foreclosure sale were not postponed, Local would resign as trustee, and the title policy given at the sale would include an exception for the deed of trust which Local had initially failed to disclose. Brown's Tie alleges it had no reasonable alternative but to allow postponement of the foreclosure sale. The foreclosure sale was then re-set for March 15, 1982.

Meanwhile, Batt filed bankruptcy proceedings in California, and as a result, the March 1982 foreclosure sale was vacated by a bankruptcy court's restraining order. Brown's Tie contends that the defense of the bankruptcy action was tendered to Local and National, but both rejected the defense. After filing briefs and attending a hearing, Brown's Tie was eventually able to reach a settlement with the bankruptcy trustee. The settlement provided that the foreclosure sale would be allowed to proceed, and that the property would be encumbered by an option in favor of the trustee to purchase the motel on or before May 10, 1982.

Eventually, Brown's Tie, through realtor Paul B. Larsen, was able to obtain a binding sale agreement from a third party by July 23, 1982, and the transaction closed on September 1, 1982, with financing terms for $2.8 million. Thereafter, Brown's Tie demanded compensation from Local and National for damages incurred as a result of the failure to discover Batt's deed of trust. Brown's Tie argues that at no time have Local or National admitted insurance coverage or liability for damages. Brown's Tie's claim was denied by defendants.

Brown's Tie then filed suit, alleging breach of contract, negligence, negligent misrepresentation, breach of fiduciary duty, insurer's bad faith, and unfair claim settlement practices. Brown's Tie sought as damages alleged losses resulting from the delay in the sale of the motel, including operating expenses or losses during the period of delay. Brown's Tie submitted the affidavit of a realtor, Paul B. Larsen, who stated "that had plaintiff regained clear title to the Quality Inn on August 3, 1981, the property could have been sold to other buyers for approximately $2.8 million on or about October 1, 1981."

This certified appeal comes from an entry of partial summary judgment in which the district court essentially said that Brown's Tie had an action in contract, not tort. Brown's Tie assigns error to the dismissal of its claims of negligence, negligent misrepresentation, and insurer's bad faith. Brown's Tie also challenges the trial court's order in limine which excluded evidence of operating expenses and losses during the alleged period of delay, and evidence relating to a hypothetical sale which would have occurred earlier but for the failure to discover and report Batt's deed of trust.

I.

Defendants assert that the trial court properly dismissed plaintiff's tort claims. They cite the case of Anderson v. Title Ins. Co., 103 Idaho 875, 655 P.2d 82 (1982), and argue that the contracts for title insurance and policies are the source of the duties between the parties, not negligence principles. We agree.

In Anderson, the purchasers of real property sought to bring an action in negligence against a title insurance company which had failed under a policy of title insurance to except a properly recorded conveyance. The negligence action was pursued despite the fact that the insurer had tendered the full amount of the policy, such amount equaling the purchase price of the land in question. The substance of the purchasers' argument was as follows "Appellants contend that a title insurance company is liable in tort for failure to discover the conveyance of a portion of purchasers' land to the State of Idaho. Appellants argue that the practice in Idaho is that parties generally buy title insurance and rely on the insurance rather than an abstract of title. Before a purchaser buys property he orders a preliminary title report which tells him that the policy will insure against all encumbrances except those specifically listed in the report. Appellants argue that the purchaser is relying on the title insurer in the same manner in which he would rely on an abstractor of title and therefore the insurer has the same obligation as an abstractor and is liable in tort for errors or omissions." Id., at 876, 655 P.2d at 83.

The Anderson court rejected this argument, noting that the insurance company had not purported to act as anything other than a title insurance company and had not assumed any duties in addition to that of issuing a policy of title. Ford v. Guarantee Abstract and Title Company, Inc., 220 Kan. 244, 553 P.2d 254 (1976), a case in which a title insurance company had acted as an escrow agent, was held distinguishable. Anderson, supra, 103 Idaho at 877, 655 P.2d at 84.

To fall outside the rule of Anderson, it must be shown that the act complained of was a direct result of duties voluntarily assumed by the insurer in addition to the mere contract to insure title. As we explain below in our discussion of damages, negligence liability will not be imposed upon a title insurer absent these additional circumstances because title insurance only insures against damage resulting from defects in the insured's title in the property, and does not represent that the contingency insured against will not occur.

In the instant case, Local has acted as closing agent, as trustee, and as agent for the insurer, National. There are essentially two acts of Local's which form the basis of Brown's Tie's negligence and negligent misrepresentation claims: the first is the July 1981 verbal update of encumbrances by Local; the other is the second commitment for title insurance issued in September 1981, which failed to report the $880,000 Hoback deed of trust.

With regard to the first act, the verbal update in July of 1981, neither the Brown's Tie-Batt deed of trust nor the Idaho Trust Deeds Act, I.C. §§ 45-1502 et seq., establishes a duty on the part of Local to provide such updates. Further, as insurer, Local had fulfilled all of its obligations under its first commitment for title insurance and had, in fact, accurately reported the status of title to the Quality Inn. Because the verbal update was not given pursuant to Local's role as trustee, the Anderson rule applies barring any cause of action based upon negligence for this act. Further, the act does not fall within the Restatement (Second) of Torts § 552 because separate...