| ICSC Legal Database - Cases | Monday, February 22, 1999 05:01 PM |
| Citation: |
| Bank of California v. First Am. Title Ins Co., 826 P.2d 1126 (Alaska 1992). |
| Issue: |
| (1) Whether title insurance companies have a duty of care concerning preliminary title information they transmit |
| to customers and consequently may be held liable in tort for misrepresentations made in preliminary |
| commitments for title insurance. (2) Whether language in a preliminary commitment for title insurance stating |
| that "This report and commitment shall have no force or effect except as a basis for the coverage specified |
| herein" constitutes an effective disclaimer of liability for negligence. |
| Facts: |
| Plaintiff, the Bank of California ("Bank"), sued Security Title and First American, defendants/insurers, for |
| negligent misrepresentation and breach of contract. Peter Zamarello and his daughter, Carol Johnson, jointly |
| owned a piece of real estate in Anchorage, Alaska ("the Property"). They wished to develop a strip mall on the |
| Property through Olympic, Inc. Olympic negotiated with Bank for a loan to be secured by a first lien priority |
| deed of trust on the Property. In order to determine the state of the title to the Property, Bank requested a |
| commitment for title insurance from Security Title. Security Title acted as agent for First American Title |
| Insurance Co. and issued a preliminary |
| commitment for title insurance which incorrectly stated that Zamarello exclusively owned a fee simple estate in |
| the Property, failing to mention Johnson's interest in the Property. The loan to Olympic was closed and |
| Zamarello, but not Johnson, deeded the Property to Olympic. In connection with the loan, First American issued |
| a policy of title insurance on the Property. Olympic eventually defaulted on the note. Bank subsequently |
| learned of lohnson's fifty percent interest in the Property and brought suit against Security Title and First |
| American claiming negligent misrepresentation and breach of contract. The trial court granted the latter's motion |
| Holding: |
| Reversed and remanded. (1) This is an issue of first impression in Alaska. Title insurance companies have a |
| duty of care concerning preliminary title information they transmit to their customers. A preliminary |
| commitment, like an abstract of title report, gives interested persons knowledge concerning the state of the title |
| so that they may plan and structure transactions concerning the property. This is a function distinct from that of |
| insurance. Despite disclaimers, a preliminary commitment is normally relied on by insureds, escrow agents, |
| and lenders with full knowledge, and sometimes with the encouragement, of the insurance company. |
| Preliminary 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. (2) Contractual |
| limitations on liability for negligence must be clearly set forth. Consequently, language in the preliminary |
| commitment for title insurance stating that "This report and commitment shall have no force or effect except as |
| a basis for the coverage specified herein" was not an effective disclaimer of liability for negligence, for it fails to |
| clearly disclaim tort liability nor does it clearly state that the title company will not be liable even if it is |
| negligent. The appellate court affirmed the lower court's dismissal of Bank's breach of contract claims, |
| reasoning that it was premature, in view of the viable claims for negligent misrepresentation in tort. |
| Classification 1: |
| Insurance |
| 00144 - Legal Update - Winter 1992 |
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