by Mark A. Brown and Christopher W. Smart
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.9 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 litigation would have precluded any challenge to the time it took the insurer to attempt to cure title.
More recently, the U.S. District Court for the Southern District of Texas, applying Florida law (discussed at greater length below), similarly followed the Synergism court’s holding.12
The established rule of Synergism is, therefore, that no claim for damages, consequential or otherwise, may be maintained against an insurer for delays during the pendency of curative litigation, and not at all if that litigation is successful in curing the title defect, even if the litigation is appealed and then subsequently settled.
• Litigation that is Settled Prior to Final Adjudication — Like most lawsuits, litigation over title matters rarely goes to trial and often does not even see a final adjudication by the court on the merits. Instead, once the parties and their counsel have had the opportunity to size up their respective positions through discovery and mediation, most lawsuits over title matters are settled.
Given that title litigation settles more often than not, the question becomes whether the rule in Synergism applies where the insurer brings a suit to cure title and the litigation is settled by the insurer before any final adjudication by the court.
In fact, although Synergism involved a situation in which the insurer brought an action to quiet title and actually won at the trial court level, the case was settled while on appeal.13 Thus, there had not been a “disposition of all appeals” as contemplated in paragraph 8(b) when the insurer in Synergism settled the litigation. The Synergism court nevertheless held that the policy limitation embodied in paragraph 8(b) applied, and the insurer was not liable for any damages because there was litigation and there had not been a final determination adverse to title.14
While there is no case law directly on this point in Florida, the reasoning of the Synergism court applies just as persuasively, perhaps even more so, to settlements that are reached prior to any determination on the merits by the trial court. If the rule in Synergism applied only where the insurer obtained a favorable judgment, it could have the unintended consequence of actually protracting litigation and further tying up the insured property, potentially while its market value declines. Consider the case where an insurer files suit to cure title and is prevailing. If the protection of paragraph 8(b) were to apply only where the insurer obtains a favorable judgment, the insurer would have an incentive to turn down a reasonable settlement offered prior to judgment, merely in order to gain the protection of paragraph 8(b). Such a result is not consistent with the intent of paragraph 8(b), does not favor the insured, and would make poor public policy as it could actually delay an insured’s receipt of good title. The reasoning in Synergism, the terms of the policy, and public policy all favor a construction that an insurer may settle and rely on the protection afforded under paragraph 8(a), as long as the insurer acts in a reasonably diligent manner.
• Litigation that Fails to Cure Title — As mentioned above, the Second District Court of Appeal agreed with Synergism in dicta in Cocoa Properties stating that, had the insurer successfully established title in favor of the insured in the litigation, “paragraph 7(b) of the policy would control . . . . Paragraph 7(b) provides that a claim does not arise or is not maintainable until there is a final judicial determination adverse to the title.”15
The issue in Cocoa Properties, however, did not involve a favorable litigation decision. Instead, an insured owner who had a pending contract to sell its property was named as a defendant in a foreclosure suit by a mortgagee whose interest was not listed as an exception in the insured’s title policy.16 The title company defended the action on behalf of the insured, but before any trial was held, it entered into a settlement with the mortgagee. Pursuant to that settlement, a foreclosure judgment was entered in favor of the lender, which was then assigned to the title company, and the title company thereafter voluntarily dismissed the action in order to clear title.17
The insured then sued the title company.18 It claimed the insurer had failed to offer to insure the property in favor of the insured’s purchaser while the litigation was pending, which caused the insured to lose its sale, and failed to remove the cloud on its title in a reasonable period of time.19
The Second District held that since the insurer did not receive a favorable ruling in the foreclosure action, it “did not perfect title through litigation.”20 The court held that the insurer “gambled on litigation, and after losing in the trial court, finally cleared the title through a purchase.”21 As such, the court found that, under subparagraph (a), the insured could claim the insurer did not remove the defect within a reasonable period of time. It, therefore, permitted the insured to proceed with its claim.22
The Cocoa Properties court’s reliance on subparagraph (a) appears appropriate, but does not reach the next logical question: What damages are recoverable if an insurer fails in its efforts to establish title through litigation and has to cure title otherwise? Another paragraph of the policy must be examined to evaluate this issue.
Paragraph 7 of the conditions and stipulations of the 1992 ALTA Loan Policy specifies how damages are calculated and places limits on an insurer’s liability. Paragraph 7 provides:
This policy is a contract of indemnity against actual monetary loss or damage sustained or incurred by the insured claimant who has suffered loss or damage by reason of matters insured against by this policy and only to the extent herein described.
(a) The extent of liability of the [c]ompany under this policy shall not exceed the least of:
i. the [a]mount of [i]nsurance stated in Schedule A….
ii. the amount of the unpaid principal indebtedness secured by the insured mortgage…at the time the loss or damages insured against by this policy occurs, together with interest thereon; or
iii. the difference between the value of the insured estate or interest as insured and the value of the insured estate or interest subject to the defect, lien or encumbrance insured against by this policy.23
The question is, therefore, whether paragraph 7 limits an insurer’s liability if litigation to cure title is unsuccessful and the insured contends the insurer did not act diligently.24
To date, no reported decision applying Florida law has ruled directly on this issue. As discussed in the following section, however, a federal court in Texas has ruled in an analogous context that paragraph 7 does not limit the liability of an insurer if the insurer breaches its duty to act diligently in curing title defects. That conclusion appears to throw the baby of a contractually agreed limitation on liability out with the bathwater of the insurer’s failure to cure in a diligent manner. For the reasons described below, that decision does not appear to be correct and is not based on sound reasoning or good public policy. Paragraph 7 should limit an insurer’s liability whether the curative litigation contemplated by the policy is successful or not.
• Delay Prior to Commencing Litigation or When Curing Title Without Litigation — In Premier Tierra Holdings, Inc. v. Ticor Title Ins. Co of Florida, Inc., WL 2313206, *1 (S.D. Tex. June 9, 2011), an insured lender who was preparing to take a deed in lieu of foreclosure discovered two defects in title to the property. The insured lender gave notice of the defects to Ticor. Six months later it sued Ticor for breach of the title insurance policy claiming Ticor had acted unreasonably in not having cured title yet. Ticor moved to abate the case in order to allow it to complete its attempts to cure the defects and the court granted Ticor’s unopposed motion and abated the case. Ticor then completed its cure of both title defects — one through litigation and the other by obtaining curative instruments from third parties. The insured then took a deed in lieu of foreclosure and pursued its claim for damages for the decrease in the value of the property from the date of the discovery of the defects until title was cured.25
Although it involved Florida property and a Florida title insurance policy, the litigation was filed under diversity jurisdiction in federal court in Texas. As the title policy insured property in Florida and was negotiated, underwritten and issued in Florida, the court found that Florida law controlled.26 The Premier Tierra court determined that the Florida Supreme Court had not ruled on any of the issues in question and, therefore, concluded it had to make an “Erie guess” and predict what the Florida Supreme Court would most likely decide.27 In doing so it said it should give deference to Florida intermediate appellate court decisions unless convinced that the highest court would decide otherwise.28
Ticor moved for summary judgment arguing that it had not breached the policy as it had cured title to the property through litigation and was, thus, not liable under paragraph 8(b).29 Ticor also argued that the insured had not suffered a compensable loss because its loss could not yet be determined pursuant to the policy as the property had not yet been sold and, in addition, that it was not liable for any diminution in value to the property after the insured took title by a deed in lieu because the defects had been cured.30
The Premier Tierra court considered both Synergism and Cocoa Properties in determining whether paragraph 8(b) precluded Ticor’s liability.31 Consistent with those decisions, the Premier Tierra court granted Ticor’s motion for summary judgment for the damage claimed by the insured arising from the defect that Ticor cured in litigation while that litigation was pending, holding that “because Ticor cured the second title defect by litigation, [p]aragraph 8(b) precluded any claim for losses that occurred while the lawsuit was pending.”32
However, the Premier Tierra court found that two of the delays claimed by the insured were not precluded by paragraph 8(b); specifically, it found that alleged delays 1) which occurred before the insurer commenced the curative litigation and 2) in curing the other title defect without litigation, were not barred by paragraph 8(b).33 The Premier Tierra court held instead that paragraph 8(b) insulated the insurer only from liability for the one claim that involved litigation to cure title, and only for the time the litigation was pending.34
The Premier Tierra court went on to consider whether paragraph 7(a) applied to limit the insurer’s liability for the two alleged delays.35 Ticor argued that the insured lender had suffered no loss based on the fact that the insured lender had taken a deed in lieu of foreclosure from its borrower shortly after Ticor had cured the title defects.36 Ticor argued the insured was required to sell the property pursuant to 7(a) in order for it to determine the amount of the unpaid indebtedness and, hence, the extent of its compensable loss, if any, under the policy.37 As the property had not yet been sold at the time of Ticor’s motion for summary judgment, Ticor argued the lender’s loss could not yet be determined under paragraph 7(a)(iii).38 Ticor also argued that, if the insured’s damages were measured as of the date the property was transferred from the borrower to the insured lender pursuant to the deed in lieu, any decrease in the value of the property subsequent to that date was attributable solely to market conditions and not the title defects because, by that date, the defects had already been cured.39
The Premier Tierra court rejected both of Ticor’s arguments, and held that paragraph 7 applied to limit an insured’s damages only with respect to uncured title defects, not with respect to a claim that the insurer breached a duty to cure title with reasonable diligence.40 It further concluded that if the provisions of paragraph 7 were applied to a claim for breach of a duty to cure with reasonable diligence, the insured would be left without a remedy.41
Finding no authority addressing the measure of damages in a claim for failure to cure title defects diligently, the Premier Tierra court reviewed what it considered the analogous situation of a title insurer breaching its duty to defend.42 Relying on secondary authorities, the Premier Tierra court noted that, in instances of a breach of a duty to defend, the limitation in paragraph 7(a) for a breach of title would not apply.43 The Premier Tierra court concluded that “[b]y parity of reasoning, then, a title insurer who has materially breached its covenant to act with reasonable diligence in curing title defects cannot require its insured to comply with other contract terms, such as policy loss limitations when the insurer is paying the claim according to the policy’s terms.”44 Thus, the Premier Tierra court held that the limitation on losses in paragraph 7 did not apply to losses arising from an insured’s claim for breach of the insurer’s covenant to act diligently.45
Premier Tierra Incorrectly Rejected the Limitations of Liability in the Policy
Independent of the arguments advanced by Ticor in the litigation, there are a number of other problems with the Premier Tierra court’s rejection of the limitations on liability in the policy.
First, and most importantly, the plain language of paragraph 7 covers an insurer’s failure to diligently cure title and should be given effect.46 It states: “This policy is a contract of indemnity against actual monetary loss…by the insured claimant who has suffered loss or damage by reason of matters insured against by this policy. . . . The extent of liability of the Company under this policy shall not exceed. . . .”
A claim for a loss due to a delay in curing title exists because 1) a title defect arose, and 2) the insurer failed to cure the defect diligently. A title defect is “[a] matter insured against by th[e] policy,” and the duty to cure the defect diligently is a duty that arises “under [the] policy.” Therefore, if an insurer breaches the duty to diligently cure a “matter insured against by th[e] policy,” the insurer has breached a duty created “under [the] policy.” As such paragraph 7 applies to such a claim and the insurer’s liability for a breach of the policy is limited by its express terms to the lesser of the insured’s actual loss or the policy amount.
Second, contrary to the Premier Tierra court’s reasoning, a limitation on a covered loss in a title policy is not a contractual obligation of the insured. The Premier Tierra court’s statement that an insurer who breaches a duty under a policy “cannot require its insured to comply with other contract terms” is incongruous with the limitation on liability provision in paragraph 7.47 Unlike performance of a contract term, from which a contracting party may be relived in the event of the other party’s breach, the limitations on liability in paragraph 7 do not require “performance” or “compliance” by an insured. Rather, the parties agreed at the time they entered the contract that, in the event the insured suffers a loss due to a title defect, the insurer will not be exposed to unlimited liability and the measure of the insured’s damages will be as set forth in the policy. It would rewrite the policy to allow the insured to claim damages in excess of the express policy limitations.48
Third, early in its opinion, the Premier Tierra court held that the applicable rules of construction required that ambiguities in the policy be interpreted against the insurer.49 This holding is premised on the rule of construction that a contract is to be construed against its drafter, presumably on the assumption that the drafter had the opportunity to formulate the terms in its favor. Where the insurer does not draft the policy, the rule of construing ambiguities in a policy against the insurer does not apply. The Premier Tierra court’s reasoning, thus, suggests that title insurers draft title insurance policies in Florida. This is a misunderstanding of how title insurance policies and rates are adopted in Florida.
In Florida, all provisions of title insurance policies are established by the state. While a national title insurance trade organization, the American Land Title Association (ALTA), drafts and promotes standardized terms, the state of Florida is the final arbiter of what terms will be adopted. In addition, the state has adopted its own unique modifications to the standard ALTA policy forms.50 Thus, in Florida, where the state, not the insurer, determines the language of the policy, the rule of construction of interpreting the policy against the insurer applied by the Premier Tierra court does not apply.51
The state of Florida also sets the rates that must be charged for the risks assumed under title insurance policies, and it establishes the reserves that insurers must maintain to cover the claims the state calculates are actuarially likely to occur under those policies.52
This state control of what risks will be assumed under title policies, what rates must be charged, and what reserves must be established, is part of Florida’s comprehensive regulatory scheme, which balances a number of important interests: 1) keeping title insurance rates reasonably low for the benefit of all consumers; 2) attracting title insurers to do business in the state by assuring them a reasonable rate of return on their investment; and 3) protecting the solvency of the title insurance industry so consumers may be reimbursed in the event of a defect in title.53 Rates are charged under a formula based strictly on the amount of the policy, and an insurer’s liability is, therefore, intended to be limited to no more than the amount of the policy.54 If there were no limitation on the liability of the insurer as a result of a title defect, then the reserves required to be maintained, and the rates set by the state, would quickly fall out of step with the increased risks, and premiums would likely be increased to account for that additional risk.
Moreover, the limitation of liability in paragraph 7 addresses exactly the losses that an insured might incur should an insurer unreasonably delay curing title. A careful reading of paragraph 7 demonstrates this.
The formula for determining the amount recoverable under Paragraph 7 of an owner’s policy is the lesser of a) the policy limits, and b) the difference in value between the property as insured and the property with the defect. So if the insured owner can prove the insurer failed to act with reasonable diligence in attempting to cure the defect (either before litigation was filed, through unsuccessful litigation, or through efforts to cure without litigation), the first question is how much loss the insured actually incurred for the time that the insurer unreasonably delayed its efforts to cure title.
If an owner had a contract for sale that the insured proves was lost because of the insurer’s unreasonable delay, then “the difference between the value of the insured estate or interest as insured and the value of the insured estate or interest subject to the defect” would be whatever loss the insured incurred as a result of the loss of the sale, up to the limits of the policy.
Let us assume, for example, that an insured owner can prove that he or she had a willing buyer who would have purchased the property on day X for $100,000 and that, if his title insurer had exercised reasonable diligence, the title insurer should have been able to cure the title defect on day X. The title insurer fails to act with reasonable diligence, however, and, as a result, title is not cleared until day X, plus 180 days, at which point the property has declined in value to $80,000. The difference in value between the property as insured (i.e., not subject to the defect and capable of being sold on day X for $100,000), and subject to the defect (i.e., not capable of being sold until day X plus 180 days for $80,000), is $20,000. That is the loss to which the insured owner would be entitled under the policy if it could be shown that the 180-day delay was due to the insurer’s lack of reasonable diligence.
The analysis applies with equal force to an insured lender who is subject to the additional limitation of the loss being limited to the amount of the unpaid indebtedness at the time the loss occurs. If a lender can prove that the insurer’s unreasonable delay prevented it from realizing on its collateral, then the lender can collect the amount by which the delay diminished the value of the collateral, so long as the lender proves its actual loss (i.e., the debt at the time the delay occurred, less the value of the collateral had no delay occurred). In any event, the loss payable is capped by the policy limits.
Paragraph 7, thus, provides a remedy that both accounts for the insured’s loss, including loss for delay, and limits the insurer’s liability to the amount of the policy. Absent the contractually agreed limitations of paragraph 7, a title insurer would face potential exposure far beyond the risks it agreed to assume and built into the rate structure established by the Florida Legislature. This would subject title insurers, and the premium that is charged to consumers, to the sometimes wild fluctuations of the Florida real estate market. In light of the recent excesses in real estate speculation around the country and in Florida in particular, subjecting insurers to potentially unlimited liability would not make for sound public policy.
Florida law is clear that if an insurer successfully cures title through litigation, the insured is precluded from pursuing damages, including damages for any alleged delays that occurred during the pendency of the litigation.55 This same principle and reasoning should apply when the insurer litigates and settles before any adjudication is reached, thereby curing the defect.
If an insurer unreasonably delays in bringing curative litigation, engages in litigation to try to cure title but fails, or unreasonably delays in curing title without litigation, the insured may have a claim against the insurer if the insurer did not act with reasonable diligence in trying to cure the title defect.56 There is presently no case law in Florida addressing what damages may be recovered by an insured who proves its insurer failed to act with reasonable diligence in curing a title defect.
This article has shown, however, that the express terms of the title insurance policy, the existing cases in Florida, Florida’s statutory and regulatory scheme for title insurance, and strong public policy, all firmly support an outcome that both provides the insured with a reasonable and contractually based remedy for any loss due to delay and, at the same time, limits the insurer’s liability to the policy amount. The courts in Florida should not follow an out-of-state case that dispenses with paragraph 7 of the policy “guessing” as to what the Florida Supreme Court might conclude when the framework set forth above and grounded in the contractually agreed to paragraph 7 of the policy leads to the right conclusion, and one that would not require a change in policy.57
1 An earlier article by the authors addresses whether consequential damages are recoverable when there is a partial failure of title, but does not address claims that the title insurer failed to act diligently. See Mark A. Brown & Christopher W. Smart, Are Consequential Damages Recoverable From Title Insurers or Has There Been “A Change in Policy?,” 81 Fla. B. J. 60 (Oct. 2007).
2 The 1990/1992 ALTA Loan Policy contains these same three provisions. Effective March 1, 2011, the Florida Office of Insurance Regulation approved and adopted the 2006 ALTA Owner’s Title Insurance Policy and the 2006 ALTA Loan Title Insurance Policy (the “2006 policies”). The 2006 policies also contain essentially the same three provisions.
3 “It is well-settled that ‘a title insurance policy is not an agreement to guarantee the state of title, but is, rather, an agreement to indemnify the policy holder.’” La Minnesota Riviera, LLC v. Lawyers Title Ins. Corp., 2007 WL 3024242, *2 (M.D. Fla. 2007) (quoting Youngblood v. Lawyers Title Ins. Corp., 923 F.2d 161, 163 n. 2 (11th Cir. 1991)); CMEI, Inc. v. American Title Ins. Co., 447 So. 2d 427, 428 (Fla. 4th D.C.A. 1984) (Florida title insurance policies are contracts of indemnity “under which the insurer agrees to indemnify the insured up to a specific amount against loss or damage resulting from liens, encumbrances or title defects and claims within its coverage”); but see Morton v. Attorney’s Title Ins. Fund, Inc., 32 So. 3d 68, 71 (Fla. 2d D.C.A. 2009) (“Because the policy functions as a guaranty, the buyer who purchases title insurance reasonably expects to be protected against defects which appear of record.”); McDaniel v. Lawyers’ Title Guaranty Fund, 327 So. 2d 852, 855 (Fla. 2d D.C.A. 1976) (“The title insurance company is in the business of guaranteeing the insured’s title to the extent it is affected by the public records.”).
4 Lawyers Title Ins. Corp. v. Synergism, 572 So. 2d 517, 518 (Fla. 4th D.C.A. 1990), rev. den., 583 So. 2d 1037 (Fla. 1991) (“A title policy indemnifies rather than guarantees the state of insured title”).
5 Id. (“The policy does not guarantee that litigation will not occur, but, in fact, assumes the opposite, that many types of title defect litigation can occur.”); Barlow Burke, Law of Title Insurance §2.01[A](1) at 2-6 (3d ed. supp. 2010), quoting Lawrence v. Chicago Title Ins. Co., 237 Cal. Rptr. 264, 266 (Cal. Ct. App. 1987) (“Title insurance is a contract for indemnity under which the insurer is obligated to indemnify the insured against losses sustained in the event that specific contingency, e.g., the discovery of a lien or encumbrance affecting title occurs. The policy of title insurance, however, does not constitute a representation that the contingency insured against will not occur.”).
6 Both Synergism and Cocoa Properties are reviewed in depth in Shawn G. Rader, The Interpretation of 7(a) and 7(b) of Title Policies Under Florida Law: Synergism Revisited, 78 Fla. B. J. 46 (Jan. 1999). That article also describes another Florida decision which is consistent with Synergism and Cocoa Properties — Huntleigh Park v. Stewart Title Guaranty Co., 717 So. 2d 1037 (Fla. 5th D.C.A. 1998) — but was affirmed per curiam and, therefore, is not precedential. The article further discusses several out-of-state cases that have adopted or rejected the Florida cases.
7 Synergism, 572 So. 2d at 518.
9 Id. The relevant provisions in Synergism and Cocoa Properties are from an earlier version of the policy but are substantially similar to paragraphs 8(a) and 8(b) of the 1992 policy, and read as follows: “No claim shall arise or be maintainable under this policy (a) if the [c]ompany, after having received notice of an alleged defect, lien or encumbrance insured against hereunder, by litigation or otherwise, removes such defect, lien or encumbrance or establishes the title, as insured, within a reasonable time after receipt of such notice; (b) in the event of litigation until there has been a final determination by a court of competent jurisdiction, and disposition of all appeals therefrom, adverse to the title, as insured, as provided in paragraph 3 hereof; or (c) for liability voluntarily assumed by an insured in settling any claim or suit without prior written consent of the [c]ompany.”
10 Synergism, 572 So. 2d at 518.
11 Id., quoting Barlow Burke, Law on Title Insurance §9.4.3 (1986 & 1988 supp.).
12 Premier Tierra Holdings, Inc. v. Ticor Title Ins. Co. of Florida, Inc., No. 4:09-02872, 2011 WL 2313206 (S.D. Tex. June 9, 2011).
13 Synergism, 572 So. 2d at 518.
15 Cocoa Properties, 590 So. 2d at 991 (citing Synergism, quoting Barlow Burke, Law on Title Insurance §9.4.3 (1986 & 1988 supp.).
16 Id. at 990.
20 Id. at 991.
23 Subparagraph ii appears only in the loan policy, not the owner’s policy.
24 The 2006 policies add the following language to paragraph 8(b): “If the [c]ompany pursues its rights under §5 of these [c]onditions [to defend or prosecute a claim through litigation] and is unsuccessful in establishing the [t]itle, as insured, (i) the [a]mount of [i]nsurance shall be increased by 10 percent, and (ii) the [i]nsured [c]laimant shall have the right to have the loss or damage determined either as of the date the claim was made by the [i]nsured [c]laimant or as of the date it is settled and paid.”
This provision affords an insured greater coverage if litigation fails to cure title. Thus, an insured under the new policy can recover up to 10 percent more if its actual loss is greater than the amount of the policy and the insured can choose between two dates for purposes of calculating its loss.
25 Premier Tierra, 2011 WL 2313206 at*1.
26 Id. at *2.
27 Id. at *3.
29 Id. at *4.
30 Id. at *7-*8.
31 Id. at *5-*6.
32 Id. at *7.
35 Id. at *7-*8.
36 Id. at *8.
37 Id. at *7.
39 Id. at *8.
40 Id. at *9.
41 Id. at *8.
43 Id. at *9 (citing to Joyce Palomar, Title Insurance Law §10:18 (2010)).
46 See, e.g., Lawyers Title Ins. Corp. v. Wells, 881 So. 2d 668, 669 (Fla. 5th D.C.A. 2004) (giving effect to the plain meaning of the usury exclusion); Title & Trust Co. of Florida v. Parker, 468 So. 2d 520, 524 (Fla. 1st D.C.A. 1985) (courts will give effect to the valid provisions of a title insurance policy).
48 See, e.g., Youngblood v. Lawyers Title Ins. Corp., 923 F. 2d 161, 164 (11th Cir. 1991) (citing to Newmand v. St. Paul Fire and Marine Ins. Co., 456 So. 2d 40, 41 (Ala. 1984), for the proposition that courts are not at liberty to rewrite title insurance policies). Under certain circumstances, some Florida courts have allowed an insured in an action for breach of an insurance policy to seek recovery for consequential damages such as lost profits and delay damages “that arise naturally from the breach or those that were in the contemplation of the parties at the time the contract was made.” Life Investors Inc. Co. of Amer. v. Johnson, 422 So. 2d 32, 34 (Fla. 4th D.C.A. 1982); Travellers Ins. Co. v. Wells, 633 So. 2d 457, (Fla. 5th D.C.A. 1993) (“Although [payment for the loss suffered by the insured as if the insured had been covered] is normally the measure of damages for breach of an insurance contract, it is not exclusive. Consequential damages or resulting collateral damage may also be recovered if it [sic] can be sufficiently proved. It is possible to recover damages sustained by the wronged (uninsured) party, not because of the occurrence of the contingency which should have been insured against, but because of the breached contract, such as lost profits.”); Essex Builders Group, Inc. v. Amerisure Ins. Co., 485 F. Supp. 2d 1302, 1306-07 (M.D. Fla. 2007) (granting defendant’s motion for summary judgment on plaintiff’s claim for consequential damages for breach of a CGL insurance policy, but noting that defendant’s cases “do not suggest that the types of consequential damages [plaintiff] seeks here can never be recovered. In fact, there is Florida decisional authority suggesting that in appropriate circumstances, an insured may recover consequential damages when its insurer’s breach of contract causes the insured’s business to fail.”). Because title insurance policies expressly limit the liability of the insurer, however, and provide for how damages are to be calculated, these cases are distinguishable from cases involving title insurance policies. Significantly, the Florida Supreme Court recently held that Florida law does not recognize a claim for breach of the implied warranty of good faith and fair dealing by an insured against its insurer based on the insurer’s failure to investigate and assess the insured’s claim within a reasonable period of time. QEB Ins. Corp. v. Chalfonte Condo. Apt. Ass’n, Inc. v, Case No. SC09-441 (Fla. May 31, 2012). This significant development in Florida law was unavailable to the Premier Tierra court at the time it made its Erie guess as to what the Florida Supreme Court would have held under the circumstances of that case.
49 Premier Tierra, 2011 WL 2313206 at *4 (citing Penzer v. Trasnp. Ins. Co., 29 So. 3d 1000, 1005 (Fla. 2010)).
50 Fla. Stat. §627.777.
51 RTG Furniture Corp. v. Indus. Risk Insurers, 616 F. Supp. 2d 1258, 1266 n. 6 (S.D. Fla. 2008) (The rule of construction that any ambiguity must be resolved in favor of coverage “applies only where the insurance policy under consideration is drafted by the insurer.”).
52 Fla. Stat. §627.782; Fla. Stat. §625.111.
53 Fla. Stat. §627.782; Chicago Title Ins. Co. v. Butler, 770 So. 2d 1210, 1217 (Fla. 2000).
54 See Fla. Stat. §627.782; Fla. Admin. Code R. 69O-186.003.
55 Synergism, 572 So. 2d at 518.
56 There are, of course, many cases where the delays in attempting to cure a defect are due, not to the fault of the insurer, but to other factors beyond the
insurer’s control — such as back logs in the courts and the acts of third parties — and delays due to these other factors would not support claims that the insurer acted without diligence pursuant to paragraphs 4(b) or 8(a) of the policy. In addition to showing that the insurer failed to act diligently, an insured also has to show that any alleged loss or damage arose as a result of the insurer’s lack of diligence.
57 U.S. Court of Appeals Judge Carnes’ observation that “when we write to a state law issue, we write in faint and disappearing ink” is most apt in this instance. Sultenfuss v. Snow, 35 F. 3d 1494, 1504 (11th Cir. 1994).
Mark A. Brown is a shareholder in the Tampa office of Carlton Fields, P.A. He serves as chair of the firm’s real property litigation practice group. He received his J.D., with honors, from the University of Florida in 1980. He serves as chair of the Real Property Litigation Committee of The Florida Bar’s Real Property, Probate and Trust Law Section.
Christopher W. Smart is a shareholder in the Tampa office of Carlton Fields, P.A. He is a real property litigator who focuses his practice on title, title insurance, and real estate-related disputes. He received his J.D., with high honors, from the University of Florida. He is an active member of the American Land Title Association’s Title Claims Counsel Committee, a co-chair of The Florida Bar Real Property Section’s Title Issues and Standards Committee, a member of the Florida Land Title Association, and a regular presenter at the Florida Land Title Association’s Claims Roundtable.
This column is submitted on behalf of the Trial Lawyers Section, Wayne Lawrence Helsby, chair, and D. Matthew Allen, editor.