Title insurance is a complicated area of Texas law. One example is the distinction between escrow cases and cases against the title insurance company arising out of issuance of the title insurance policy and conduct of the title insurance claim. Two recent cases prove instructive; they address the duties owed by a title insurance agent when acting as an escrow agent. After reviewing the courts’ holdings, I’ll highlight areas where the analysis fell short.
The first case is James v. Shavon Ltd., decided by San Antonio’s 4th Court of Appeals on Dec. 5, 2012. According to the opinion, the seller and the buyer entered into a contract to sell real property. The title insurance agent was named as the escrow agent. The transaction fell apart once, and the parties entered into a mediated settlement agreement, which was incorporated into the second contract to sell real property. The second transaction fell apart when the buyer insisted on a price reduction due to the property condition.
The seller sued the title insurance agent in its capacity as an escrow agent under the following theories: statutory fraud, tortious interference with contract and breach of fiduciary duty. The seller argued that the escrow agent had some duty to prepare closing documents at the seller’s request — even when the buyer was refusing to close on the seller’s terms.
The title insurance agent filed a traditional motion for summary judgment on all three theories, and the trial court granted summary judgment. The appellate court reviewed the trial court summary judgment de novo and affirmed. Let’s look at the 4th Court’s discussion of each cause of action in turn.
1. Statutory fraud claim: As to the statutory fraud claim under Texas Business & Commerce Code §27.01, the 4th Court found the statute inapplicable for two reasons. First, the trial court and the 4th Court correctly, in my view, found §27.01 inapplicable because there was only a contract to sell with no conveyance made.
However, the 4th Court incorrectly stated that §27.01 did not apply to a title insurance company or escrow agent, citing American Title Insurance Co. v. Byrd (1964). The 4th Court’s reliance on Byrd is overbroad and misplaced.
In Byrd, the Texas Supreme Court held the predecessor to §27.01 inapplicable to a title insurance company under the separate function of closing the title insurance transaction. In James the facts involved a title insurance agent, not a title insurance company. James involved closing the real estate transaction by the escrow agent and not the function of closing the title insurance transaction.
While closing the title insurance transaction is incidental to a real estate transaction, the closing of the real estate transaction by an escrow agent is an essential part of the real estate transaction without which no conveyance could occur.
A determination of the parties — a title insurance agent/escrow agent or title insurance company — is important. Another key determination is which theory of liability is at issue: the title insurance transaction closing, the insurance policy, or the real estate transaction closing as an escrow function.
2. Tortious interference claim:On the theory of tortious interference with contract, both the trial and appellate courts found the escrow agent’s refusal to provide the seller with closing documents was not interference. The contract did not require the escrow agent to produce closing documents on request of only the seller, and the 4th Court found no common law or statutory authority imposing that duty on an escrow agent.
As a practical matter, if the seller wanted to tender performance, it should have retained counsel to prepare and tender signed seller documents into escrow.
3. Fiduciary duty claim:The fiduciary duty theory failed because there was no breach of the duty of neutrality by reason of the escrow agent’s refusal to prepare closing documents at the request of the seller only.
The second case to consider is Miller v. LandAmerica Lawyers Title of El Paso, decided by El Paso’s 8th Court of Appeals on March 7, 2012. According to the 8th Court, the buyers of unimproved residential property sued the escrow agent, alleging it provided them an inaccurate survey at closing. They alleged damages because they built a swimming pool after closing, and the pool encroached into an easement which the survey incorrectly reflected as smaller in width than the document creating the easement specified.
The buyers alleged that the escrow agent misrepresented the easement’s location by delivering at closing a survey, prepared by an independent surveyor, showing the incorrect location of the easement. There was no evidence that the escrow agent made any written or oral statement to the buyers representing that the survey was either accurate or correctly showed the location of the easements. The buyers’ theories of liability included negligent misrepresentation and deceptive trade practices.
The escrow agent filed a traditional motion for summary judgment on both theories, and the trial court granted summary judgment. The appellate court reviewed the judgment de novo and affirmed.
The court found that the title commitment and owner policy issued by the title insurance agent for the title insurance company (not a party) properly reflected the easement width.
However, in my view the appellatecourt mischaracterized the easement exception in the title insurance commitment and owner policy as a "representation" (albeit a correct representation) of the easement. Title insurance forms are generally not representations of title, absent extenuating circumstances such as those found in the Texas Supreme Court’s 1993 decision in First Title Co. of Waco v. Garrett.
The action of the escrow agent in handing the buyers at closing an inaccurate survey did not constitute a misrepresentation by the escrow agent.
There was also evidence that the buyers knew of a 48-inch pipeline running through the back yard prior to closing. Since there were obviously easement issues, I would argue that the buyers should have investigated the inconsistency of the survey with the commitment showing the correct larger easement dimension.
The Deceptive Trade Practices Act cause of action for misrepresentation alleged delivery of the faulty survey as the basis for liability, and the court likewise affirmed the trial court summary judgment against the buyers.
As with the negligent misrepresentation count, the court incorrectly characterized the title insurance company easement exception as a "representation," but this error did not impact the appropriateness of the decision.