Izynski v. Chicago Title Ins. Co.

• Decision Date: 07 March 2012
• Docket Number: No. 45A04–1106–PL–277.,45A04–1106–PL–277.
• Citation: 963 N.E.2d 592
• Parties: Ronald E. IZYNSKI and Linda Izynski, Husband and Wife, and Ronald E. Izynski and Linda Izynski, Successors by Assignment to Charles P. Ashton, and Charles P. Ashton and Frederick M. Cuppy as Co–Trustees of the Joyce W. Ashton Trust, as Amended, Appellants–Plaintiffs, v. CHICAGO TITLE INSURANCE COMPANY, Appellee–Defendant.
• Court: Indiana Appellate Court

963 N.E.2d 592

Ronald E. IZYNSKI and Linda Izynski, Husband and Wife, and Ronald E. Izynski and Linda Izynski, Successors by Assignment to Charles P. Ashton, and Charles P. Ashton and Frederick M. Cuppy as Co–Trustees of the Joyce W. Ashton Trust, as Amended, Appellants–Plaintiffs,

v.CHICAGO TITLE INSURANCE COMPANY, Appellee–Defendant.

No. 45A04–1106–PL–277.

Court of Appeals of Indiana.

March 7, 2012.

John P. Reed, Jonathan E. Halm, Abrahamson, Reed & Bilse, Hammond, IN, Attorneys for Appellants.

John R. Halstead, Querrey & Harrow, Merrillville, IN, Attorney for Appellee.

OPINION

MAY, Judge.

Ronald and Linda Izynski bought real estate in Porter County from Charles Ashton. The land was burdened with an easement that was publicly recorded but was not indicated on numerous versions of a title commitment issued by Chicago Title Insurance Company (Chicago Title). The Izynskis sued Chicago Title for breach of contract and negligence, and after a bench trial the trial court found for Chicago Title. We reverse and remand.

FACTS AND PROCEDURAL HISTORY

Patrick McLane contracted to buy certain real estate from Ashton. Chicago Title issued title commitments ¹ for the proposed McLane transaction. It issued the first and second commitments in May 2003 in connection with the McLane transaction. The Izynskis entered into their purchase agreement for the Ashton property four months later. Pursuant to that agreement Ashton was to provide the Izynskis with a commitment for title insurance in order to insure the Izynskis had marketable title. Chicago Title then issued to the Izynskis a series of title commitments.

None of the commitments it issued before the Izynskis agreed to purchase the property showed a fifty-foot-wide easement (“the 1979 easement”) running across the property to provide access for repair and maintenance of a dam. The easement was at all times publicly recorded, but Chicago Title either did not find it in its title search or did not disclose it to the Izynskis. The conveyance of the property was to be by “general Warranty Deed ... subject to all special exceptions which will be contained in the title insurance policy” unless the parties agreed otherwise. (App. at 311.)

Chicago Title prepared a third revised commitment dated September 23, 2003, the day after the Izynskis entered into the purchase agreement. It was the same as the earlier commitments issued to McLane but handwritten changes indicated, among other things, the Izynskis were now the buyers. It showed an effective date ² of August 14 and there was an indication it was printed October 10. It was sent by fax to the Izynskis' counsel October 27. A fourth revision was dated November 3. None of these four revisions to the commitments indicated the fifty-foot easement across the property, nor did they indicate certain buildings on the property encroached on the easement.

While the commitments did not show the 1979 easement, they did show an agreement Ashton and the Shorewood Corporation entered into in 1972 captioned “Agreement for Exchange of Land and for Granting Flowage Easement.” ( Id. at 428) (“the 1972 agreement”). It provided the parties contemplated the construction of a dam and lake, part of which would be on the Ashton property. Access to the dam would be difficult due to a conveyance of land from Shorewood to Ashton, so the agreement provided Ashton would “provide or permit some reasonable access” to the dam “if [Shorewood] shall require such access in the future.” ( Id. at 430.) This agreement was listed on every commitment Chicago Title issued to McLane and the Izynskis.

On September 22, 2003, the day before the scheduled closing, Ronald Izynski learned of the 1979 easement in a conversation with the manager of the Shorewood property owners' association. Ronald Izynski told the real estate agent he would not close until he learned more about the easement. Ashton demanded the Izynskis proceed with the closing and threatened to sue the Izynskis for nearly $70,000 if the closing did not take place by October 31, 2003. Ashton, the Izynskis, and the property owners' association agreed to move the easement so the existing buildings would no longer encroach on it. The new location of the easement limits the Izynskis' ability to use one of the lots where they had contemplated building. The Izynskis testified the value of their property was therefore diminished. The Ashtons reduced the purchase price by $5,000.

Other events delayed the closing. On September 26, 2003, Chicago Title learned Joyce Ashton had died over a year earlier, which meant an estate had to be opened so its trustee could consent to the sale; those issues were resolved November 7. The week after that, Chicago Title issued a fifth revised commitment, which showed, for the first time, the encroachment on the easement. It also included an endorsement “insuring over the encroachment.” ³ (Appellant's Br. at 13.) The sale to the Izynskis closed on April 15, 2004, and Chicago Title was paid $1545.00 in title insurance premiums.

DISCUSSION AND DECISION

When, as in the case before us, the trial court finds the facts specially and states its conclusions thereon pursuant to Ind. Trial Rule 52, the reviewing court will not set aside the findings or judgment unless clearly erroneous, and due regard is given to the opportunity of the trial court to judge the credibility of the witnesses. McGinley–Ellis v. Ellis, 638 N.E.2d 1249, 1252 (Ind.1994). The purpose of special findings is to provide the parties and the reviewing courts with the theory on which the judge decided the case in order that the right of review for error may be effectively preserved. Id. Accordingly, courts reviewing judgments entered under T.R. 52 are not at liberty simply to determine whether the facts and circumstances contained in the record support the judgment. Rather the evidence must support the specific findings, which in turn must support the judgment. Id. If the findings and conclusions, even when construed most favorably to the judgment, are clearly inconsistent with it, the decision must be set aside regardless of whether the record contained evidence that would have been sufficient to sustain the decision. Id.

1. Breach of Contract

The Izynskis asserted in their complaint that the various errors in the title commitment represented both negligence on Chicago Title's part and a breach of its contract with them. The trial court found the Izynskis were “in contractual privity with [Chicago Title] by virtue of the existence of the preliminary title commitment and the final policy issued by Chicago Title to the Izynskis.” ⁴ (App. at 24) (emphasis added). Because Chicago Title and the Izynskis had a contract, the court said, no tort action was available to the Izynskis: “[U]nder the Indiana Supreme Court's holding in [ U.S. Bank, N.A. v. Integrity Land Title Corp., 929 N.E.2d 742 (Ind.2010) ], they have no claim for negligent misrepresentation and are relegated to their contractual remedies.” ( Id.)

That was error. While the Izynskis and Chicago Title presumably had a contractual relationship with regard to the title insurance policy Chicago Title ultimately issued when the Izynskis bought the property, it does not appear there could have been contractual privity between those parties when the Izynskis entered into the agreement to buy the property from Ashton. As noted above, the first three in the series of erroneous title commitments were issued to a different prospective buyer, McLane. On September 23, 2003, the day after the Izynskis signed the purchase agreement, the title commitment issued to McLane was revised to reflect it was being issued to the Izynskis. Therefore, we agree with Chicago Title that “the Izynskis did not rely on any Chicago Title commitment issued to them when they entered into the purchase agreement.” ⁵ (Appellee's Br. at 33) (emphasis added). As there was no contractual relationship between the Izynskis and Chicago Title when the Izynskis entered into the agreement to purchase Ashton's property, Chicago Title could not be liable for breach of contract.

2. Negligent Misrepresentation

In Integrity, 929 N.E.2d at 746, our Indiana Supreme Court addressed, in the context of an action for negligent misrepresentation, the duty of a title commitment issuer, separate and apart from the contractual obligations of the title policy. It noted

preliminary commitments for title insurance ... provide an essential service to prospective buyers and lenders. They are told what transactions must take place before they can receive clear title or an effective security. We agree with the authorities which hold that there may be tort liability for misrepresentations made in preliminary commitments for title insurance. In our view, such commitments provide an essential service to prospective buyers and lenders. They are told what transactions must take place before they can receive clear title or an effective security.

Id. (quoting Bank of California, N.A. v. First Am. Title Ins. Co., 826 P.2d 1126, 1129 (Alaska 1992)).

Our Indiana Supreme Court noted insureds, escrow agents, and lenders normally rely on preliminary title reports, and insurance companies not only have full knowledge of this reliance, but also sometimes encourage it. Id. (citing Bank of California, 826 P.2d at 1129). Title searches are frequently required in situations involving transactions in which the state of the title must be known accurately or the customer foreseeably will suffer harm that is both certain and direct. Id. at 749. Title insurers give a preliminary commitment to property purchasers or lenders before the closing of the real estate transaction. Id. The buyer or lender then may negotiate with the seller or borrower for the removal or any listed title defects, bargain to pay a lower amount to take subject to those risks, or rescind the transaction. Id. The buyer or lender who receives a clear preliminary commitment...