Court of Appeals Rules that Title Companies Owe Duty of Care in Tort when Conducting Title Searches

In the case of 100 Investment Limited Partnership v. Columbia Town Center Title Co., the Maryland Court of Appeals was asked to determine whether a title company owed a tort duty of reasonable care to its customer, the purchaser of real property, when conducting a title search, notwithstanding any contractual obligation that may also exist. The Court ruled that, despite the fact that the title company – customer relationship derives from contract, an “intimate nexus” exists between the parties because of the foreseeability that the customer’s purpose for retaining the title company is to rely on its professional judgment. This intimate nexus justifies the imposition of a tort duty to exercise reasonable care in carrying out one’s professional services. In this regard, the Court of Appeals has decided that title companies should be treated similarly to lawyers, accountants, architects, and other professionals that have been found to owe their customers tort duties, in addition to those assumed by contract.

The underlying facts of the case date back more than thirty years, and do not warrant an extensive recitation. In short, in 1982, two widows, the Millers, conveyed a tract of property to Dr. Khan. Thereafter, in 1986, the Millers conveyed the same tract of land as part of a large real estate transaction to 100 Investment Limited Partnership (the “Partnership”). The Partnership hired both Cambridge Title and Columbia Town Center Title to perform a title searches, and neither companies’ search revealed the earlier transaction with Dr. Khan. Both title commitments led to the issuance of title insurance policies underwritten by Chicago Title Insurance Co. In 2001, the Partnership first leaned of the prior transaction involving Dr. Khan. In order to cure the defect in title, the Partnership repurchased the disputed tract, costing it a total of almost $200,000.00. In 2004, the Partnership sued the title companies and Chicago title to recover the money it spent to repurchase the disputed tract of land.

The lawsuit alleged negligence by the title companies in failing to discover the Dr. Khan transaction and further alleged that Chicago Title was liable under a respondeat superior (agency) theory for the acts of the title companies. The Partnership contended that the title companies owed it a tort duty of reasonable care in conducting the title search, independent of contract duties, because an intimate nexus existed between the parties such that a tort duty must be imposed as a matter of public policy. In contrast, the title companies argued that the nature of the relationship between them and the Partnership was contractual, and any duties to be imposed upon them should be solely contractual in nature. A trial was held, which included expert testimony describing the reliance upon which a customer places on a title commitment, the trial court found that a tort duty did exist and that the title companies breached their duty of care owed to the Partnership by failing to discovery the Dr. Khan transaction.

Affirming the trial court and finding in favor of the Partnership, the Court of Appeals recognized that it is well settled that there are situations where responsibilities imposed by a contractual relationship are supplemented with tort duties, and the nature of the relationship between the parties is essential in determining whether such a situation exists. The Court noted that in order for the Partnership to establish the existence of a tort duty upon which to base an economic recovery, it must show (1) that the title companies were aware that the title search information was to be used for a particular purpose; (2) in the furtherance of which a known party (the Partnership) was intended to rely; and (3) there must have been some conduct on the part of the title companies linking them to the Partnership, which evinces the title companies’ understanding of the Partnership’s reliance. The evidence at trial supported the trial court’s conclusion that these factors were met; specifically, that the parties knew that a primary purpose of the title search was to confirm that the Partnership would be receiving clean title to the land that it intended to purchase, and it was known to the title companies that the Partnership intended to rely upon their respective title commitments. Although a tort duty exists for title examiners, the Court of Appeals made sure to caution that the title companies are not guarantors. Rather, they are simply under a duty to “exercise a reasonable degree of skill and diligence in the conduct of the transaction.”

Having established the existence of a tort duty, the Court of Appeals then considered whether Chicago Title Insurance could be held vicariously liable for the negligence of the title companies, which the trial court had held. On this issue, the Court of Appeals reversed the ruling of the trial court, holding that Chicago Title Insurance could not be held vicariously liable. The insurance contract between the Partnership and Chicago Title Insurance contained express exculpatory language that precluded the Partnership from pursuing a negligence claim against Chicago Title Insurance. This insurance contract was read as any other contract would be, and the exculpatory clause was clear and unambiguous. Accordingly, the Partnership’s sole remedies against Chicago Title Insurance were contractual in nature.