Are consequential damages recoverable under a title insurance policy for the time it takes to attempt to cure a title defect?

• Author: Brown, Mark A.
• Position: Trial Lawyers Forum

In matters of real estate, time usually is of the essence. In a real estate market of declining property values, the ability to close on a sale without delay is of particular importance. If a title defect is discovered and must be cured before the property can be sold, the seller will often make a claim under its title insurance policy and want its title insurer to cure the defect as quickly as possible to avoid a loss of the sale and any decline in property value. Even in appreciating real estate markets, owners and purchasers frequently want to avoid unreasonable delays that could cost them a sale or postpone the development of the property.

For practical and understandable reasons, however, it often can take months before a title defect may be cured without litigation, even where the title insurer acts diligently and makes a concerted effort to cure the defect quickly. Obtaining curative instruments typically depends on the cooperation of parties who may not have a current interest in the property and over whom the title insurer has no control. These third parties may be difficult to identify and locate. Sometimes they are deceased, and their heirs may now hold their interest. Corporations in the chain of title may have merged or dissolved. Moreover, such parties may simply decline to cooperate absent some compensation or the threat of litigation.

If litigation is required to cure title, lawsuits often take years to resolve depending on the nature of the action, the resistance put up by the defendants, the court's docket, and other factors unique to each case.

This article explores what damages an insured may seek when the insured claims the title insurer has taken an unreasonably long time in attempting to cure a title defect covered by the policy. (1) We consider five different factual situations:

* Litigation is successful and results in a judgment curing the title defect, but the insured claims the litigation took too long;

* Litigation is settled before the court makes any final adjudication, and the defect is cured by the settlement, but the insured claims the litigated settlement took too long;

* Litigation is unsuccessful and results in a judgment adverse to title, and the insurer tenders payment under the policy, but the insured claims this resolution took too long;

* The insured claims the insurer unreasonably delayed before bringing the litigation, even if the litigation is successful; and

* The insured claims the insurer unreasonably delayed in trying to resolve the defect without litigation.

Based on the plain language of the title policy, and consistent with Florida case law and sound public policy, this article concludes that, in any of these five scenarios, an insured's claim for damages, and the insurer's corresponding liability for failing to act in a reasonably diligent manner to cure title, are limited by the terms of the policy.

Relevant Provisions of the Title Insurance Policy

Any analysis of these factual situations must begin with the terms of the title insurance policy. There are three initial provisions to consider in the conditions and stipulations of a 1990/92 ALTA Owner's Title Insurance Policy (1992 policy). (2)

Paragraph 4(b) of the 1992 policy provides:

The [c]ompany shall have the right ... to institute ... any action ... which in its opinion may be necessary or desirable to establish the title to the estate or interest or the lien of the insured mortgage, as insured.... If the [c]ompany shall exercise its rights under this paragraph, it shall do so diligently. (Emphasis added.)

Paragraph 8(a) provides:

If the [c]ompany establishes the title, or removes the alleged defect, lien or encumbrance, or cures the lack of a right of access to or from the land, or cures the claim of unmarketability of title, or otherwise establishes the lien of the insured mortgage, all as insured, in a reasonably diligent manner by any method, including litigation and the completion of any appeals therefrom, it shall have fully performed its obligations with respect to that matter and shall not be liable for any loss or damage caused thereby. (Emphasis added.)

Paragraph 8(b) states:

In the event of any litigation by the [c]ompany or with the [c]ompany's consent, the Company shall have no liability for loss or damage until there has been a final determination by a court of competent jurisdiction, and disposition of all appeals therefrom, adverse to the title or to the lien of the insured mortgage, as insured. (Emphasis added.)

The context in which these provisions were drafted should also be considered. Title insurance is not a guaranty that title to the property is free of defects or even that title is as reflected in the policy. (3) Instead, it is a policy of indemnity whereby the insurer agrees to indemnify the insured for actual loss or damage up to the policy limits and subject to the exceptions, exclusions, conditions, and stipulations of the policy, if title is in fact different from what is set forth in the policy. (4)

A policy, thus, contemplates that there may be circumstances in which the policy does not reflect the actual status of title. (5) This can occur for a variety of reasons, including the fact that there may be conveyances or interests that are not of public record, there was fraud or forgery, or there are unidentified deficiencies in the instruments conveying title.

The policy terms expressly provide for how those defects may be addressed by the insurer. As most title defects are curable, many times relatively easily, paragraph 4(b) of the conditions and stipulations grants the insurer the right to seek to cure title as one means of discharging its obligations to the insured. The insurer's right to attempt to cure title has a number of salutary purposes and serves sound public policy. First and foremost, it often means the insurer will remove the defect and thereby confirm title as the parties to the transaction intended. This gives sellers, purchasers, and lenders the confidence they need to commit to their transactions and adds predictability and stability to the real estate market. This also creates a clean and reliable public record for future transactions. Second, it allows the insurer the opportunity to figure out the often technically complicated issue of how title can be corrected without having to incur costly and time-consuming litigation.

Scenarios in Which a Title Insurer's Diligence May Matter

With this background in mind, we consider the effect of these policy provisions in the context of each of the given fact scenarios.

* Litigation that Successfully Cures Title--There are two reported decisions in Florida that discuss whether an insured may pursue consequential damages when the insured believes unreasonable delays occurred while the insurer successfully cured title through litigation. The Fourth District has addressed the question directly in Lawyers Title Ins. Corp. v. Synergism, 572 So. 2d 517 (Fla. 4th DCA 1990), rev. den., 583 So. 2d 1037 (Fla. 1991), and the Second District has addressed it in dicta in Cocoa Properties, Inc. v. Commonwealth Land Title Ins. Co., 590 So. 2d 989 (Fla. 2d DCA 1991). (6)

In Synergism, the insured discovered a neighbor was claiming rights to a portion of its property. (7) The insured sued its neighbor to clear title and the litigation against the neighbor was successful in the trial court. The neighbor appealed, and, while the appeal was pending, the title insurer settled by paying the neighbor for a quit claim deed. The insured claimed the two years and nine months it took to resolve the matter was unreasonable, and it sought damages for the construction delays it experienced during the pendency of the litigation. (8)

The insured argued that, when read together, the provisions in the policy (which were substantially comparable to paragraphs 8(a) and 8(b) quoted above) only gave the insurer a reasonable time to cure title. The insurer argued that subparagraph (b) governed the insured's claim since litigation was employed to cure the alleged defect. The Fourth District agreed with the insurer. It held that, despite the express references in subparagraph (a) to "by litigation or otherwise" and "within a reasonable time," only subparagraph (b) applied since litigation was employed and a favorable determination was rendered by the court. (10) It then quoted Professor Burke's treatise with approval, stating: "The insured's claim must await an adverse title determination by a court. 'The claim only lies once a court speaks, and not before, and not if the court's judgment is favorable.'" (11)

While Synergism dealt with the issue strictly as one of contract interpretation, public policy considerations also support the Synergism court's conclusion. Title to property is frequently contested and, as mentioned above, title insurance policies expressly contemplate litigation. Because litigation is not readily susceptible to quantifiable time periods--particularly with the backlogged dockets in Florida today--the duration of litigation is often beyond the control of an insurer. Thus, allowing an insured to create an issue of fact over whether litigation has been prosecuted with reasonable diligence when there has not been an adverse determination, would create the very uncertainty that paragraph 8(b) is designed to avoid.

The court in Cocoa Properties agreed in dicta with the Synergism court. As discussed in more detail below, the Cocoa Properties court noted that, if the insurer had prosecuted the litigation to conclusion and thereby established title instead of settling with the adverse claimant, the language in paragraph 8(b) would have controlled. The Cocoa Properties court, thus, concluded that a result obtained through successful...