Greenberg v. Stewart Title Guar. Co.

• Court: Wisconsin Supreme Court
• Writing for the Court: BABLITCH
• Citation: Greenberg v. Stewart Title Guar. Co., 171 Wis.2d 485, 492 N.W.2d 147 (Wis. 1992)
• Decision Date: 30 November 1992
• Docket Number: No. 91-0497,91-0497
• Parties: , 19 A.L.R.5th 1048 Martin J. GREENBERG, Plaintiff-Appellant, v. STEWART TITLE GUARANTY COMPANY, Defendant, Southeastern Wisconsin Title Company, Inc., Defendant-Respondent.

Page 147

492 N.W.2d 147

171 Wis.2d 485, 19 A.L.R.5th 1048

Martin J. GREENBERG, Plaintiff-Appellant, v. STEWART TITLE GUARANTY COMPANY, Defendant Southeastern Wisconsin Title Company, Inc., Defendant-Respondent.

No. 91-0497.

Supreme Court of Wisconsin.

Argued Sept. 2, 1992.

Decided Nov. 30, 1992.

For the plaintiff-appellant there were briefs (in the court of appeals) by Michael S. Polsky, Steven R. Schnoll and Trebon & Polsky, Milwaukee and oral argument by Michael S. Polsky.

For the defendant-respondent there was a brief (in the court of appeals) by David C. Williams and Allen, Harrison, Williams, McDonell & Swatek, Lake Geneva and oral argument by David C. Williams.

Amicus Curiae brief was filed by J. Bushnell Nielsen, Joshua G. Vincent and Hinshaw & Culbertson, Milwaukee for Wisconsin Land Title Ass'n.

BABLITCH, Justice.

The issue presented is whether the issuance of title commitments and subsequently issued title insurance policies give rise in Wisconsin to a tort cause of action against the title insurer and/or its issuing agent separate and apart from the contractual obligations of the title policy. Martin J. Greenberg (Greenberg), the appellant, obtained from Stewart Title Guaranty Company, through its agent, Southeastern Wisconsin Title Company, four owner's title insurance policies in the amount of $250,000 each, which insured the interest in title in four condominiums. When Greenberg was unable to sell the condominiums because of an alleged defect in title, he contended that Stewart and Southeastern were liable not only under the contract, but in addition, for damage in tort for negligence. The circuit court held that the relationship between the parties involved a contract of indemnity and that no tort liability existed in Wisconsin law. We agree, and affirm the judgment of the circuit court.

The relevant facts follow. Martin Greenberg, the appellant, and John Huber (Huber) purchased four condominium units in Lake Geneva, Wisconsin. Before acquiring the condominiums, Greenberg and Huber contacted Stewart Title Guaranty Company (Stewart) through its agent, Southeastern Wisconsin Title Company (Southeastern). Title commitments were provided to Greenberg and Huber. A title commitment is a document which describes the property as the title insurer is willing to insure it and contains the same exclusions and general and specific exceptions as later appear in the title insurance policy. Joyce Dickey Palomar, Title Insurance Companies' Liability For Failure to Search Title and Disclose Record Title, 20 Creighton L.Rev. 455, 462 n. 39 (1986-87) (citing Levinson, A Return to Policy Limits in Prac.L.Inst. Title Insurance In Current Transactions 1983, 278 (1983)). Greenberg stated in his deposition that he received the title commitments from either Stewart or Southeastern.

Stewart, through its agent, Southeastern, then issued owner's title insurance policies insuring Huber's and Greenberg's title interest in the condominiums. Huber and Greenberg purchased the condominiums and, after acquisition, used the units to secure loans from several banks. Huber quitclaimed his interest in the condominiums to Greenberg, who decided to sell the units. Greenberg alleges that he was unable to sell the units because certain liens and encumbrances against the property made it impossible for him to transfer marketable title. He further alleges that, as a result, his lending institutions obtained a foreclosure judgment, and, after a sheriff's sale of the units, deficiency judgments were entered against him in the amount of $564,771.71.

Greenberg made a claim to Stewart alleging that the titles were unmarketable. Stewart denied the claim and Greenberg brought suit against Stewart and Southeastern. His complaint alleged five claims for relief: (1) negligent misrepresentation; (2) negligence; (3) breach of fiduciary duty; (4) breach of contract; (5) lack of good-faith and fair dealing. Specifically, as to the first cause of action, Greenberg's complaint alleges that Southeastern and Stewart "breached the duties they owed to Greenberg under ... common law by failing to disclose liens and encumbrances and facts relating to same which were known to ... [them]." Under the second cause of action the complaint alleges that Stewart and Southeastern "owed Greenberg a duty to base the title insurance commitments and policies for the Units on reasonably diligent searches of the public records," and that they "breached their duties to Greenberg by failing to make reasonably diligent searches ... which would have disclosed liens and encumbrances of record showing title to the Units to be unmarketable...." The circuit court dismissed the first two claims holding that the relationship between the parties involved a contract of indemnity and that no tort liability existed in Wisconsin law. The circuit court dismissed the third claim because Greenberg's complaint did not allege any facts from which the court could find a fiduciary duty. The circuit court ordered further briefing on the breach of contract claim and Greenberg voluntarily dismissed the fifth claim. In addition, the circuit court dismissed Southeastern as a party to the action because the only claim remaining in the lawsuit was the breach of contract claim and, as the agent, Southeastern was not a party to the contract.

Greenberg appealed from the judgment dismissing Southeastern as a party, and the court of appeals certified the following issue to this court: "Is a title insurance company liable in tort for failure to discover a title defect or does such liability sound in contract only?" We accepted certification from the court of appeals.

Greenberg maintains that he can sue a title insurance company for negligence because the issuance of a title commitment and a title insurance policy places a common law duty on a title company to search and disclose any reasonably discoverable defects in title. According to Greenberg, this duty is separate and distinct from the title company's contractual duties under the title insurance policy. We disagree.

Courts in other jurisdictions are split on the question of whether a title insurance company can be exposed to liability in tort for negligence in searching records. Some courts and commentators have concluded that a title company should be liable in tort as well as in contract if it negligently fails to discover and disclose a defect. See Title Ins. Co. v. Costain Arizona, 164 Ariz. 203, 207, 791 P.2d 1086, 1090 (Ariz.App.1990); Shada v. Title & Trust Co. of Fla., 457 So.2d 553 (Fla.App.1984); Ford v. Guarantee Abstract and Title Co., Inc., 220 Kan. 244, 553 P.2d 254 (Kan.1976); Heyd v. Chicago Title Ins. Co., 218 Neb. 296, 354 N.W.2d 154 (1984); Joyce Dickey Palomar, Title Insurance Companies' Liability For Failure to Search Title and Disclose Record Title, 20 Creighton L.Rev. 455 (1986-87); Comment, Title Insurance: The Duty To Search, 71 Yale L.J.1161 (1961-62). "The underlying notion [of these opinions] is that the insured has the reasonable expectation that the title company will search the title." Walker Rogge, Inc. v. Chelsea Title & Guar. Co., 116 N.J. 517, 562 A.2d 208, 218 (N.J.1989).

Other jurisdictions have refused to impose tort liability on title insurance companies. See Brown's Tie & Lumber v. Chicago Title, 115 Idaho 56, 764 P.2d 423 (Idaho 1988); Anderson v. Title Ins. Co., 103 Idaho 875, 655 P.2d 82 (Idaho 1982); Horn v. Lawyers Title Insurance Corporation, 89 N.M. 709, 557 P.2d 206 (N.M.1976); Stewart Title Guar. Co. v. Cheatham, 764 S.W.2d 315 (Tex.App.1988); Houston Title Co. v. Ojeda de Toca, 733 S.W.2d 325 (Tex.App.1987), rev'd on other grounds Ojeda de Toca v. Wise, 748 S.W.2d 449 (Tex.1988). 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. 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. We find this reasoning, particularly the reasoning of Justice Pollock of the New Jersey Supreme Court in Walker Rogge, persuasive.

In Rogge, the insured, Walker Rogge, Inc. (Rogge), sued a title insurance company when it discovered that the acreage of the tract of land it purchased was approximately 12 acres, instead of the approximate 19 acres Rogge thought it had purchased. In support of its negligence claim, Rogge pointed to the title company's separate charge for a title examination and to its reliance on the title company to conduct a reasonable search. In response to Rogge's arguments, Justice Pollock, writing for the majority, stated:

Although we recognize that an insured expects that a title company will conduct a reasonable title examination, the relationship between the company and the insured is essentially contractual. The end result of the relationship between the title company and the insured is the issuance of the policy. To this extent, the relationship differs from other relationships conceivably sounding in both tort and contract, such as the relationship between physician and patient, to which plaintiff alludes. Although the relationship between physician and patient is contractual in its origins, the purpose of the relationship is to obtain the services of the physician in treating the patient. The patient reasonably expects the physician to follow the appropriate standard of care when providing those services. By contrast, the title company is providing not services, but a policy of insurance. That policy appropriately limits the rights and duties of the parties.

From this perspective, the insured expects that in consideration for payment of the premium, it will receive a policy of insurance. The insurer's expectation is...