Somerset Savings Bank v. Chicago Title Insurance
420 Mass. 422, 1995 Mass. LEXIS 227, 649 N.E.2d 1123 (1995)
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Rule of Law:
A standard title insurance policy protects against defects affecting legal title and title marketability, not against government regulations that restrict land use and impact economic marketability. However, a title insurer may be liable in negligence for failing to disclose such a regulation if it voluntarily assumes a duty to search and disclose beyond the express terms of the policy.
Facts:
- In 1986, Somerset Savings Bank agreed to finance the construction of a condominium project on property at 190 North Shore Road in Revere.
- As security, the bank held a $9.5 million mortgage on the property.
- The bank hired a law firm, which was an agent for Chicago Title Insurance Company, to certify the title and obtain a title insurance policy.
- The law firm issued a $9.5 million title insurance policy from Chicago Title to the bank.
- The property had previously been owned by the Boston and Maine Railroad, a fact that was apparent in the public land records.
- A state law (G.L. c. 40, § 54A) required special governmental consent before issuing a building permit for land formerly used as a railroad right-of-way.
- In June 1988, after construction had begun, the city of Revere issued a cease and desist order halting the project because the required governmental consent had never been obtained.
- Somerset Savings Bank filed a claim with Chicago Title for its losses, which the insurer denied.
Procedural Posture:
- Somerset Savings Bank (plaintiff) sued Chicago Title Insurance Company (defendant) in Massachusetts Superior Court, asserting claims for breach of contract and negligence.
- The Superior Court judge granted summary judgment in favor of the defendant, Chicago Title, dismissing all of the plaintiff's claims.
- The plaintiff, Somerset Savings Bank, appealed this decision to the Massachusetts Appeals Court.
- The Appeals Court vacated the summary judgment, finding that there were unresolved issues of fact on both the contract and negligence claims, and remanded the case for further proceedings.
- The defendant, Chicago Title Insurance Company, then applied for and was granted further appellate review by the Supreme Judicial Court of Massachusetts.
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Issue:
Can a title insurance company be held liable in negligence for failing to disclose a land-use regulation, even when the policy itself does not cover such a regulation and contains an integration clause limiting liability to the policy's terms?
Opinions:
Majority - Lynch, J.
Yes, a title insurance company may be held liable in negligence for failing to disclose a land-use regulation if it voluntarily assumes a duty to do so, notwithstanding policy exclusions or an integration clause. The court affirmed that the contract claim failed because the policy did not cover the bank's loss. The court distinguished between 'title marketability' (defects in legal rights of ownership), which the policy covers, and 'economic marketability' (conditions affecting the use or value of land), which it does not. A governmental land-use regulation like G.L. c. 40, § 54A is not a title defect. However, regarding the negligence claim, the court held that while an insurer's duties are generally governed by the policy, it can voluntarily assume additional duties. Here, the bank presented evidence that Chicago Title's advertising may have created an assurance that it would search for and disclose all relevant matters of record. This created a factual dispute as to whether Chicago Title assumed a duty to disclose the land-use statute, making summary judgment improper. Furthermore, the policy's integration clause cannot be used to unconscionably disclaim liability for negligence arising from a duty the insurer voluntarily assumed.
Analysis:
This decision establishes an important exception to the general rule that a title insurer's liability is strictly limited to the terms of its policy. By recognizing a potential tort duty that can arise from an insurer's representations or actions, such as advertising, the court opened a new avenue for holding insurers accountable. The ruling signifies that title insurers can play a dual role: one as an indemnitor under the contract and another as a title abstractor with a common law duty of care. This precedent requires title insurers to be cautious about their marketing and communications, as they may be creating duties and potential liabilities that extend beyond the four corners of the insurance policy.
