Lead Opinion
This appeal has its genesis in the conveyance of a 1.145-acre parcel of land (the “Parcel”) to two different purchasers, the second of which is appellee, 100 Investment Limited Partnership (the “Partnership”). Cambridge Title Company (“Cambridge”) and, later, Columbia Town Center Title Company (“Columbia”) were engaged by the Partnership in connection with two separate purchase transactions involving the Parcel. Neither Cambridge nor Columbia (collectively the “Title Companies”) discovered and reported the prior conveyance to the Partnership. Both title companies, as agents of different title insurance companies, issued policies of title insurance insuring title to the Parcel. Years later, after having purportedly conveyed the Parcel to others, the Partnership learned of the prior conveyance, and purchased the Parcel at its then fair market value to cure the title defect in its prior conveyances and thereby confirm title in its grantees.
The Partnership brought a negligence suit in the Circuit Court for Howard County against Cambridge, Columbia and Chicago Title Insurance Company (“Chicago Title”) for damages incurred in purchasing the Parcel. The circuit court found that Cambridge and Columbia had negligently performed the title searches and that Chicago Title was vicariously liable for their negligence.
Appellants, Cambridge, Columbia and Chicago Title, present the following questions, which we have slightly reworded:
1. Did the circuit court err in finding that the Partnership had a cognizable negligence claim for breach of duties owed to it by Cambridge and Columbia?
2. Did the circuit court err in finding that the Partnership satisfied its burden of proof for the elements of a negligence claim?
3. Did the circuit court err in finding that Chicago Title was vicariously liable for the negligently performed title searches of Cambridge and Columbia?
For the following reasons, we shall reverse the judgment of the circuit court.
On August 24, 1982, Frances and Mildred Miller (the “Millers”) conveyed the Parcel to Ashan Khan, M.D., P.A., Profit Sharing Plan (“Dr. Khan”). That conveyance was properly recorded in the land records of Howard County. On October 14, 1986, the Parcel was included in a conveyance to the Partnership as part of a 49.845-acre parcel (the “Miller Tract”). In conjunction with that purchase, Cambridge issued a policy to the Partnership, underwritten by Chicago Title, pursuant to an agency agreement between Cambridge and Chicago Title, that did not reflect the prior conveyance to Dr. Khan. Cambridge later went out of business.
Shortly thereafter, in conjunction with a transfer of ownership interests in the Partnership, Columbia, at the request of the Partnership, issued a policy of title insurance for all land purportedly owned by the Partnership including the Parcel. That policy, which was underwritten by Safeco Title Insurance Corporation (“Safeco”), was issued on December 18, 1986, pursuant to an agency agreement between Columbia and Safeco. It took no exception for the prior conveyance to Dr. Khan. When Safeco subsequently merged with Chicago Title, Chicago Title became responsible for the Safeco title insurance policy.
In 1994, the Partnership subdivided the Miller Tract— including the Parcel—for residential development. Howard County approved the subdivision plan, and on March 1, 1995, the Partnership executed and recorded a Declaration of Covenants, Easements, Charges and Liens in connection with the development. During the subdivision process, the Partnership dedicated a portion of the Parcel as a public utility easement.
On July 7,1995, the Partnership conveyed part of the Parcel to NVR Homes, Inc. (“NVR”), as part of five townhouse lots, which NVR later improved and conveyed to individual homeowners. The Partnership conveyed the remainder of the Parcel to Lynwood Association, Inc. (“Lynwood”) on August 30,1995. As a result of these conveyances, the Partnership no longer had any interest in the Parcel.
To cure any title defect in its prior conveyances, the Partnership negotiated with Timbers to purchase the Parcel from Timbers after Timbers’ purchase from Dr. Khan was complete. The Partnership bought the Parcel from Timbers for $175,348.56.
On March 15, 2002, Dr. Khan filed a complaint for trespass against the Partnership in the District Court for Howard County (“Khan Litigation”). Khan v. 100 Inv. Ltd. P’ship, No. 1001000013442002 (D. Ct. Howard Cnty.). The District Court entered judgment for Dr. Khan, awarding nominal damages of one dollar ($1.00). Id.
On April 5, 2002, Chicago Title filed a suit for declaratory judgment in the United States District Court for the District of Maryland, naming the Partnership as defendant, and asking the court to determine Chicago Title’s responsibilities under the title insurance policy issued on December 18, 1986.
On April 7, 2004, the Partnership filed a complaint in the Circuit Court for Howard County against Dewberry & Davis, LLC (“Dewberry”), Cambridge, Columbia, and Chicago Title alleging negligence claims against Dewberry arising from its survey; against Columbia and Cambridge for their failure to discover and report the Khan Deed; and against Chicago Title based on vicarious liability for the negligence of the Title Companies. It later amended the complaint to include a breach of contract claim against Columbia. On March 10, 2005, the circuit court granted summary judgment in favor of Dewberry, Cambridge, Columbia, and Chicago Title, finding that, as a matter of law, the doctrine of collateral estoppel barred the action because the same factual issues had been decided in the Fourth Circuit decision and the Partnership had not stated a cause of action for negligence because any act
The Partnership appealed only the judgments in favor of the Title Companies and Chicago Title to this Court, presenting the following questions:
1. Did the trial court err by holding that the decision of the United States Court of Appeals for the Fourth Circuit in Chicago Title Insurance Company v. 100 Investment Limited Partnership, 355 F.3d 759 (4th Cir.2004) barred Appellants’ claims under the doctrine of collateral estoppel?
2. Did the trial court err by holding that Appellee’s negligence, as a matter of law, was not the proximate cause of Appellants’ damages?
100 Investment L.P. v. Columbia Town Center Title Co., No. 2214, slip. op. at 1 (Md.Ct.Spec.App. March 8, 2007).
In an unreported opinion, we determined that the declaratory judgment action in the federal court did not bar the suit because that action only concerned the contractual rights of the parties under the Safeco policy and the state suit was founded in tort, id. at 9-12, and, if the Title Companies were found negligent, whether that negligence was the proximate cause of the Partnership’s damages was a question of fact for the jury. Id. at 19-20. We reversed the circuit court’s grant of summary judgment as to the Title Companies and Chicago Title and remanded the case.
A bench trial was held on September 8 and 9, 2008. The court found the Partnership’s “economic injury was proximately caused by the Title Companies’ breach of the duty of care they owed to the Partnership,” and that “Chicago Title is vicariously liable for the negligence of the Title Companies” because the Title Companies were agents for Chicago Title. The court entered judgment on May 11, 2009, awarding the Partnership $191,510.88. The Title Companies and Chicago Title appealed to this Court.
In Goss v. C.A.N. Wildlife Trust, Inc.,
Because the trial below was a non-jury trial, our standard of review is governed by Maryland Rule 8-131. Boyd v. State,22 Md.App. 539 ,323 A.2d 684 , cert. denied,272 Md. 738 (1974). That rule provides that this Court “will not set aside the judgment of the trial court on the evidence unless clearly erroneous, and will give due regard to the opportunity of the trial court to judge the credibility of the witnesses.” Md. Rule 8-131(c). “A finding of a trial court is not clearly erroneous if there is competent or material evidence in the record to support the court’s conclusion.” Lemley v. Lemley,109 Md.App. 620 , 628,675 A.2d 596 (1996).
Moreover, “under the clearly erroneous standard, this Court does not sit as a second trial court, reviewing all the facts to determine whether an appellant has proven his case.” Id. Nor is it our function to weigh conflicting evidence. Bausch & Lomb, Inc. v. Utica Mut. Ins. Co.,355 Md. 566 , 586-87,735 A.2d 1081 (1999); Weisman v. Connors,76 Md.App. 488 ,547 A.2d 636 (1988), cert. denied,314 Md. 497 ,551 A.2d 868 (1989). Our task is limited to deciding whether the circuit court’s factual findings were supported by “substantial evidence” in the record. GMC v. Schmitz,362 Md. 229 , 234,764 A.2d 838 (2001) (quoting Ryan v. Thurston,276 Md. 390 , 392,347 A.2d 834 (1975)). And, to that end, we view all the evidence “in a light most favorable to the prevailing party.” Id.
Although the factual determinations of the circuit court are afforded significant deference on review, its legal determinations are not. “‘The clearly erroneous standard for appellate review in [Maryland Rule 8-131] section (c) ... does not apply to a trial court’s determinations of legal questions or conclusions of law based on findings of fact.’ ” Ins. Co. of N.Am. v. Miller,362 Md. 361 , 372,765 A.2d 587 *73 (2001) (quoting Heat & Power Corp. v. Air Prods. & Chem. Inc.,320 Md. 584 , 591,578 A.2d 1202 (1990)). Indeed, the appropriate inquiry for such determinations is whether the circuit court was “legally correct.” Maryland Envtl. Trust v. Gaynor,140 Md.App. 433 , 440,780 A.2d 1193 (2001).
DISCUSSION
In its Memorandum Opinion issued May 11, 2009, the trial court, implicitly finding that they owed the Partnership a duty of care cognizable in tort, found that the Title Companies breached that duty. The court also found that the Title Companies were agents of the title insurer, and that Chicago Title was vicariously liable for their negligence under the doctrine of respondeat superior. Because of the issues involved, we begin with a general discussion of title insurance and its present role in the buying, selling and financing of real property.
Title insurance protects the insured against loss, damage or liability resulting from defects in the title to real property owned by the insured. See Md.Code Ann., Insurance Article § l-101(qq) (2011) (defining title insurance as “insurance of owners of property or other persons that have an interest in the property against loss by encumbrance, defective title, invalidity of title, or adverse claim to title.”). Title insurance is now the predominant method by which real estate purchasers and mortgage lenders protect themselves against title risks. D. Barlow Burke, Jr., Law of Title Insurance 1.12, at 1:7 (2d ed. 1993).
Title insurance policies are generally standardized and include the terms and the dollar amount of coverage, exclusions from coverage and any prerequisites to be satisfied before the policy takes effect. The insured typically pays a one-time premium for the coverage. Premiums are based on the insurer’s assessment of the risk being assumed, the level of coverage under the policy and the maximum payout under the policy. Title insurance typically affords the insured three “kinds” of coverage. Stewart Title Guaranty Co. v. West, 110
It is particularly important in this case to recognize that title insurance differs from a title opinion based on a title abstract. A title abstract, covering a particular period of time, reflects what appears in the public records affecting title to a parcel of land, and includes any conveyances or encumbrances of the parcel. See St. George Antiochian Orthodox Christian Church v. Aggarwal,
The Title Companies
We consider first the Partnership’s negligence claim against the Title Companies. Maryland recognizes an action in tort if the plaintiff can show: “(1) that the defendant was under a duty to protect the plaintiff from injury, (2) that the defendant breached that duty, (3) that the plaintiff suffered actual injury or loss, and (4) that the loss or injury proximately resulted from the defendant’s breach of that duty.” Baltimore Gas & Electric Co. v. Lane,
The trial court found the evidence “sufficient to establish that Cambridge and Columbia Title were engaged by the Partnership to perform all the duties expected of a title company in connection with the purchase of land in a commercial real estate transaction.”
In Maryland, “[t]he mere negligent breach of a contract, absent a duty or obligation imposed by law independent of that arising out of the contract itself, is not enough to sustain an action sounding in tort.” Jones v. Hyatt Ins. Agency, Inc.,
Appellants contend that Maryland law dispositively establishes that a title examiner’s duties are contractual in nature. In support of that contention, they cite Corcoran v. Abstract & Title Company of Maryland, Inc.,
In Corcoran, a title company engaged to examine title, failed to report, as in this case, a properly indexed instrument impacting the parcel.
“[o]ne who undertakes to examine a title for compensation is bound to exercise a reasonable degree of skill and diligence in the conduct of the transaction. [Recovery against a title examiner], ‘although ordinarily enforced by an action of case for negligence in the discharge of his professional duties, in*78 reality rests upon his employment by the client and is contractual in nature.’ ”
Id. at 637,
The Corcoran Court, citing Russell & Co., stated: “It is generally recognized that damages are recoverable on the theory of breach of contract, and the legal situation is not changed by the fact that the contractual act bargained for is negligently performed.” Id. (citing Russell & Co. v. Polk County Abstract Co.,
In Russell, a title abstractor was sued for negligence for failing to disclose a judgment lien. The record was clear that there was “an absolute undertaking ‘to furnish a full, complete and correct abstract ... showing the liens of mortgages, judgments and otherwise.’ ”
[T]he defendant, independent of contract, owed no duty to the plaintiff. The neglected duty was one alone enjoined by contract. The failure to perform by the defendant was a failure to discharge its agreement, which is solely a breach of contract. No refinement of reasoning can, or should, avoid the [sic] conclusion.
Id. In other words, the basis for liability was the breach of the agreed upon undertaking, rather than the negligent search.
The Corcoran Court also cited Bridgeport Airport, Inc. v. Title Guaranty & Trust Co.,
In Lewis v. Long & Foster Real Estate, Inc.,
Directing our focus to Jacques, the Partnership asserts that the Court of Appeals has established the current state of Maryland law regarding the imposition of a tort duty. It posits that Corcoran did not restrict an action against a title abstractor to contractual claims, but, even if it did, the Jacques decision supplants Corcoran, and extends a tort duty of care to searches and examination of title done in connection with the issuance of title insurance.
In Jacques v. First Nat’l Bank of Maryland,
The Court of Appeals granted certiorari to consider “whether a bank that has agreed to process a loan application for a loan owes to its customer a duty of reasonable care in the processing and determination of the application,” and determined that a duty of care was owed. Jacques,
In Jacques, the Court began by reiterating that a negligent breach of contract “ ‘itself, is not enough to sustain an action sounding in tort.’” Jacques,
With the intimate nexus established, the Court considered whether the bank was bound to exercise reasonable care in fulfilling its obligations to the Jacqueses. Noting an implied promise to use reasonable care in agreeing to process the loan application and the Jacqueses’ reliance on the bank’s judgment, the Court looked to “the public nature” of the banking business, reflected in the State’s regulation of the industry and the industry’s importance to the public welfare, to determine “whether a concomitant tort duty should be recognized under these circumstances.” Id. at 540,
Three separate considerations informed that determination. First, “the rather extraordinary financing provisions contained in the real estate sales contract, and thereby integrated into the loan application, [which] left the Jacqueses particularly vulnerable and dependent upon the Bank’s exercise of due care.” Id. More specifically, the bank knew that the Jacqueses were contractually bound to settle with whatever loan they could obtain at an agreed upon interest rate or forfeit their deposit of $10,000. In addition, the Jacqueses were subject to a dramatic increase in the prime rate of interest that had occurred during the processing of the loan. Id. at 541,
Second, the Court reflected on the professional skill required. According to the Court, “[t]he law generally recognizes a tort duty of due care arising from contractual dealings with professionals such as physicians, attorneys, architects,
And third, the Court considered the General Assembly’s regulation of the banking industry, which imposed similar obligations. It concluded that recognizing a tort duty was consistent with Maryland policy “and reasonable in light of the nature of the banking industry and its relation to the public welfare.” Id. at 543,
Based on our review of Jacques and its progeny,
As noted earlier, neither the Title Companies nor the Partnership contest the existence of a contractual relationship; they dispute the duties and limitations of liability imposed on the Title Companies in that contractual relationship.
In considering whether the circumstances justify imposing a duty independent of the contract, it is appropriate to consider applicable legislation and the public policy reflected in that legislation. We have not been directed to, nor have we found, a statutory obligation in Maryland that imposes on either a title company or a title insurer a duty to exercise due care in performing a title search, such as found in some other jurisdictions. See Ruiz v. Garcia,
Nor has the General Assembly indicated an intent to enact such a statute. In 2008, the Maryland General Assembly passed Senate Bill 61 and House Bill 600 (Chapters 356 and 357, Acts of 2008) to create a Commission to Study the Title Insurance Industry in Maryland (the “Commission”).
To be sure, Maryland public policy imposes a duty, independent of any contractual relationship, of reasonable care in the exercise of professional skill and judgment, as in the case of attorneys, physicians, architects and accountants. Jacques,
In fact, as to “opinions on marketability and insurability” of title, in Md.Code Ann., Business Occupations and Professions Article § 10-102(2) (2010 & Supp.2011), Maryland has excepted title insurers, and presumably their agents, from the unauthorized practice of law by permitting “a title insurance company to examine and to insure titles to real property.” As we read that provision, the authorized title examinations by a title insurance company are directly tied to insuring title. A title opinion independent of a title insurance policy remains part of the practice of law. By this exception, the General Assembly is acknowledging the shift from title reporting to title insurance.
Second, while an insurance producer must “pass a written examination that relates to that kind or subdivision of insurance” to become licensed and “receive continuing education as a condition of renewing [that] license,” Md.Code Ann., Insurance Article § 10-108(b), 10-116(a) (2011), the educational requirements are distinct from those of an attorney or accountant.
Here, whatever title searches were done in this case were ultimately done in connection with the issuance of a title insurance policy. In Jacques, the bank was aware the real estate sales contract obligated the Jacqueses, who were unsophisticated homebuyers, to accept the bank’s financing terms or either forfeit $10,000 or subject themselves to a dramatic increase in interest rates to obtain a loan in an amount that would permit them to close on the contract. Moreover, the Jacqueses, unlike the Partnership, had no other means of recovery except against the bank. Here, a real estate developer, presumably more sophisticated in real estate transactions than the average home buyer, purchased a title insurance policy to protect against losses resulting from non-excluded title defects. In sum, we are not persuaded that Jacques require that we extend tort liability to the Title Companies on the facts of this case.
If the Title Companies do not owe a tort duty to the Partnership, Chicago Title would not be vicariously liable for the Title Companies’ negligence. But, even if the Partnership’s tort claims against the Title Companies were cognizable, Chicago Title would not, in our view, be liable for the negligence of the Title Companies. Whether a title insurance company can be vicariously liable for the actions of its agents in regard to title searches appears to be a question of first impression in Maryland.
Jurisdictions disagree on whether an insurer is liable in tort for an undisclosed defect in a title report or abstract. Compare Walker Rogge, Inc. v. Chelsea Title & Guaranty Co.,
Opinions typically turn on whether the court views the title search as being performed for the benefit of the title insurer in underwriting the policy or whether it was performed to supply title information to the insured.
While there is no Maryland decision directly addressing the duty of a title insurer or its agents to conduct a full title examination, we adopted the view in Stewart Title Guaranty Co. v. West that a title insurance policy is a contract for indemnity and not a guarantee of marketable title.
The Wests had purchased a piece of property and employed Land Title Research of Maryland, Inc. (“Land Title”) to serve as their settlement agents. Closing was conducted at Land
SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS CONTAINED IN SCHEDULE B AND THE PROVISIONS OF THE CONDITIONS AND STIPULATIONS HEREOF, STEWART TITLE GUARANTY COMPANY, a corporation of Galveston, Texas, herein called the Company, insures, as of Date of Policy shown in Schedule A, against loss or damage, not exceeding the amount of insurance stated in Schedule A, and costs, attorneys’ fees and expenses which the Company may become obligated to pay hereunder, sustained or incurred by the insured by reason of:
1. Title to the estate or interest described in Schedule A
being vested otherwise than as stated therein;
2. Any defect in or lien on encumbrance on such title;
3. Lack of a right of access to and from the land; or
4. Unmarketability of such title.
Id. at 120-21,
Acknowledging that the title was clearly unmarketable, this Court remarked that, “there are few title problems more
Vacating the motion for summary judgment, this Court stated:
[T]he insurer is not immediately in breach simply because title is defective on the day the policy is issued—is more in line with both title insurance law and the standard form title insurance policy that we have before us. As we have observed, a title insurer does not guarantee the state of the title. Instead, a title insurance policy is a contract of indemnity. The view that a title insurer is in breach simply because there are defects in the title at the time the policy is issued would turn the title insurer into the guarantor of the grantee’s title.
West,
Moreover, courts that view a title insurance policy as a contract of indemnity ordinarily see the title search as an underwriting function. As one commentator has explained:
[S]ystems of insurance protection depend on the insurance companies’ ability to quantify the risk they assume, charge premiums commensurate with the risk, and establish reserves sufficient to cover actuarially predictable losses under their policies. Under this view, a title insurance company’s search of the public records is a function it performs for its own benefit when underwriting a policy, not for the purpose of supplying title information to the insured.
James Bruce Davis, More Than They Bargained For: Are Title Insurance Companies Liable in Tort for Undisclosed Title Defects?, 45 Cath. U.L.Rev. 71, 83 (1995).
We are persuaded that holding a title insurer liable in tort for a negligent title examination by its agents conflicts with this Court’s holding in West. To create a tort remedy for a negligent title search performed for the issuance of a title insurance policy would make the title insurer a guarantor of title and deprive the insurer of its option to cure the title or to pay for covered losses as contracted for in the title insurance policy. Jurisdictions that consider a title insurance policy as an indemnity contract do not provide an independent tort remedy because, to do so, would undermine an insurer’s ability to manage its risks by the terms of its policies. That title examinations performed for the issuance of title insurance are essentially an underwriting function is consistent with our decision in West and the statutory authority granted to title insurers to examine and insure title. Even if an agent of a title company is authorized to examine title, independent of the title insurance policy, there would need to be some special agreement outside of the title insurance commitment and the title insurance policy.
Based upon its interpretation of the agency agreement and expert testimony from John Llewellyn,
We will address (1) whether the Title Companies were agents of the respective insurer and, if so, (2) what was the scope of that agency relationship and (3) did the insurer disclaim vicarious liability for a tort action regarding title status under the title insurance policy. Because, the relationship between an insurance company and its agents is governed by the law of principal and agent, see, e.g., Travelers’ Ins. Co. v. Melman,
An agent is authorized to act on behalf of and to bind the principal. See Walton v. Mariner Health of Md., Inc.,
Section 220 of the Restatement (Second) of Agency defines a servant as “a person employed to perform services in the affairs of another and who with respect to the physical conduct in the performance of the services, is subject to the other’s control or right to control.” Restatement (Second) of Agency § 220(1) (1958). A comment to the Restatement (Second) of Agency Section 220 lists eleven factors indicating a master-servant relationship:
The relation of master and servant is indicated by the following factors: an agreement for close supervision or de facto close supervision of the servant’s work; work which does not require the services of one highly educated or skilled; the supplying of tools by the employer; payment by the hour or month; employment over a considerable period of time with regular hours; full time employment by one employer; employment in a specific area or over a fixed route; the fact that the work is part of the regular business of the employer; the fact that the community regards those doing such work as servants; the belief by the parties that there is a master and servant relation; an agreement that the work cannot be delegated.
Restatement (Second) of Agency § 220 cmt. h.
Only the agency agreement between Cambridge and Chicago Title is in the record. The circuit court heard expert testimony that agency agreements are fairly standardized through the title insurance industry. Because the parties do not argue otherwise, we will treat the agency agreement between Cambridge and Chicago Title as generally the same as the agreement between Columbia and Safeco in our consideration of the Restatement (Second) of Agency § 220 comment factors.
Chicago Title’s agreement with Cambridge clearly reflects an agency relationship with the use of terms “agent” and “principal” and by explicitly providing that the agreement is non-assignable without consent. Moreover, the agency agreement supports a finding that Chicago Title had the right to exercise certain control over Cambridge. For example, the agency agreement allows Chicago Title to access records and supervise Cambridge in matters “relating to the business carried on hereunder and to the closing of transactions committed in the issuance of [Chicago Title’s] policies of insurance.”
Appellants do not challenge the court’s finding of an agency relationship. The agreement expressly authorizes the agent to “validate, countersign, issue and deliver commitments, policies and endorsements” in providing title insurance. What they contend is that a title company can perform multiple tasks and “neither Cambridge nor Columbia was an agent of [the insurer] for all purposes.” In appellants’ view,
*95 [GJiven their multiple responsibilities, local title companies often wear “two hats.” On the one hand, they issue and sign policies underwritten by the title insurance underwriter, and, on the other hand, they search title and close the transaction. See Sommers v. Smith and Berman, P.A.,637 So.2d 60 , 62 (Fla. 4th DCA 1994) (holding that [sic] underwriter was not liable in tort for the negligence of the local issuing agent in closing the real property transaction). The fact that a local title company may issue title policies for an underwriter does not make the local title company an underwriter’s agent for other purposes. See Cameron, County Savings Ass’n v. Stewart Title Guar. Co.,819 S.W.2d 600 (Tex.Ct.App.1991) (holding that the underwriter’s grant of authority to collect title premiums and issue title insurance did not make the underwriter vicariously liable for the local tile [sic] company’s negligence in closing the transaction).
The cases cited by appellants focus on the scope of the agent’s authority. In Sommers, a title company was engaged to issue a title insurance policy and to close the transaction. Because the title insurer only conferred responsibility to the agent title company for the purpose of issuing the insurance policy, the agent’s actual and apparent authority was limited to that function. Sommers,
In Maryland, an agent is authorized to bind the principal within the limits of the agent’s prescribed authority. See Walton,
One who deals with an agent knowing of the agent’s limitations cannot hold the principal liable for acts committed beyond those limits. Brooks v. Euclid Sys. Corp.,
Principles of contract law govern the construction of the agency agreement and the title insurance policy, see Walton,
If a term could support more than one reasonable meaning, the term is ambiguous. Scherr,
Contract interpretation is a question of law subject to de novo review. Weichert Co. of Md. v. Faust,
The agency agreement unambiguously restricts Cambridge’s authority to matters regarding the scope of title insurance. First, the agreement explicitly appoints Cambridge as an agent for Chicago Title “for the promoting and transacting of a title insurance business in the state of Maryland.” Consistent with that purpose, the agreement permits the agent to “validate, countersign, issue and deliver commitments, policies and endorsements.” The agreement does give Chicago Title the right to supervise and control certain aspects of Cambridge’s work, but the enumerated duties relate to the issuance of title insurance. For example, Cambridge was obligated to “[r]eview and process applications for title insurance in a timely, prudent and ethical manner,” “[prepare, maintain and preserve a file for each application for title insurance” and provide Chicago Title with “a copy of each policy and endorsement issued by” Cambridge. In addition, Chicago Title reserved the right to review Cambridge’s records and files as they related “to the business carried on hereunder and to the closing of transactions committed to the issuance of [Chicago Title’s] policies and insurance'.”
The trial court found significant a provision in the agency agreement that indemnified Chicago Title against liability caused by “[e]rrors and/or omissions in the abstracting or examination of title by [Cambridge].” It appears that the trial court construed this provision as an acknowledgment that “a third party has rights against a principal based upon the negligence of the agent.” We do not agree.
As we have discussed, the insurer’s liability to the insured is governed by the terms of the policy and does not turn on whether a covered defect could have been reasonably located. It is obvious, however, that a title insurer would want to exclude a defect clearly shown on the public record from coverage. Rather than an acknowledgment of liability to a third party for an agent’s negligence outside the terms of the policy, the provision indemnifying Chicago Title for errors in abstracting and examining title affirms that the title search
The Title Insurance Policy
As a general rule, the extent and scope of liability of an insurer is determined by the insurance policy itself. An insurance company that underwrites specific coverage “should not subsequently be expected to assume liability for a risk which it expressly excluded.” Matta v. Government Employees Ins. Co.,
The Partnership contends that this is not a title insurance case, but we are persuaded that an insurer’s liability for a faulty title search ordinarily cannot be divorced from the title insurance policy. In Lewis v. Long & Foster Real Estate, Inc.,
First Federal Savings and Loan Ass’n of Fargo, N.D. v. Transamerica Title Ins. Co.,
Guided by these principles, we will examine the Safe-co policy
The policy issued by Safeco is a personalized version of the standard form title insurance policy addressed in West. It states:
SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS CONTAINED IN SCHEDULE B AND THE PROVISIONS OF THE CONDITIONS AND STIPULATIONS HEREOF, SAFECO TITLE INSURANCE CORPORATION, a Maryland corporation, herein called the Company, insures, as of Date of Policy shown in Schedule A, against loss or damage, not exceeding the amount of insurance stated in Schedule A [$7,395,000], and costs, attorneys’ fees and expenses which the Company may become obligated to pay hereunder, sustained or incurred by the insured by reason of:
1. Title to the estate or interest described in Schedule A being vested otherwise than as stated therein;
*101 2. Any defect in or lien on encumbrance on such title;
3. Lack of a right of access to and from the land; or
4. Unmarketability of such title.
Although, the policy agrees to indemnify the insured for such losses, the policy did not guarantee title was without defect, West,
Any preliminary commitment issued on behalf of Safeco and countersigned by Columbia relates only to the issuance of a title insurance policy. It is not a title abstract or independent title opinion for which the title insurer would be liable outside the terms of its policy. Therefore, we are persuaded that both policies and any binders would put the Partnership on notice that the Title Companies were agents of Safeco or Chicago Title only for the issuance of title insurance and did not confer actual or apparent authority on the Title Companies to provide the Partnership with a separate guarantee of title for which the insurer would be responsible.
The express exclusions in the Safeco policy support this conclusion. For example, the title insurance policy excludes coverage for any defect, lien or encumbrance “not known to [Safeco] and not shown by the public records but known to the insured.” This provision recognizes the possibility of defects that are either only known to the insured or unknown by Safeco and the Partnership and undocumented in the public records. In addition, the policy limits recovery to losses incurred while the Partnership owns the property. A condition of the policy states that coverage continues only so “long as [the] insured retains an estate or interest in the land ... or so long as the insured shall have liability by reason of covenants or warranty made by such insured in any transfer or conveyance of such estate or interest.” That provision extends title protection only for the period that the insured owns or purports to own an interest in the land in the absence of a general warranty of title to its grantees. See Chicago Title Ins. Co. v. 100 Inv. L.P.,
The Safeco policy provided coverage for the negligently performed title search in this case, but liability is expressly limited to the terms of the policy:
12. Liability Limited to this Policy
This instrument together with all endorsements and other instruments, if any, attached hereto by [Safeco] is the entire policy and contract between the insured and the Company.
Any claim of loss or damage, whether or not based on negligence, and which arises out of the status 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.
No amendment of or endorsement to this policy can be made except by writing endorsed hereon or attached hereto signed by either the President, a Vice President, the Secretary, Assistant Secretary, or [ ] officer or authorized signatory of the Company.
(Emphasis added.)
In its amended complaint, the Partnership asserts that the Title Companies’ failure to perform a reasonably prudent title search and discover the Khan Deed caused loss or damage amounting to $191,510.88. Clearly, that claimed loss “arises out of the status of the title to the estate,” and as such, is “restricted to the provisions and conditions and stipulations of this policy,” unless a statute, regulation or public policy requires a different result.
To permit an insured to sidestep the policy limitations through a claim of vicarious liability undermines the contractual agreement and potentially title insurance in general. As one commentator explains:
The negligence remedy divorces the amount of risk a title insurance company assumes from the amount of premium it collects. If tort claims are allowed, the insured may recover all damages proximately caused by the title insurance company’s negligence, even if those damages greatly exceed the policy amount on which the title insurance company based*103 its premium. As a result of the increased risk, title insurance companies must necessarily increase their loss reserves, perhaps to the point of having unfounded liabilities, and may need to charge higher premiums to fund this increased risk retroactively. By decreasing the predictability of losses, which provides the foundation of a safe and sound title insurance industry, a tort remedy actually works against the societal interest of assuring real estate titles.
James Bruce Davis, More Than They Bargained For: Are Title Insurance Companies Liable in Tort for Undisclosed Title Defects?, 45 Cath. U.L.Rev. 71,102 (1995)
The Partnership’s complaint parallels the claims against the title insurer in West, in which we rejected an attempt to convert a title insurance policy into a guarantee of title. West,
In sum, we conclude that the Partnership cannot hold Chicago Title vicariously liable for any negligence of the Title Companies related to the status of title to the Parcel. The insurer’s liability is limited to the terms of its policy.
JUDGMENT OF THE CIRCUIT COURT FOR HOWARD COUNTY REVERSED.
COSTS TO BE PAID BY APPELLEE.
Notes
. In purchasing the Parcel from Timbers, the Partnership paid the same price per acre as Timbers paid Dr. Khan. The circuit court found the repurchase price to be "fair market value.”
. The Partnership also filed a counterclaim for negligence that was dismissed without prejudice and not addressed in the federal litigation.
. The trial court did not elaborate on what duties were expected of a title company in connection with the purchase of land in a commercial real estate transaction nor on the source of those duties. Presumably, the trial court found that there was a breach of a duty to find the prior
. The cases cited in Corcoran adopt the position that contract is the sole theory of recovery. But, in Lewis, we acknowledged in a footnote that Maryland has yet to dispositively rule that contract is the exclusive remedy with respect to a title examination, but that some other jurisdictions have found an independent tort duty exists.
. Appellee cites subsequent Maryland decisions including Walpert, Smullian & Blumenthal, P.A. v. Katz,
. The record contains the title commitments and binders issued by the Title Companies, the Safeco title insurance policy and the agency
. The Commission was formed in response to an April 2007 United States Government Accountability Office (GAO) Report to the United States House of Representatives Committee on Financial Services entitled "Actions Needed to Improve Oversight of the Title Industry and Better Protect Consumers ” and, due in large part, to the significant rise in property foreclosure rates.
. In Stone v. Chicago Title Ins. Co.,
. According to the Report of the Commission to Study the Title Insurance Industry in Maryland, issued in February 2010, available at http:// www.mdinsurance.state.md.us/sa/documents/TitleCommissionReport 03-10.pdf (last accessed November 17, 2011) on page 15, "[a] title insurance producer underwrites the risk, collects the title insurance policy premiums, issues the title insurance policies, conducts the settlement or closing, and holds funds in escrow for mortgage payoffs, taxes, closing costs, commissions for real estate brokerage services, and other costs related to settlement or closing.”
. We recognize that the purchase of real property is one of the most important financial decisions in people's lives and that consumers are
. The dissent, citing Restatement (Second) of Torts § 552 (1977), also argues that tort liability should be extended for “negligently providing] false information for the guidance of others.” This arguments rests on the proposition that the purpose of the title search is to supply information to the purchaser.
. The circuit court granted a motion for summary judgment in favor of the plaintiffs on the breach of contract claim, finding title was clearly unmarketable. Therefore, the negligence claim was not addressed in the circuit court or in this Court's opinion. Presumably, the Wests' claim that Stewart Title breached a duty of care in supervising its agents implicitly rested on the premise that a reasonable title search would have revealed the defects in the Wests’ title and not permitted unmarketable title to be delivered.
. Llewellyn testified that the agency agreement is a
"fairly standard agreement ... where the title company, in this case Cambridge, is agreeing to be an agent for Chicago Title, and Chicago Title is agreeing to accept them as an agent. And Cambridge Title is agreeing to conduct itself in a certain fashion and to obey the rules that—that is set forth by the underwriting company as far as issuing—handling closings and issuing title insurance.”
. As discussed, Cambridge was an agent of Chicago Title; Columbia was the agent of Safeco. With the merger of Safeco and Chicago Title, Chicago Title stepped into the shoes of Safeco. We will treat Chicago Title as the insurer in both instances.
. Although this specific provision of the comment has not been previously cited by Maryland courts, other provisions of § 220 have been cited with approval. See, e.g., Sanders,
. Restatement (Second) of Agency § 219 (1958) also provides a master is liable if a servant's tortious conduct is intended by a master, caused by a master’s negligence or violated a non-delegable duty. Appellee does not argue any of these positions in its brief.
. The record contains the December 18, 1986 Policy of Title Insurance issued by Safeco, but not the October 14, 1986 policy issued by Chicago Title. Again, because title insurance policies are fairly standardized throughout the industry, James Bruce Davis, More Than They Bargained For: Are Title Insurance Companies Liable in Tort for Undisclosed Title Defects?, 45 Cath. U.L.Rev. 71, 77 (1995), we will assume that the policy issued by Safeco and the policy issued by Chicago Title are substantially similar.
. Judge Kehoe did not participate in the Court’s decision to designate this opinion for publication in the Maryland Appellate Reports pursuant to Maryland Rule 8-605.1
Dissenting Opinion
dissenting.
Although I agree with the majority’s conclusion that the title insurer is not vicariously liable on a respondent superior basis for the negligence of the title companies in failing to note that the property that was the subject of this transaction had been previously conveyed to another purchaser, I do not agree that the appellees had no cause of action in tort against the title companies for their negligent title services. I would affirm the judgments entered against Cambridge Title and Columbia Title.
When a contract purchaser of real property engages a title company to conduct settlement on the contract, the most fundamental aspect of that engagement is, in the typical case, the need for a real estate professional to confirm that the seller has good and marketable title to the property that is to be conveyed. Although most contract purchasers do not know the intricate details of what a proper title search and proper conveyancing require, the typical purchaser of real estate expects, at a minimum, that the title company will (1) confirm that the seller holds good and marketable title, and (2) prepare a deed that transfers good and marketable title to the purchaser. The typical purchaser also expects that the purchase price would not be paid if the title search discloses that the seller does not even own the subject property because the seller has previously conveyed to another grantee all of the seller’s title in the subject property. Although it is possible to vary the terms of a title company’s engagement by contract, the evidence in the present case did not persuade the trial judge that the purchasers of the subject property expressly contracted for limited services from either Cambridge Title or Columbia Title.
Despite the undisputed fact that the sellers’ prior conveyance of the subject property was properly recorded and indexed in the land records, and despite the undisputed fact that a competent title search would have discovered the sellers’ prior conveyance, the majority opinion holds that the appellees had no cause of action in negligence against the title
The majority opinion acknowledges that the Court of Appeals has noted on several occasions that a claim asserting negligence on the part of a title company is “ ‘ordinarily enforced by an action of case for negligence.’ ” Corcoran v. Abstract & Title Company,
Professors Dobbs, Hayden, and Bublick explain in their treatise that even states which limit tort actions for negligent performance of a contract generally permit recovery in tort for economic losses caused by the negligent services of a professional. In 3 Dan B. Dobbs, Paul T. Hayden & Ellen M. Bublick, The Law of Torts (2d ed. 2011), § 615 at 494-95, the authors state:
Actions for certain negligent services permitted; attorneys and “professionals. ” Application of the economic loss rule to services seems consistent with the policy behind the rule, but it opens up a new problem. Courts continue to permit negligence actions by clients against such service providers as attorneys, accountants, insurance brokers, notaries and and [sic] sometimes even title insurers who perform a negligent title search. On the other hand, the*106 economic loss rule often protects other providers of services, such as building contractors, against liability for their negligence. Some courts have sought to explain the uneven treatment of service providers by saying that the economic loss rules does not apply to bar negligence actions against defendants who are professionals, or defendants who are in a special relationship with the plaintiff, or those whose contract obligation does not include production or delivery of a tangible object. It may be that all of these efforts to describe the exception are heuristics—pragmatic short-cuts that might usually but not always coincide with a principled exception. Perhaps the overriding principle is that defendants who, like attorneys, are in a special relationship with the plaintiff, or who contract to foster the plaintiffs interests and who are not contracting as adversarial bargainers or competitors, should be subject to the duties of care imposed by negligence law. That would explain the cases and offer a realistic basis for judicial decision-making.
(Footnotes omitted.)
Such liability in tort for malpractice is not limited to doctors and lawyers, but extends to professionals providing paralegal information services, such as the title companies did in this case. Because the services that were negligently provided by the title companies in this case—viz., examining title and preparing a deed of conveyance—were services that have historically been performed by attorneys, the title companies should be held to the same duty of care that would have applied if the appellees had hired a licensed attorney to provide those services.
Moreover, a cause of action in negligence against the title companies is supported by Restatement (Second) of Torts, § 552 (1977), which recognizes liability for a business person who negligently provides false information for the guidance of others, which is what both of the title companies did in this case. Section 552 reads as follows:
§ 552 Information Negligently Supplied for the Guidance of Others
*107 (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 care or competence in obtaining or communicating the information.
(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 transaction.
(3) The liability of one who is under a public duty to give the information extends to loss suffered by any of the class of persons for whose benefit the duty is created, in any of the transactions in which it is intended to protect them.
In my view, the trial judge analyzed this case properly. At the conclusion of the bench trial, the judge summarized her findings and conclusions as to the title companies as follows:
It is clear that if someone undertakes the examination of a title for compensation, a reasonable degree of skill and diligence in doing so is required. Corcoran v. Abstract and Title Company of Maryland, Inc.,217 Md. 633 , 637,143 A.2d 808 (1958); see Canatella v. Davis,264 Md. 190 ,286 A.2d 122 (1972). The testimony and evidence presented at the trial was sufficient to establish that Cambridge and Columbia Title were engaged by the Partnership to perform all the duties expected of a title company in connection with the purchase of land in a commercial real estate transaction.
The defense argues that although the Plaintiff based its claims on a negligence theory, the claims are—in reality—*108 an action for breach of contract. The defense further argues that, in that case, there can be no liability on the part of Chicago Title.
In the case of Myerberg, Sawyer & Rue, P.A. [v. Agee ], [51 Md.App. 711 ,446 A.2d 69 (1982),] a law firm was hired to search title for the purchasers of real estate and, in doing so, failed to detect in its title search that there was no right of ingress and egress to the parcel to be purchased. The purchasers cured the defect themselves and then filed suit against the law firm. Though the case was technically a breach of contract action, the central issue was the foreseeability of the purchaser’s damages. Maryland case law has made clear that the foreseeability of damages test is the same for contract actions and negligence actions. See Stone v. Chicago Title Insurance Company of Maryland,330 Md. 329 ,624 A.2d 496 (1993); and Reamer v. Kessler,233 Md. 311 ,196 A.2d 896 (1964).
The first issue the court needs to address is whether the Title Companies could reasonably foresee that the Partnership would certify to Howard County that it owned the Disputed Tract and that Howard County would permit the sale of subdivided lots based upon that certification. The Court finds that such a result would have been foreseeable in that the Title Companies could reasonably foresee that the Partnership would certify to Howard County that it owned the Disputed Tract, as there was nothing in the title work that was done to indicate otherwise. It further follows that it was foreseeable that the Partnership would convey the subdivided lots based on the certification.
The second question becomes whether the Title Companies could foresee the consequences that would flow from that false certification. Analysis of foreseeability in the proximate cause context turns on whether the actual harm falls within a “general field of danger.” Stone,330 Md. at 337 ,624 A.2d 496 .
It was certainly foreseeable that the Title Companies would have known that the Partnership would rely on their title search. Although the Partnership conveyed the lots in*109 the Disputed Tract prior to the double conveyance being discovered, it is also foreseeable that as a result of the negligence in failing to discover the ti[t]le defect, damages would be incurred to correct the title defect before future conveyances of the Disputed Tract could be made.
It is also foreseeable that, in reliance on the title search, the Partnership would be granting utility easements and, if the information in the title search was incorrect, the certification of ownership would be false and the public utility easement would be invalid.
The Partnership’s response when it learned of the defective title issue should also have been foreseeable as the Partnership’s response was predictable. Faced with the possibility of costly litigation, it makes sense—and it was foreseeable—that the Partnership would repurchase the Disputed Tract to resolve the problem. The price paid was precisely the per acre price being paid by Timbers for the rest of the tract. It is foreseeable that this would be the price tag for resolving the problem. It is further foreseeable that the Partnership would incur closing costs and attorney’s fees to consummate this transaction. All of these costs and expenses were in the “general field of danger,” as defined by the Stone case.
If the Partnership did not proceed in this manner and elected to simply do nothing, it is entirely foreseeable that the damages would have been far greater in defending the litigation that would have certainly been—and was, to some degree—instituted. It is also foreseeable that the Partnership would have faced administrative and civil penalties assessed by the County as a result of the false certification. See, e.g., Howard County Code, §§ 16.106, 24.102, 24.103, 24.106 and 24.107.
There is no dispute that the Disputed Tract was conveyed twice and this fact went undiscovered for approximately 15 years. It is also undisputed that the Partnership suffered an economic injury. Specifically, the Partnership repurchased the Disputed Tract (for $175,348.56) and incurred closing costs and attorney’s fees in addition thereto. The*110 Court finds that the economic injury was proximately caused by the Title Companies’ breach of the duty of care they owed to the Partnership.
Because the trial judge’s findings of fact were not clearly erroneous, I would affirm the judgments that were entered against Columbia Title and Cambridge Title.
Alternatively, I note that the appellees included in their amended complaint a breach of contract count against Columbia Title. Even if the appellees’ claims were limited to claims for breach of contract, they should have been permitted to recover against Columbia Title on the contract count.