Nature of title insurance and claim on policy when there is a problem with title to real property

WHAT IS A TITLE INSURANCE POLICY? 

“A title insurance policy is a contract of indemnity.” Chicago Title Ins. Co. v. McDaniel, 875 S.W.2d 310, 311 (Tex. 1994) (citing S. Title Guar. Co. v. Prendergast, 494 S.W.2d 154, 158 (Tex. 1973)). The issuance of a policy does not constitute a guarantee or representation as to the status of title.
McDaniel, 875 S.W.2d at 311. Instead, it obligates the title insurer to pay the loss or damage suffered by the insured as a result of the title defect. Id.

We analyze disputes over the interpretation of insurance contracts under the well-established principles of contract construction, attempting to determine the parties’ intent through the written language of the policy. See Gilbert Tex. Constr., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118, 126 (Tex. 2010). We examine the entire policy and seek to harmonize and give effect to all provisions so that none will be meaningless or inoperative. Id. If a contract for insurance has a clear and definite meaning, then it is not ambiguous as a matter of law, even if the parties interpret the policy differently. Id. at 133.

SOURCE: HOUSTON COURT OF APPEALS - NO. 01-14-00170-CV - 5/12/2015

CITED SUPREME COURT CASE

875 S.W.2d 310 (1994)

CHICAGO TITLE INSURANCE COMPANY
v.
Jerry E. McDANIEL and Christina W. McDaniel.

No. D-3648.

Supreme Court of Texas.

January 5, 1994. Rehearing Overruled June 8, 1994. PER CURIAM.

This cause involves claims against a title insurer based on the Texas Deceptive Trade Practices-Consumer Protection Act, TEX.BUS. & COM.CODE §§ 17.41-.63 (DTPA). The court of appeals held that "there are genuine issues of material fact under the DTPA," and therefore reversed the trial court's summary judgment in favor of the title insurer. 873 S.W.2d 712. Because we conclude that there is no genuine issue of fact concerning any misrepresentations by the title insurer, we reverse the judgment of the court of appeals.

Jerry and Christina McDaniel purchased a home from Couch Mortgage Company in September 1983. At the time of the closing, the McDaniels also purchased a title insurance policy to be issued by Chicago Title Insurance Company. The policy, which the McDaniels received several weeks later, provides in part that Chicago Title "for value does hereby guarantee to the Insured ... that as of the date hereof, the Insured has good and indefeasible title to the estate or interest in the land described or referred to in this policy."

In December 1988, the McDaniels received notice from the bankruptcy trustee of Couch Mortgage that their property was subject to a preexisting lien that had been properly filed and recorded in April 1983. The McDaniels abandoned the property in October 1989. Three months later, a federal bankruptcy court ruled that the McDaniels' purchase money lien on the property was superior to the preexisting lien.

The McDaniels brought this suit in late 1990, seeking damages under the DTPA based on Chicago Title's representations. In April 1991, Chicago Title secured the release of the preexisting lien.

Chicago Title asserts that it has discharged its obligations under the title insurance policy, and that it cannot be liable under the DTPA because it has made no representations regarding the status of the title to the McDaniels' property. We agree.

311*311 A title insurance policy is a contract of indemnity. Southern Title Guar. Co. v. Prendergast, 494 S.W.2d 154, 158 (Tex. 1973). In other words, the only duty imposed by a title insurance policy is the duty to indemnify the insured against losses caused by defects in title. See Martinka v. Commonwealth Land Title Ins. Co., 836 S.W.2d 773, 777 (Tex.App.—Houston [1st Dist.] 1992, writ denied); see also Stewart Title Guar. Co. v. Cheatham, 764 S.W.2d 315, 320-21 (Tex.App.—Texarkana 1988, writ denied). Thus, Chicago Title's issuance of a policy did not constitute a representation regarding the status of the property's title; rather, it constituted an agreement to indemnify the McDaniels against losses caused by any defects.

A title insurer may be held liable under the DTPA for an affirmative representation that is the producing cause of damages to the insured. First Title Co. v. Garrett, 860 S.W.2d 74 (Tex.1993).[1] In the present case, however, there is no allegation of any such affirmative representation. Nor is there any allegation that Chicago Title breached its duty under the contract, or that it may be liable to the McDaniels in any other respect apart from the DTPA. Accordingly, because there is no genuine issue of fact regarding the representations made in the title insurance policy, a majority of this Court grants Chicago Title's application for writ of error and, without hearing oral argument, reverses the judgment of the court of appeals and renders judgment for Chicago Title. Tex. R.App.P. 170.

[1] In First Title, the title commitment issued by the defendant title companies included an affirmative representation that there were no restrictive covenants of record. The record reflected that it was "customary and usual" for an insured to rely on a title commitment as an assessment of the state of title. 860 S.W.2d at 76 n. 2.

Accrual of Indemnity Claim

WHEN DOES CLAIM FOR INDEMNIFICATION ACCRUE? 

Whether the cause of action accrues at the time a judgment is rendered or at the time the judgment is paid depends on the language of the indemnity clause. See Ingersoll-Rand Co. v. Valero Energy Corp., 997 S.W.2d 203, 207 (Tex. 1999) ("To determine the correct accrual date of an indemnity claim we look to the contract's indemnity provision."). "There are two types of indemnity agreements, those that indemnify against liabilities and those that indemnify against damages." Id. (citations omitted). Broad language that "holds the indemnitee `harmless' against `all claims' and `liabilities' evidences an agreement to indemnify against liability." Id. "Damages indemnity agreements, on the other hand, are not as broad, and the indemnitee's right to sue does not accrue `until the indemnitee has suffered damage or injury by being compelled to pay the judgment or debt.'" Smith Int'l, Inc. v. Egle Grp., LLC, 490 F.3d 380, 389 (5th Cir. 2007) (quoting Tubb v. Bartlett, 862 S.W.2d 740, 750 (Tex. App. 1993, writ denied) (emphasis omitted)).

SOURCE: TIB v. CANYON COMMUNITY BANK, U.S. Dist. Court, ND Texas 2014

What is an indemnity agreement?

INDEMNITY DEFINED

Legally speaking: What is indemnity all about?

“An indemnity agreement is a promise to safeguard or hold the indemnitee harmless against either existing and/or future loss liability” and provides the indemnitee with a cause of action to recover against the indemnitor. Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 508 (Tex. 1993).

Most contract provisions involve a certain degree of risk-shifting, but some provisions involve such an “extraordinary shifting of risk” that courts impose additional fair notice requirements to make the provision enforceable. Green Int’l, Inc. v. Solis, 951 S.W.2d 384, 387 (Tex. 1997); Dresser, 853 S.W.2d at 508; Amtech Elevator Serv. Co. v. CSFB 1998-P1 Buffalo Speedway Office Ltd., 248 S.W.3d 373, 377 (Tex. App.—Houston [1st Dist.] 2007, no pet.).

The fair notice requirements are (1) the express negligence doctrine and (2) the conspicuousness requirement. Amtech Elevator Serv., 248 S.W.3d at 377.

Express negligence doctrine

The express negligence doctrine dictates that a party’s intent to be released or indemnified from its own future negligence must be clear and unambiguous. Green Int’l, 951 S.W.2d at 386.

Conspicuousness requirement

The conspicuousness requirement means that “something must appear on the face of the [contract] to attract the attention of a reasonable person.” Storage & Processors, Inc. v. Reyes, 134 S.W.3d 190, 192 (Tex. 2004) (quoting Dresser, 853 S.W.2d at 508)).

The fair notice requirements apply when “one party exculpates itself from its own future negligence.” Green Int’l, 951 S.W.2d at 387; DDD Energy, Inc. v. Veritas DGC Land, Inc., 60 S.W.3d 880, 885 (Tex. App.—Houston [14th Dist.] 2001, no pet.) (holding fair notice does not apply “where an indemnitee is seeking indemnification from claims not based on the negligence of the indemnitee.”). In DDD Energy Inc., the indemnity clause required each contracting party to indemnify the other for its individual negligence resulting from claims by a third party. DDD Energy, 60 S.W.3d at 884. Nothing in the indemnity clause shifted responsibility for DDD Energy’s negligence onto the other contracting party. Id. The court of appeals affirmed summary judgment and held that the fair notice requirements identified in Dresser are limited to claims for indemnity based on the indemnitee’s own negligence. Id. at 885. See also English v. BGP Int’l, Inc., 174 S.W.3d 366, 375 (Tex. App.—Houston [14th Dist.] 2005, no pet.).


SOURCE: Houston Court of Appeals - 01-10-00489-CV 7/28/11

Res Judicata in Texas: What is "same subject matter" for re-litigation purposes?

RES JUDICATA Res judicata precludes relitigation of claims that have been finally adjudicated, or that arise out of the same subject matter and that could have been litigated in the prior action. Amstadt v. U.S. Brass Corp., 919 S.W.2d 644, 652 (Tex. 1996). In determining what constitutes “the same subject matter,” Texas courts follow the “transactional” approach to res judicata set forth in the Restatement (Second) of Judgments. See Barr v. Resolution Trust Corp., 837 S.W.2d 627, 631 (Tex. 1992). The Restatement “provides that a final judgment on an action extinguishes the right to bring suit on the transaction, or series of connected transactions, out of which the action arose.” Id. (citing Restatement (Second) of Judgments § 24(1) (1982)). Whether facts constitute a “transaction” or “series” is to be determined pragmatically, giving weight to such considerations as whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties' expectations or business understanding or usage. Restatement (Second) of Judgments § 24(2); see Barr, 837 S.W.2d at 631. SOURCE: Dallas Court of Appeals 05-10-00070-CV 5/12/11 A claim under a liability indemnification clause does not accrue, and thus is not mature, until the indemnitee's liability to the party seeking damages becomes fixed and certain.” Ingersoll-Rand Co. v. Valero Energy Corp., 997 S.W.2d 203, 208 (Tex. 1999). However, a party may bring an indemnity claim before the judgment establishing liability is final in the interest of judicial economy. Id. at 209. The indemnity claim in that situation is permissive, not compulsory. Id. at 210. But, if a party brings a permissive indemnity claim, it is required under res judicata to bring all other claims in the same action arising out of the same subject matter. See Getty Oil Co. v. Ins. Co. of N. Am., 845 S.W.2d 794, 799-800 (Tex. 1992). For a counterclaim to be compulsory, the claim must be mature and owned by the defendant when it files its answer. Ingersoll-Rand Co., 997 S.W.2d at 207. SOURCE: Dallas Court of Appeals 05-10-00070-CV 5/12/11 LEGAL TERMS: permissive vs. compulsory counter-claim, relitigation of claims, collateral estoppel, claim preclusion

COMPARE & CONTRAST: Settlement & Release vs. Indemnity

RELEASE & SETTLEMENT VS. INDEMNITY AGREEMENT COMPARED
 
A release and an indemnity agreement are different. An indemnity agreement is a promise by the indemnitor to safeguard or hold the indemnitee harmless against existing or future loss or liability, or both. MG Bldg. Materials, Ltd. v. Moses Lopez Custom Homes, Inc., 179 S.W.3d 51, 63 (Tex. App.--San Antonio 2005, pet. denied); see Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 508 (Tex. 1993). An indemnity provision does not apply to claims between the parties to the agreement, but obligates the indemnitor to protect the indemnitee against claims brought by third parties. MG Bldg., 179 S.W.3d at 63. Thus, an indemnity agreement creates a potential cause of action in the indemnitee. Id.

A release, on the other hand, is an agreement by one party to surrender its own cause of action against the other party. Id. at 64; see Dresser Indus., 853 S.W.2d at 508. A release extinguishes any claim the releasor might have against the releasee without regard to the releasee's liability to third parties. MG Bldg., 179 S.W.3d at 64. A release is an affirmative defense and must be pled. Id.; see Tex. R. Civ. P. 94. Thus, typical release language is "release, discharge, relinquish," while typical indemnity language is "indemnify, save, protect, save/hold harmless." MG Bldg., 179 S.W.3d at 64.

 SOURCE: SAN ANTONIO COURT OF APPEALS - 04-08-00302-CV (9/15/09)