SW Legal studies in Business

Title Insurer Has No Duty To Disclose All Title Defects
Description Washington high court held that a title insurance company, when agreeing to insure title, has no general duty to reveal all title defects; rather, it states limits to its insurance coverage.
Topic Real and Personal Property
Key Words Title, Defects, Title Insurance, Duty to Disclose
C A S E   S U M M A R Y
Facts A group of investors invested money in a piece of real estate to be developed. Each investor received a promissory note from the promoter, who requested title insurance for the loans. Stewart Title issued 29 policies to the investors but did not reveal that there were existing liens on the property, so that the investors' contributions had to be used to satisfy those liens. The investors sued Steward Title for negligent misrepresentation for failing to disclose title defects. The trial court refused to dismiss the suit.
Decision

Reversed. The title insurer had no general duty to disclose potential or known title defects when issuing title commitments. The insurer had reason to believe that the promoter would disclose information about the use of loan proceeds to pay the senior lien holders and industry practice supported the insurer's belief that the information would be disclosed in an abstract of title. The commitment by a title insurer is not intended as a disclosure of recorded or unrecorded defects of title; rather, it states exceptions or exclusions of title defects that the insurer would not be willing to eliminate.

Citation Barstad v. Stewart Title Guaranty Co., 39 P.3d 984 (Sup. Ct., Wash., 2002)

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