Plаintiff issued title insurance policies for three parcels of real estate. The defendant corporation was the seller-grantor. The insureds were the purchasers-grantees. Plaintiff failed to except from coverage a sewer assessment lien on each parcel. It paid the assessmеnts and sued the seller-grantor corporation under its policy subrogation rights. The trial court granted summary judgment against the defendant corporation. The Court of Appeals affirmed by an unpublished opinion.
Transamerica Title Ins. Co. v. Johnson,
The facts are not disputed. The defendant corporation, a developer/homebuilder, purchаsed vacant lots for the purpose of building residences thereon. At the time of purchase preliminary sewer district assessments had been made. The preliminary assessments were disclosed in title insurance policies issued by another title company, which the corporation, as the purchaser, received.
The corporation's president testified by deposition:
Q. When you purchased those three parcels of property, did you know about the sewer assessments?
A. Yes.
Q. And when you purchased those three parcels, they would have been subject to that assessment, I take it?
*411 A. That's right.
Clerk's Papers, at 111-12.
Soon after purchase the corporation listed the properties for sale. The listing agreements provided that the "buyer [is] to assume sewer assessment for U.L.I.D. § 22, Cascade Sewer District". Later the listing agreements were amended to delete the requirement that the buyer assume the assessment. The earnest money agreements, signed by defendant corporation as seller, provided that title wаs to be free of encumbrances. These listing agreements and earnest money agreements were signed long before any involvement by or with plaintiff title company. Finally, the conveying statutory warranty deeds did not make title subject to the assessments.
When the plaintiff issued its "preliminary commitment for title insurance" 1 for each of the parcels, the preliminary sewer assessments had become final and were liens on the parcels. Neither the preliminary commitments nor the policies, ultimately insuring the purchasers' title, disclosed the assessments.
There is no dispute that (1) the plaintiff was negligent in not disclosing the assessments and (2) the deféndant corporation breached its warranty of title and its contractual obligations to its purchasers.
The policies issued to the purchasers provided:
When the Company [plaintiff] shall have paid a claim hereunder it shall be subrogated to all rights and remedies which the insured [the purchaser-grantee] may have against any person or property with resрect to such claim, or would have if this policy had not been issued, and the insured shall transfer all such rights to the Company.
Clerk's Papers, at 292.
The main thrust of defendant's argument is that the plaintiff, in issuing a preliminary commitment for title *412 insurance, acts as an abstractor of title with a duty to disclose all discoverable defects. The defendant assеrts that this case presents the typical transaction in which the seller pays the premium even though the purchaser is ultimately the insured under the title insurance policy. Therefore, the defendant argues that in addition to the duties under the policy to insure the purchaser subject to the exceptions, terms and conditions of the preliminary report, the title insurer owes the duties of search and disclosure to the seller.
It is apparent that the defendant seeks to impose liability upon the title insurance company which is beyond that contained in the policy itself. The defendant is not an insured under that policy and is not рrovided coverage therein. It, therefore, does not seek to impose liability based on a theory of contractual liability. Rather, defendant would have us impose an abstractor's duty upon the title insurance company and would extend that duty to the seller-applicant. Necessarily the existenсe of that duty depends upon an analysis of the expectations and obligations running from the title insurance company to the seller-applicant, the noninsured grantor who has previously contractually agreed to provide its buyer with a specified form of title insurance policy. Regardless of the label given the ultimate theory relied upon, the suggested action sounds in tort. The measure of damages would not be limited to policy limits and the title company's risk or premium would not be limited to a traditional risk of loss visa-vis an actuarial determination of premium.
A proper inquiry into a duty to search and disclose owed a noninsured also involves an examination of the historical methods of title evidencing and title assurance, together with an exploration of the practices, expectations, intentions and consequences of the adoption of judicially imposed standards. We have previously faced the issue of whether to impose an abstractor's duty of search and disclosure on title insurance companies but reserved determination of this broadly stated question.
Shotwell v.
*413
Transamerica Title Ins. Co.,
In a proper case, this court could analyze, determine and adopt the boundaries of potential rights, duties and resultant liability. There are two reasons for not using this casе as a vehicle for an exhaustive treatment of this vital subject. First, the record is devoid of any evidence, factual or empirical, of the practices, intentions, expectations or consequences of adopting or rejecting the various theories of liability or nonliability. In absence of a full adversary review of such evidence, caution is warranted when considering a departure from long established precedent. Shotwell v. Transamerica Title Ins. Co., supra. Further, as a factual matter and on this record, this defendant must lose under the most liberal analysis of potential liability. Whether potential liability of the title insurance company be cast in terms of duty or reliance, this defendant cannot prevail.
Potential liability would be based on a duty of the plaintiff to advise the defendant of the existence of encumbrances. Duty is defined as "an obligation, to which the law will give recognition and effect, to conform to a particular standard of conduct toward another." W. Prosser, Torts § 53, at 331 (3d ed. 1964).
[N]o action could be founded upon the breach of a duty owed only to some person other than the plaintiff. He must bring himself within the scope of a definite legal obligation, so that it might be regarded as personal to him. "Negligence in the air, so to speak, will not do."
(Footnote omitted.) Prosser, at 332. Some jurisdictions
*414
have held thаt no duty is owed to vendors who pay title insurance premiums for the protection of the insured vend-ees and that any search actually undertaken was for the protection of the insurance company.
Horn v. Lawyers Title Ins. Corp.,
Other jurisdictions have recognized a duty on the part of the title insurance company extending to other than the insured.
Malinak v. Safeco Title Ins. Co.,
_ Mont. _,
There is no showing, on this record, of reliance, damage or an expectation of a search and disclosure. This defendant knew of the assessments long before the plaintiff ever issued a preliminary commitment. When the defendant's agent ordered title insurance, the defendant had already listed the property subject to the buyer assuming the sewer assessment. The defendant's awareness and knowledge are evidenced by the deletion of the assumption requirement from the listing. Again, long before asking the plaintiff to insure title, the defendant had contractually agreed with its purchasers (the only insureds) to convey title free of the *415 assessments. There is no showing that this defendant expected an "abstract" of title or that even if it had, that it relied thereon in any manner. In fact, had the assessments been disclosed, the defendant would have had to рay them from the closing proceeds. The defendant is merely paying, through subrogation, that which it had knowledge of and had agreed to pay long before the plaintiff became involved.
The present case is factually similar to
Kenny v. Safeco Title Ins. Co.,
We once again reserve the broad question of the title insurance company's duty to search and disclose if reliance is shown. Allegations of negligent misrepresentation must fail for the same reason. This count falls within the ambit of Restatement (Second) of Torts § 552(1) and (2) (1977) which provides:
(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 *416 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), [which pertains to the liability of one who is under a public duty to furnish such information] 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 guidancе 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.
(Italics ours.)
The comment to subsection (2), pertaining to persons for whose guidance the information is supplied, states:
Under this Section ... it is not necessary that the maker should have any particular person in mind as the intended, or even the probable, recipient of the information. In other words, it is not required that the person who is to become the plaintiff be identified or known to the defendant as an individual when the informatiоn is supplied. It is enough that the maker of the representation intends it to reach and influence either a particular person or persons, known to him, or a group or class of persons, distinct from the much larger class who might reasonably be expected sooner or later to have access to the information and foreseeably to take some action in reliance upon it. It is enough, likewise, that the maker of the representation knows that his recipient intends to transmit the information to a similar person, persons or group. It is sufficient, in other words, insofar as the plaintiff's identity is concerned, that the maker supplies the information for repetition to a certain group or class of persons and that the plaintiff proves to be one of them, even though the maker never had heard of him by name when the information was given.
(Italics ours.) Restatement (Second) of Torts § 552, comment h (1977).
The courts in
Kenny v. Safeco Title Ins. Co., supra,
and
*417
Kovaleski v. Tallahassee Title Co., supra,
both cited Restatement (Second) of Torts § 552 and disallowed recovery by the noninsured against the title insurance company when the noninsured could not prove reliance upon the title insurance company's information. In
Warrington v. Trans-america Title Ins. Co.,
Defendant also argues that the trial court erred in refusing to consider equitable defenses to this contractual subrogation claim. Some courts distinguish between legal and conventional or contractual subrogation. With conventional subrogation, subrogation given by agreement or stipulation, those courts measure the parties' rights by the agreement and find that equity has no power to change or unsettle such rights.
Mid-Continent Cas. Co. v. First Nat'l Bank & Trust Co.,
Nevertheless, the claim to equitable defenses must fail because defendant cannot claim a greater equity in balancing the circumstanсes of this case. Defendant had contrac *418 tually agreed with its purchasers to convey title free of the assessments long before asking the plaintiff to insure title. Had the assessments been disclosed, the defendant would have had to pay them from the closing proceeds. Defendant was aware of thesе assessments prior to the issuance of the negligently issued preliminary commitment. Defendant cannot now use plaintiff's negligence to avoid its contractual obligations.
Lastly, defendant asserts that a violation of the Consumer Protection Act (CPA), RCW 19.86, occurs where the vendor purchases a title search, oрinion and policy and the title company is negligent in its duty to perform a reasonable search. A cause of action for a per se violation of the CPA may be brought only by the insured.
Green v. Holm,
The judgment is affirmed.
Williams, C.J., and Utter, Dolliver, Dore, Dimmick, Pearson, and Andersen, JJ., concur.
Reconsideration denied February 19, 1985.