The interpretation of [subsections] 7(a) and 7(b) of title policies under Florida law: Synergism revisited.

• Author: Rader, Shawn G.
• Position: Title insurance

People are often mistaken about the coverage afforded by their title policies. Many believe that their policy guarantees that their title is as reflected on the policy.[1] Many believe a mortgagee policy offers the same coverage as an owner's policy.[2] Others believe if a defect is found in their title which is covered by the policy, that they will be entitled to damages regardless of the title insurance company's actions to cure the defect. It is this last misconception which is the subject of this article.

Under the American Land Title Association (ALTA) title insurance policy forms adopted in Florida with modifications, a title company is given the right to bring any action or proceeding which, in its opinion, might be necessary to establish title to the estate or interest as insured or to prevent or reduce loss or damage to the insured. The language contemplates the right of the title insurance company to bring litigation for this purpose. For an insured in this situation, the question which immediately arises is: Who will be liable for damages incurred by the insured pending a final resolution of such litigation? For example, if the insured is a land developer whose project is halted because of a title defect which the title insurance company seeks to resolve by litigation, is the title insurance company liable for the mortgage payments, redevelopment costs, lost interest, lost profit, and the like resulting from the delay--even if the title company is ultimately successful in its curing litigation?

Until this year, only two Florida district courts of appeal had addressed this issue. The Fourth DCA addressed it in the case of Lawyers Title Insurance Corporation v. Synergism, 572 So. 2d 517 (Fla. 4th DCA 1990), rev. den., 583 So. 2d 1037 (Fla. 1991), and the Second DCA in Cocoa Properties, Ina v. Commonwealth Land Title Insurance Company, 590 So. 2d 980 (Fla. 2d DCA 1991). Since the publication of these opinions, their holdings have been adopted by the appellate court in one state and rejected by courts in three other states. Consequently, it was not certain in which direction the Fifth DCA would lean when given the opportunity to review the issue earlier this year.

This article will examine the Synergism and Cocoa Properties cases, their acceptance and rejection in foreign jurisdictions and the decision of the Fifth DCA in the case of Huntleigh Park, Inc. v. Stewart Title Guaranty Company, 717 So. 2d 1037 (Fla. 5th DCA 1998).

Synergism and Cocoa Properties Cases

Because the published opinion in the Synergism case is fairly brief, the breadth of the decision can only be understood by examining the final judgment entered by the Palm Beach circuit court which was reversed by the Fourth DCA. In Synergism, the insured under an owner's title policy bought a large tract of undeveloped farm land in Palm Beach County with the intention of developing it. Shortly after the purchase, the insured became aware of a claim by the adjoining property owner to a 70-foot strip along the northern boundary of the property. The insured submitted a claim under its title insurance policy to Lawyers Title Insurance Corporation, which initially commenced negotiation with the adjoining property owner to purchase the 70-foot strip. When this was unsuccessful, Lawyers Title brought a suit to quiet title in the insured to the 70-foot strip pursuant to [sections] 4 of the policy, which in part reads as follows: 4. Defense and prosecution of actions; duty of insured claimant to cooperate.

(b) The company shall have the right, at its own cost, to institute and prosecute any action or proceeding or to do any other act which in its opinion may be necessary or desirable to establish the title to the estate or interest, as insured, or to prevent or reduce loss or damage to the insured. The company may take any appropriate action under the terms of this policy, whether or not it shall be liable hereunder, and shall not thereby concede liability or waive any provision of this policy. If the company shall exercise its rights under this paragraph, it shall do so diligently.

(c) Whenever the company shall have brought an action or interposed a defense as required or permitted by the provisions of this policy, the company may pursue any litigation to final determination by a court of competent jurisdiction and expressly reserves the right, in its sole discretion, to appeal from any adverse judgment or order.

Using this right under the policy, Lawyers Title brought suit to quiet title to the 70-foot strip in the insured. During the pendency of the litigation, the insured's damages mounted. The insured was required to return deposits to purchasers whose contracts were lost. The insured had to continue making mortgage payments on its acquisition and construction loan. The insured also incurred redevelopment costs as a result of having to reposition utility lines which had been located in the 70-foot strip. Two years and nine months after bringing the suit, Lawyers Title finally succeeded in obtaining a judgment favorable to the insured and quieting title to the insured in the 70-foot strip. The insured then demanded that Lawyers Title reimburse it for the damages it had suffered during the pendency of the action. Lawyers Title refused, citing [sections] 7 of the policy, which read as follows:

7. Limitation of Liability (a) If the company 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 a claim of unmarketability of title, 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.

(b)...