Michak v. Transnation Title Ins. Co.
| Decision Date | 14 September 2001 |
| Docket Number | No. 25589-8-II.,25589-8-II. |
| Citation | 108 Wash. App. 412,31 P.3d 20 |
| Parties | Patricia S. MICHAK, a single person, Appellant, v. TRANSNATION TITLE INSURANCE COMPANY, an Arizona Corporation, Respondent. |
| Court | Washington Court of Appeals |
Thomas F. Miller, Olympia, for Appellant.
James K. Sells, Ryan, Sells, Uptegraft, Inc., Silverdale, for Respondent.
In this title insurance case, the issue is whether the insurer could change its preliminary commitment without telling its insured. The answer is no. Thus, we reverse the trial court's summary dismissal of the insured's complaint.
In the early 1990's, Brent C. Hart1 owned a 40-acre tract of land in Kitsap County. He obtained ingress and egress by means of two easements, each 30 feet wide, that traversed servient tracts to the west. One easement was recorded under auditor's file number XXXXXXXXXX, and the other was recorded under auditor's file number XXXXXXXXXX. Each easement adjoined the other, so in effect Hart had one easement 60 feet wide.
On June 17, 1994, Hart released the 30-foot easement recorded under auditor's file number XXXXXXXXXX. Someone recorded the release a few days later, according to an auditor's file stamp that appears on its face. Hart retained the 30-foot easement recorded under auditor's number XXXXXXXXXX.
In June or July 1997, Michak agreed to buy Hart's land from Hart's bankruptcy trustee. Their agreement is not in the record.
On July 7, 1997, Transnation issued a preliminary commitment for title insurance. In the insuring provisions, Transnation stated:
Transnation Title Insurance Company, an Arizona Corporation, herein called the Company, for a valuable consideration, hereby commits to issue its policy or policies of title insurance, as identified in Schedule A, in favor of the proposed insured named in Schedule A, as owner or mortgagee of the estate or interest covered hereby in the land described or referred to in Schedule A, upon payment of the premiums and charges therefor; all subject to the exceptions and conditions and stipulations shown herein, the Exclusions from Coverage, the Schedule B exceptions, and the conditions and stipulations of the policy or policies requested.2
In Schedule A, Transnation named Michak as proposed insured and legally described Hart's land, insofar as pertinent here, as "[t]he Northeast quarter of the Southeast quarter, Section 31, Township 27 North, Range 2 East, W.M., in Kitsap County, Washington[,]" together with "an easement for ingress and egress 60 feet in width as described in documents filed under Auditor's File Nos. 7804180111 and 7804180112[.]"3 In Schedule B, Transnation excepted from coverage certain defects, liens and encumbrances, none of which is pertinent here. In a section titled "Commitment Conditions and Stipulations," Transnation stated:
If the proposed insured has or acquires actual knowledge of any defect, lien, encumbrance, adverse claim or other matter affecting the estate or interest or mortgage thereon covered by this Commitment other than those shown in Schedule B hereof, and shall fail to disclose such knowledge to the Company in writing, the Company shall be relieved from liability for any loss or damage resulting from any act of reliance hereon to the extent the Company is prejudiced by failure to so disclose such knowledge. If the proposed insured shall disclose such knowledge to the Company, or if the Company otherwise acquires actual knowledge of any such defect, lien, encumbrance, adverse claim or other matter, the Company at its option may amend Schedule B of this Commitment accordingly, but such amendment shall not relieve the Company from liability previously incurred pursuant to paragraph 3[4] of these Conditions and Stipulations.[5]
After issuing its preliminary commitment, Transnation was informed by Hart's bankruptcy trustee that Hart no longer owned a 60-foot easement. Accordingly, Transnation issued, on August 1, 1997, a two-page document that we will refer to as "the supplemental." The first page was entitled "Supplemental No. 1 to the First Commitment" and stated that the legal description in the preliminary commitment "is amended as hereto attached."6 The second page was untitled and contained only a three-paragraph legal description. That description was the same as the one in the preliminary commitment except in two respects: It omitted any reference to auditor's file number XXXXXXXXXX, and it showed the width of the easement as 30, not 60, feet.
Transnation sent copies of the supplemental commitment to the seller and the seller's broker, but not to Michak.7 According to Michak, whose version we must accept for purposes of this appeal,8 she was not told of the supplemental at that time.
The sale closed on August 8, 1997.9 Michak was asked to sign, and did sign, a number of documents. She did not sign or initial the supplemental's first page, and she does not believe she saw that page. She did initial the supplemental's second, untitled page, which, according to her, she did not scrutinize. Accordingly, she failed to notice that Transnation had reduced the width of the easement.
On August 14, 1997, Transnation issued its final title insurance policy. The policy purported to insure an easement only 30 feet wide.
In early 1998, Michak began developing the property. She then learned for the first time, according to her, that her easement for ingress and egress might not be 60 feet wide. She asked Transnation to explain, and on or about February 18, 1998, she received—for the first time, according to her—a copy of the supplemental commitment.
On November 16, 1998, Michak filed this suit against Transnation. She alleged in part:
The Owners Policy of Title Insurance does not insure the same real property as described in the Commitment For Title Insurance. In particular, the easements [sic] for ingress and egress in the commitment for title insurance is a sixty-foot wide easement and in the owners policy of title insurance, the easement is only thirty feet wide.... [T]he easement under Auditor's file # XXXXXXXXX ... is missing in the Owners Policy of Title Insurance.[10]
She concluded that Transnation had "breached its commitment for title insurance by failing to discover the easement that had been released[.]"11
On March 22, 1999, Transnation answered Michak's complaint. After admitting that it had issued an "owner's policy of title insurance... contain[ing] a different legal description than that contained in the preliminary commitment[,]" it alleged that Michak had "acknowledged receipt of that supplemental by initialing the revised legal description and supplemental document."12 Based on that allegation, it prayed "that the above-entitled action be dismissed with prejudice."13
On October 14, 1999, Transnation filed a motion for summary judgment. On November 10, 1999, Michak filed a cross-motion for summary judgment. The trial court granted Transnation's motion, and Michak filed this appeal.
The appeal involves four questions, the last of which subdivides. (1) Did Transnation and Michak form an enforceable contract when Transnation issued its preliminary commitment and Michak paid the premium therefor? (2) Did the contract obligate Transnation to insure Michak's interest in a 60-foot easement? (3) Did the contract include a mechanism whereby Transnation could alter its preliminary commitment before closing? (4) Does that mechanism apply under the circumstances present here?
The first question is whether Transnation and Michak formed a contract when Transnation issued a preliminary commitment in exchange for a premium. The answer is yes. A contract is formed when two parties enter into an agreement for valuable consideration,14 and Transnation and Michak did that at the time of the preliminary commitment.
The second question is whether the contract obligated Transnation to insure Michak's interest in a 60-foot easement for ingress and egress. Again, the answer is yes. In the insuring clause of its commitment, Transnation promised to insure Michak's ownership of "the estate or interest ... described or referred to in Schedule A,"15 subject to the policy's conditions, stipulations, and exclusions. In Schedule A, Transnation described a 60-foot easement for ingress and egress. Thus, Transnation promised to insure an easement of that width, subject to the policy's conditions, stipulations, and exclusions.
The third question is whether the contract included a procedure whereby Transnation could alter its preliminary commitment before closing. Again, the answer is yes. In the preliminary commitment's second condition, quoted in full above, Transnation stated in pertinent part:
If the proposed insured has or acquires actual knowledge of any defect ... or other matter affecting the estate or interest... covered by this Commitment other than those shown in Schedule B hereof, and shall fail to disclose such knowledge to the Company in writing, the Company shall be relieved from liability.... If the proposed insured shall disclose such knowledge to the Company, or if the Company otherwise acquires actual knowledge of any such defect ... or other matter, the Company at its option may amend Schedule B of this Commitment[.][16]
This condition has two sentences, and the first clause of the first sentence is embolded for ease of reference below.
The key question is whether Transnation can rely on the second condition under the circumstances present here. Michak argues that Transnation could amend its preliminary commitment to reduce the width of the easement only if she had actual knowledge at closing that she would receive only a 30-foot easement.17 She lacked such knowledge, she says, because no one told her about the supplemental; no one told her that the legal description she initialed at closing had been changed after issuance of the preliminary commitment; and she did not notice that it had been changed....
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Michak v. Transnation Title Ins. Co., 71783-4.
...and in a split decision, the Court of Appeals reversed the trial court, remanding for further proceedings. Michak v. Transnation Title Ins. Co., 108 Wash.App. 412, 31 P.3d 20 (2001). (1) Did anything in the Commitment preclude Transnation from amending the legal description of the property ......