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Bank of California v. Security Title & Trust (3/6/92), 826 P 2d 1126
Notice: This is subject to formal correction before
publication in the Pacific Reporter. Readers are
requested to bring typographical or other formal errors
to the attention of the Clerk of the Appellate Courts,
303 K Street, Anchorage, Alaska 99501, in order that
corrections may be made prior to permanent publication.
THE SUPREME COURT OF THE STATE OF ALASKA
THE BANK OF CALIFORNIA, N.A., )
) Supreme Court No. S-4106
) Trial Court No.
v. ) 3AN-89-9940 Civil
FIRST AMERICAN TITLE INSURANCE ) O P I N I O N
COMPANY, a California corporation, )
and SECURITY TITLE & TRUST )
AGENT OF ALASKA, INC., an Alaskan )
Appellees. ) [No. 3816 - March 6, 1992]
Appeal from the Superior Court of the
State of Alaska, Third Judicial District,
Victor D. Carlson,
Appearances: Heidi A. Irvin, Bogle &
Gates, Seattle; Jan Samuel Ostrovsky, S. Jay
Seymour, Bogle & Gates, Anchorage, for
Appellant. James M. Gorski, Paul S. Wilcox,
Hughes, Thorsness, Gantz, Powell & Brundin,
Anchorage, for Appellees.
Before: Rabinowitz, Chief Justice,
Burke, Matthews, Compton, and Moore,
Appellant, the Bank of California, sued appellees,
Security Title and Trust Agency of Alaska (Security Title) and
First American Title Insurance Company (First American), for mis
representation and breach of contract. The superior court
granted appellees' summary judgment motion. The Bank appeals.
We affirm in part and reverse in part.
In June of 1984, Peter Zamarello owned a piece of real
estate in Anchorage on Boniface Parkway (the Boniface property).
On July 18, 1984, Zamarello quitclaimed fifty percent of his
interest in the Boniface property to his daughter, Carol Johnson.
The deed was recorded in the records of the Anchorage Recording
District in August of 1984.
Zamarello and Johnson wished to develop a strip mall on
the Boniface property through Olympic, Inc.1 In September of
1984, Olympic began negotiating with the Bank of California for
the Bank to provide six million dollars in long-term financing to
Olympic. The loan was to be secured by a first lien priority
deed of trust on the Boniface property. Over a year later, in
order to determine the state of the title to the Boniface
property, the Bank requested a commitment for title insurance
from Security Title. Security Title issued a preliminary
commitment for title insurance in December of 1985 which
incorrectly stated that Zamarello exclusively owned a fee simple
estate in the Boniface property as of November 27, 1985. No
mention was made of Johnson's interest in the property.
The loan to Olympic was closed on December 24, 1985.
Zamarello, but not Johnson, deeded the Boniface property to
Olympic. The loan was secured by a deed of trust on the
property; Olympic was the trustor, the Bank was the beneficiary.
In connection with the loan, First American issued a policy of
title insurance on the Boniface property.2 The policy insured
the Bank against damage or loss as a result of title to the
Boniface property being vested otherwise than as stated in the
policy, namely, in Olympic in fee simple. The premium for the
policy amounted to $10,952.75.
Olympic eventually defaulted on the note and, in August
1986, filed for reorganization under Chapter 11 of the Bankruptcy
Code. In February 1987, the Bank learned of Johnson's fifty
percent interest in the Boniface property. The Bank brought this
action against Security Title and First American, claiming breach
of contract and negligent misrepresentation.
Instead of filing an answer, First American brought
suit against Johnson on behalf of the Bank. The complaint asked
the court to declare that Johnson's interest in the Boniface
property was subject to the terms and conditions of the deed of
trust. First American and Security Title then filed a motion to
dismiss the Bank's action, arguing that the Bank had not suffered
the harm necessary to state a claim for relief. Opposing this
motion, the Bank submitted the affidavit of its vice president,
Kathleen Brown, attesting to the Bank's damages.3
After hearing oral argument, the superior court found
that the Bank's negligence action failed to state a claim upon
which relief could be granted, and that the Bank's contract claim
was premature. The court issued an order granting the motion to
dismiss. A final judgment was entered from which the Bank now
All parties agree that appellees' motion to dismiss
must be treated as a motion for summary judgment because it
included matters outside the pleadings. In reviewing the trial
court's grant of a motion for summary judgment, we must
"determine whether there are any genuine issues of material fact,
and whether the moving party is entitled to judgment as a matter
of law." Diedrich v. City of Ketchikan, 805 P.2d 362, 365 n.3
(Alaska 1991) (quoting Drake v. Hosley, 713 P.2d 1203, 1205
(Alaska 1986)). All reasonable factual inferences must be drawn
in favor of the non-moving party. Jensen v. Ramras, 792 P.2d
668, 669 (Alaska 1990).
The Bank sued on two separate theories: negligent
misrepresentation and breach of contract. We address the trial
court's dismissal of both theories in turn.
A. Negligent Misrepresentation.
The Bank claims that Security Title is liable for
negligently misrepresenting in its preliminary commitment that
Zamarello exclusively owned the Boniface property. The Bank
claims that First American is vicariously liable for Security
Title's misrepresentation because Security Title was acting as
First American's agent.
The question whether a title company should be liable
in tort for a misrepresentation made in a preliminary commitment
of title insurance has not been decided in Alaska.4 The majority
of other jurisdictions have accepted this theory of liability.
See, e.g., Moore v. Title Ins. Co. of Minn., 714 P.2d 1303, 1306
(Ariz. App. 1985); White v. Western Title Ins. Co., 710 P.2d 309,
315 (Cal. 1985); Shada v. Title & Trust Co. of Fla., 457 So.2d
553, 557 (Fla. App. 1984); Ford v. Guarantee Abstract & Title
Co., 553 P.2d 254, 266 (Kan. 1976); Malinak v. Safeco Title Ins.
Co. of Idaho, 661 P.2d 12, 15 (Mont. 1983); Heyd v. Chicago Title
Ins. Co., 354 N.W.2d 154, 158 (Neb. 1984); But see, e.g.,
Brown's Tie & Lumber Co. v. Chicago Title Co. of Idaho, 764 P.2d
423, 425-26 (Idaho 1988) and Walker Rogge, Inc. v. Chelsea Title
and Guaranty Co., 562 A.2d 208, 218 (N.J. 1989) (title company
owes no duty beyond that which is assumed in its title policy).
The cases which find tort liability generally stress
that one function of the preliminary commitment is similar to
that of the report of an abstracter of title, namely, to give
interested persons knowledge concerning the state of the title so
that they may plan and structure transactions concerning the
property. Ford v. Guarantee Abstract & Title Co., 553 P.2d at
266. This is a function distinct from that of insurance, for a
title policy may be issued without a preliminary commitment and
without reporting what the state of the title is.
The cases which hold that there can be no tort action
for misrepresentation tend to stress solely the insurance
function of title insurance:
The end result of the relationship
between the title company and the insured is
the issuance of the policy. To this extent,
the relationship differs from other relation
ships conceivably sounding in both tort and
contract, such as the relationship between
physician and patient, to which plaintiff
alludes. Although the relationship between
physician and patient is contractual in its
origins, the purpose of the relationship is
to obtain the services of the physician in
treating the patient. The patient reasonably
expects the physician to follow the appro
priate standard of care when providing those
services. By contrast, the title company is
providing not services, but a policy of
insurance. That policy appropriately limits
the rights and duties of the parties.
Walker Rogge, 562 A.2d at 220.
We agree with the authorities which hold that there may
be tort liability for misrepresentations made in preliminary
commitments for title insurance. In our view, such 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.
Despite disclaimers, preliminary title
reports are normally relied on by insureds,
escrow agents, and lenders with full know
ledge, and sometimes with the encouragement,
of the insurance company. If the insurer
actually intended the list of title defects
in the preliminary report to be used just to
inform the potential insured of the proposed
contract terms, the list could be presented
in the policy at the time it is offered to
the insured, as is the case with most other
types of insurance policies. Instead, the
title insurance company's preliminary report
is issued prior to closing of the land
contract -- at the same stage in the
transaction as is the abstract or attorney's
opinion -- and the company should know that
it will likely be used in the same manner.
J. Palomar, Title Insurance Companies' Liability for Failure to
Search Title and Disclose Record Title, 20 Creighton L. Rev. 455,
480-81 (1987) (footnotes omitted). We therefore conclude that
title insurance companies have a duty of care concerning the
preliminary title information which they transmit to their
We reach the same conclusion utilizing the multi-factor
analysis employed in Howarth v. Pfeifer, 443 P.2d 39 (Alaska
1968). We held in Howarth that there could be liability in tort
for negligent misrepresentation "where there is a duty, if one
speaks at all, to give correct information." Id. at 42. In
considering whether such a duty should exist, we noted various
factors which were summarized as follows in a later case:
(a) whether the defendant had knowledge,
or its equivalent, that the information was
desired for a serious purpose and that the
plaintiff intended to rely upon it;
(b) the foreseeability of harm;
(c) the degree of certainty that
plaintiff would suffer harm;
(d) the directness of causation; and
(e) the policy of preventing future
Bevins v. Ballard, 655 P.2d 757, 760-61 (Alaska 1982) (citing
Howarth, 443 P.2d at 42). Applying these factors, we also
conclude that a title insurance company has a duty to accurately
communicate the state of a title when issuing a preliminary
commitment for title insurance.
First, title insurance companies know that the title
information which they provide is desired for a serious purpose
and will be relied on. See Chun v. Park, 462 P.2d 905, 906-07
(Haw. 1969) (very purpose of certificate of title search is to
show buyer and seller that seller had a marketable title).
"[T]itle insurance is often ordered not for the insurance itself
but to obtain the use of the insurer's title plant and the
expertness of its employees in handling the search process." D.
Burke, Law of Title Insurance 12.1, at 362 (1986). "[T]he
title insurance industry leads parties, via its advertising and
other practices, to rely on the preliminary title report as a
guarantee of good title . . . ." Palomar, supra at 485; See
also J. Appleman & J. Appleman, Insurance Law and Practice
5212, at 72 (1981). Security Title should have known that the
Bank, in closing the loan to Olympic, would act in reliance on
the statement in the preliminary commitment that title was held
exclusively by Zamarello and thus conclude that only a deed from
Zamarello to Olympic was necessary to properly secure the Bank's
deed of trust.
The other Howarth factors also suggest finding a duty.
Title searches are frequently required in situations involving
transactions where the state of the title must be known
accurately or the customer will foreseeably suffer harm which is
both certain and direct. Further, the policy of preventing
future harm is somewhat served by imposing a duty of care on the
part of title insurers, although the deterrent supplied by tort
liability is not likely to be of much additional consequence
since the title company is usually liable under the title policy
which ordinarily follows the preliminary commitment.
One additional factor should be noted. Alaska Statute
21.66.170 requires title insurers to conduct a "reasonable search
and examination of title"before issuing a policy of title
insurance.6 Thus, imposing tort liability does not require
conduct on the part of title insurers which is not already
required by statute.
1. Did Security Title's title commitment
disclaim liability for negligence?
The preliminary commitment for title insurance states:
"This report and commitment shall have no force or effect except
as a basis for the coverage specified herein." We do not regard
the quoted language as an effective disclaimer of liability for
First, as a general rule, contractual limitations on
liability for negligence must be "clearly set forth." Dresser
Indus. Inc. v. Foss Launch & Tug Co., 560 P.2d 393, 395 (Alaska
1977). "`If the defendant seeks . . . to escape responsibility
for the consequences of his negligence, then [the disclaimer]
must so provide, clearly and unequivocally, as by using the word
`negligence' itself.'" Kissick v. Schmierer, 816 P.2d 188, 191
(Alaska 1991) (quoting W. Keeton, D. Dobbs, R. Keeton & D. Owen,
Prosser and Keeton on the Law of Torts 68 at 483-84 (5th ed.
1984)). In our view the quoted language does not clearly
disclaim tort liability nor does it clearly state that the title
company will not be liable even if it is negligent.
Further, we agree with the decision of the California
Supreme Court in White v. Western Title Ins. Co., 710 P.2d 309,
315-16 (Cal. 1985), which held that a similar disclaimer in a
preliminary title report was invalid: "A title company is
engaged in a business affected with the public interest and
cannot, by an adhesory contract, exculpate itself from liability
for negligence." See also Municipality of Anchorage v. Locker,
723 P.2d 1261, 1265-66 (Alaska 1986) (exculpatory clauses are
unconscionable where "circumstances indicate a vast disparity of
bargaining power coupled with terms unreasonably favorable to the
2. Does First American's title policy
preclude tort claims until the title companies
have had an opportunity to cure the title defect?
The appellees also argue that clause 7 of the policy,
taken in conjunction with clause 11 precludes any claim in tort
until the curative action brought against Johnson is resolved.
Paragraph 11 of the policy provides:
Any claim of loss or damage,
whether or not based on negligence, and
which arises out of the status of the lien of
the insured mortgage or of the title to the
estate or interest covered hereby or any
action asserting such claim, shall be
restricted to the provisions and conditions
and stipulations of this policy.
Paragraph 7 of the policy provides:
No claim shall arise or be
maintainable under this policy (a) if the
Company, 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, or the
lien of the insured mortgage, 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 or to the lien of the insured
mortgage, 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 Company.
We do not find that these clauses prohibit the present
maintenance of a tort action. Assuming that paragraph 11 applies
to tort claims based on misrepresentations made before the policy
was issued, paragraph 11 does no more than trigger the need to
review the policy provisions to see if any of them apply. In our
view, paragraph 7 of the policy does not apply because it
explicitly pertains only to claims arising "under this policy."
The Bank's misrepresentation claim is based on the preliminary
commitment rather than the title policy.
3. Has the Bank suffered damages?
First American argues that summary judgment was proper
because the Bank cannot adequately establish damages. According
to First American, the curative action brought against Johnson
might succeed and thus "at this juncture . . . it has not yet
been determined whether the Bank has been harmed." However, the
Bank has submitted the affidavit of its vice president attesting
to its various damages.7 If at some point these damages are
eliminated, dismissal of the tort action might be proper.
However, that may never occur and the validity of the Bank's
action does not depend on that eventuality.
Because the Bank stated a valid claim for negligent
misrepresentation, the superior court's grant of summary judgment
on this count must be reversed.
B. Breach of contract.
The superior court dismissed the Bank's breach of
contract claim, reasoning in part that it was premature. We
Although the Bank may indeed have incurred damages
which cannot be cured by the litigation against Johnson, the Bank
nevertheless agreed to a policy which contains a curative
provision in paragraph 7.8 Paragraph 7 provides that the Bank
cannot maintain any claim under the policy until First American
has had a reasonable time to cure the title defect. It does not
except from its ambit claims for damages which will exist even if
the defect is cured. Thus, the trial court did not err in
granting summary judgment on the Bank's contract claim.
The order granting summary judgment on the Bank's
contract claim is interlocutory in nature, given the existence of
a viable claim for negligent misrepresentation in tort. Alaska
Civil Rule 54(b) provides that where there are multiple claims,
judgment as to fewer than all claims can become final only upon
"an express determination that there is no just reason for delay
and upon an express direction for the entry of judgment." Where
such determination and direction are absent, "any order or other
form of decision, however designated, which adjudicates fewer
than all of the claims . . . shall not terminate the action as to
any of the claims . . . and the order or other form of decision
is subject to revision at any time"before the entry of final
judgment. Since the tort and contract claims are closely related
in the present case, and since it does not appear that either
party will suffer hardship if the contract claim adjudication is
not made final immediately on remand, we doubt that the
determination and direction required by Civil Rule 54(b) would be
appropriate. See Johnson v. State, 577 P.2d 706, 710-11 (Alaska
1978) (Civil Rule 54(b) certification an abuse of discretion
where issues were closely related and neither party would suffer
hardship from delay).
The judgment of the superior court dismissing this action is
REVERSED. This case is REMANDED9 for further proceedings
consistent with this opinion.
1 Zamarello was president and majority stockholder of
2 Security Title acted as the agent for First American with
respect to this transaction.
3 Brown cited three ways in which the Bank had been damaged:
1) the Bank had been placed in a disadvantageous negotiating
position in the bankruptcy proceedings; 2) the Bank had been
thwarted in its option to foreclose on the Boniface property
because it could obtain only a one-half undivided interest, an
unmarketable ownership interest; and 3) the Bank was incurring
substantial legal costs in responding to the bankruptcy
4 The Bank argues that we have found such liability in Trans
america Title Ins. Co. v. Ramsey, 507 P.2d 492 (Alaska 1973).
Ramsey, however, does not stand for that general proposition.
Instead, we held that under the particular facts of that case the
title company arguably undertook to advise its customer as to
whether or not the property in question could be sold using a
fourteen-year-old power of attorney, which, unbeknownst to the
customer, had been revoked. The title company did not
misrepresent the state of the title in the preliminary commitment
which it issued.
5 This duty is not that of a guarantor; instead it is the
duty to exercise reasonable care. See Restatement (Second) of
Torts, 552 (1977), which provides in relevant part:
(1) One who, in the course of his
business, profession or employment, or in any
other transaction in which he has a pecuniary
interest, supplies false information for the
guidance of others in their business
transactions, is subject to liability for
pecuniary loss caused to them by their
justifiable reliance upon the information, if
he fails to exercise reasonable case or
competence in obtaining or communicating the
(2) Except as stated in Subsection (3),
the liability stated in Subsection (1) is
limited to loss suffered
(a) by the person or one of a
limited group of persons for whose benefit
and guidance he intends to supply the
information or knows that the recipient
intends to supply it; and
(b) through reliance upon it in a
transaction that he intends the information
to influence or knows that the recipient so
intends or in a substantially similar
6 In declining to impose tort liability on the title
insurer, the Idaho Supreme Court explicitly "f[ound] it
significant" that Idaho's equivalent to AS 21.66.170 does not
mandate a "reasonable"search. Brown's Tie, 764 P.2d at 427
("We find it significant that the Idaho Legislature, unlike other
states [such as Alaska], has chosen to omit the word
7 See supra note 3.
8 See supra at 12.
9 One option which the court may wish to consider on remand
is to stay both of the Bank's claims pending the outcome of the