A California appellate court recently affirmed a decision dismissing a complaint against a title insurance company, finding that that title insurance company owed no duty to a third-party landowner and could not be liable to the landowner for issuing a title insurance policy on the landowner’s property after the property was wrongfully conveyed from the landowner. See Carr v. Chicago Title Ins. Co., 2018 WL 6521029 (Cal. Ct. App. 2018). Plaintiff brought this action against the defendant title insurance company alleging a violation of California’s elder financial abuse statute. According to the complaint brought by plaintiff’s guardian ad litem, a convicted fraudster moved in with plaintiff and, in 2013, somehow convinced plaintiff to convey his home to an LLC created and solely owned by the fraudster. The deed stated that “[t]he grantors and the grantees in this conveyance are comprised of the same parties who continue to hold the same proportionate interest in the property[.]” The fraudster then sought a refinance loan, and the lender asked defendant for a preliminary title report. Defendant issued a report stating that plaintiff still owned the property, subject to the 2013 deed, and that it needed further documentation from the LLC. Eventually, and after receiving the LLC’s operating agreement showing that the fraudster was the sole member, defendant issued the policy. Defendant also provided documents to the escrow officer stating plaintiff was to receive the loan proceeds, although all proceeds went to the fraudster. In 2015, the property was sold in a foreclosure sale and plaintiff brought this action. Among other allegations, plaintiff claimed defendant previously had produced documents pursuant to a subpoena in the fraudster’s criminal action and should have known he was a fraudster at the time it issued its preliminary title report and policy. Defendant filed a demurrer to the complaint, and the trial court dismissed the action.
On appeal, the Court affirmed. It found that, for a party to be found liable for assisting a fraud under the elder abuse statute, plaintiff was required to show that defendant knowingly assisted in carrying out the fraud. Here, plaintiff’s allegations were simply that defendant should have caught the “red flags” surrounding the transaction. More importantly, the Court found that “the statutes and case law governing title insurance establish that [defendant] did not owe a separate duty to [plaintiff] with respect to [defendant’s] role and conduct in the loan at issue here, including any duty to further investigate [the fraudster’s] role in the loan transaction.” Specifically, “a title insurance policy, once issued, [does not] impose a duty of care regarding the condition of title on the title insurer toward its own insured, or any third party.” Accordingly, the Court affirmed the dismissal of the complaint, finding that the complaint “misconstrues the purpose of title insurance, which is to protect the insured party (here [the lender]) through a contract of indemnity, not to offer any protection to the non-insured borrower or landowner.”