Heyd v. Chicago Title Ins. Co.

• Decision Date: 10 August 1984
• Docket Number: No. 83-547,83-547
• Citation: 218 Neb. 296,354 N.W.2d 154
• Court: Nebraska Supreme Court
• Parties: Glen A. HEYD and Robin L. Heyd, Appellants, v. CHICAGO TITLE INSURANCE COMPANY, Appellee.

Page 154

354 N.W.2d 154

218 Neb. 296

Glen A. HEYD and Robin L. Heyd, Appellants, v. CHICAGO TITLE INSURANCE COMPANY, Appellee.

No. 83-547.

Supreme Court of Nebraska.

Aug. 10, 1984.

Syllabus by the Court

1. Insurance. A standard policy of title insurance is a contract of indemnity which only insures against defects, discrepancies, or other impediments of record affecting title to the real estate designated in the policy or interfering with the marketability of title to the land described in the policy. Such indemnification does not protect the insured from matters dependent upon a survey or critical inspection of the property unless the policy provides for extended coverage or the insured requests special endorsements.

2. Insurance. Unless agreed by a title insurance company or required by a provision of the policy of title insurance, an insurance company has no obligation to obtain a survey of the subject real estate before a policy of title insurance is issued.

3. Insurance. A title insurance company rendering a title report has the duty to use due care regarding inspection of public records.

4. Insurance. A title insurance company which renders a title report and also issues a policy of title insurance has assumed two distinct duties. In rendering a title report the title insurance company serves as an abstracter of title and must list all matters of public record adversely affecting title to the real estate which is the subject of the title report. By issuing a policy of title insurance, a title insurance company has the contractual duties which are imposed by its policy of insurance.

Michael Lehan, Omaha, for appellants.

Joseph Polack of Polack & Woolley, P.C., Omaha, for appellee.

KRIVOSHA, C.J., BOSLAUGH, WHITE, HASTINGS, SHANAHAN, and GRANT, JJ., and COLWELL, District Judge, Retired.

SHANAHAN, Justice.

Glen and Robin Heyd sued Chicago Title Insurance Company (Chicago) in two causes of action. Heyds' first cause of action relates to a loss claimed to be covered under Chicago's policy of title insurance, while Heyds' second cause of action alleges negligence regarding a title report prepared by Chicago. The district court for Douglas County sustained Chicago's demurrer, held that the pleadings could not be amended to state a cause of action, and dismissed Heyds' lawsuit. We affirm in part and reverse in part.

In July 1978 Heyds contracted to purchase a home located on a lot designated as 5939 South 46th Street in Omaha, Nebraska. The seller was Gladys Smith. Heyds obtained a policy of title insurance from Chicago regarding the real estate being purchased from Smith. It was later discovered that the house being purchased was not entirely located within the boundaries of the tract described in the Smith-Heyd real estate contract. The house was in fact partially located on a public street of the city of Omaha.

The policy of title insurance issued by Chicago insures against any loss or damage by reason of "title to the [real] estate ... being vested [in one other than Smith]; any defect in or lien or encumbrance on such title; lack of a right of access to and from the land; or unmarketability of such title." The policy continues: "The estate or interest in the land described herein and which is covered by this policy is: Fee Simple ... in: GLADYS L. SMITH."

Chicago's policy was subject to certain stated and general exceptions specified in the policy, namely,

This policy does not insure against loss or damage by reason of the following exceptions: (1) Rights or claims of parties in possession not shown by the public records. (2) Encroachments, overlaps, boundary line disputes, and any other matters which would be disclosed by an accurate survey and inspection of the premises.

"CONDITIONS AND STIPULATIONS" in Chicago's policy contained the following:

1. Definition of Terms

The following terms when used in this policy mean:

....

(d) "land": the land described, specifically or by reference in Schedule A, and improvements affixed thereto which by law constitute real property; provided, however, the term "land" does not include any property beyond the lines of the area specifically described or referred to in Schedule A, nor any right, title, interest, estate or easement in abutting streets, roads, avenues, alleys, lanes, ways or waterways ....

The policy issued by Chicago to Heyds also provided:

12. Liability Limited to this Policy

This instrument together with all endorsements and other instruments, if any, attached hereto by the Company is the entire policy and contract between the insured and the Company.

Any claim of loss or damage, whether or not based on negligence, and which arises out of the status of the title to the estate or interest covered hereby or any action asserting such claim, shall be restricted to the provisions and conditions and stipulations of this policy.

In their first cause of action Heyds allege a loss covered by Chicago's policy of title insurance, that is, a defect in title to the real estate being purchased from Smith and unmarketability of title to the tract, because the house is not totally situated within the boundaries of the real estate described in the Smith-Heyd contract and Chicago's policy.

Heyds' second cause of action contains the allegation "That [Chicago] was negligent in preparing its title report and title policy for [Heyds]" in failing to correctly examine the records of title and in failing to report defects of title to Heyds.

The demurrer by Chicago alleged that Heyds' amended petition "fails to set forth a cause of action ...." The district court sustained Chicago's demurrer and held that

there is no defect in title to the described property, nor is there any unmarketability of title in the face of the petition and therefore said petition does not state a cause of action .... The Court further determines that the pleadings cannot be amended to state a cause of action and therefore the action should be dismissed at this stage.

In their appeal Heyds maintain they should be allowed to prosecute their action based on contract, that is, the policy of title insurance, and based on Chicago's negligence regarding the title report.

Regarding policies such as that involved in the case before us, it is settled that a standard policy of title insurance is a contract of indemnity which only insures against defects, discrepancies, or other impediments of record affecting title to the real estate designated in the policy or interfering with the marketability of title to the land described in the policy. Such indemnification does not protect the insured from matters dependent upon a survey or critical inspection of the property unless the policy provides for extended coverage or the insured requests special endorsements. See Contini v. Western Title Ins. Co., 40 Cal.App.3d 536, 115 Cal.Rptr. 257 (1974). Unless agreed by a title insurance company or required by a provision of the policy of title insurance, an insurance company has no obligation to obtain a survey of the subject real estate before a policy of title insurance is issued. See Kuhlman v. Title Insurance Company of Minnesota, 177 F.Supp. 925 (W.D.Mo.1959); cf. Offenhartz v. Heinsohn, 30 Misc.2d 693, 150 N.Y.S.2d 78 (1956) (a title insurance company is not required to insure any title or interest to real estate beyond the boundaries of the property described in the policy of title insurance).

"[I]nsurance policies should be construed as any other contract and should be given effect according to the ordinary sense of the terms used; and if those terms are clear, they will be applied according to their plain and ordinary meaning." Hemenway v. MFA Life Ins. Co., 211 Neb. 193, 199, 318 N.W.2d 70, 74 (1982).

However, as expressed in MacBean v. St. Paul Title Insurance Corporation, 169 N.J.Super. 502, 508, 405 A.2d 405, 408-09 (1979):

"When members of the public purchase policies of insurance they are entitled to the broad measure of protection necessary to fulfill their reasonable expectations. They should not be subjected to technical encumbrances or to hidden pitfalls and their policies should be construed liberally in their favor to the end that coverage is afforded 'to the full extent that any fair interpretation will allow.' ..." This doctrine has been specifically applied to title insurance policies. Sandler v. N.J. Title Ins. Co., 36 N.J. 471, 479 (1962).

In Paramount Properties Co. v. Transamerica Title Ins. Co., 1 Cal.3d 562, 569, 463 P.2d 746, 750, 83 Cal.Rptr. 394, 398 (1970), the Supreme Court of California commented about a policy of title insurance: " 'If semantically permissible, the contract will be given such construction as will fairly achieve its object of securing indemnity to the insured for the losses to which the insurance relates.' " (Citing and quoting from Continental Cas. Co. v. Phoenix Constr. Co., 46 Cal.2d 423, 296 P.2d 801 (1956).)

The policy issued by Chicago insures against any loss or damage resulting from a defect or unmarketability of Smith's title to the real estate being purchased by Heyds. The risk covered by Chicago's policy relates to a deficiency of the vendor's, Smith's, rights to or ownership in the land under contract to Heyds and described in the insurance policy. Loss or damage covered by the insurance policy might occur, for example, if Smith did not have absolute ownership (fee simple) in the described real estate. However, the loss or damage alleged by Heyds has resulted from the location of the house, namely, the house not being located within the boundary lines of the land described in the sale to Heyds and the insurance policy. There is no allegation that Smith does not own fee simple title in the real estate. Likewise, Heyds do not allege any aspect of Smith's title which has caused some doubt about or flaw in the validity of Smith's ownership so that marketability of title is impaired.

By general exception (2) in its policy,...