What “Loss” Does An Owner’s Policy Of Title Insurance Cover?

Lesson. Title insurance generally covers “actual losses” arising out of the existence of a title defect, not losses from the conduct of the insured or personal dealings between people.

Case cite. Hughes v. First Am. Title Ins. Co., 167 N.E.3d 765 (Ind. Ct. App. 2021)

Legal issue. What “actual loss” arose from an undisclosed easement.

Vital facts. Owners purchased real estate and obtained a policy of title insurance from Title Company. Unbeknownst to Owners, the prior owners (sellers) had granted an easement across the entire south side of the real estate. After Owners learned of the easement, they submitted a claim to the Title Company, which acknowledged coverage for the easement that Title Company had not disclosed to Owners.

The subject title insurance policy covered against "actual loss, including any costs, attorneys' fees and expenses provided under this Policy." Such loss must have resulted from one or more of the enumerated covered risks, one of which was that "[s]omeone else has an easement on the Land." Title Company obtained an appraisal of the diminution in value of the real estate caused by the existence of the easement. The appraisal assigned a loss of $3,000. Owners would not accept that amount.

Meanwhile, Owners sued the easement holder to challenge the validity of the easement or, in other words, to terminate it. Apparently things got a little contentious in that dispute as Owners used “tire poppers” to try to block use of the easement. In the end, the case turned out poorly for Owners, and the court ordered Owners to pay $61,000 in attorney fees and costs to the easement holder.

Owners then sued Title Company seeking to recover losses from both the easement and the prior lawsuit, including reimbursement of the $61,000.

Procedural history. The trial court granted Title Company’s motion for summary judgment, and Owners appealed.

Key rules. An insurance policy is a contract and is subject to the same rules of construction as other contracts. “The purpose of title insurance is to insure that title to the property is vested in the named insured, subject to the exceptions and exclusions stated in the policy.”

“Title insurance is a contract of insurance against loss or damage caused by encumbrances upon or defects in the title to real estate.” Ind. Code § 27-7-3-2(a); see also Ind. Code § 27-7-3-2(g)(2) (defining "title policy" as "a policy issued by a company that insures or indemnifies persons with an interest in real property against loss or damage caused by a lien on, an encumbrance on, a defect in, or the unmarketability of the title to the real property").

In Indiana, the measurement of damages resulting from an easement is “the difference between the value of the property with the defect and the value of the property without the defect.” In other words, "actual loss is the diminution in value of the property caused by the easement."

Importantly, title insurance “does not insure against the conduct of the insured and does not cover matters involving personal dealings between individuals.”

Holding. The Indiana Court of Appeals affirmed the summary judgment in favor of Title Company. Owners were to be reimbursed for the actual loss suffered in reliance of the title policy, limited to the diminution in value caused by the existence of the easement ($3,000).

Policy/rationale. Owners contended that “loss” included the $61,000 arising out of the judgment in the suit against the easement holder because “it was a loss that resulted from a covered risk (i.e. the easement).” The Court rejected that argument: “the actual loss of the insured [here, Owners] is the difference in value of the property with the encumbrance [here, the easement] and its value without the encumbrance.” The Court reasoned:

Only title to the parcel was insured … not any actions [Owners] took to keep the easement holder from using the easement. Stated another way, the [61k] loss was not a result of the existence of the easement; rather, the loss [Owners] seek to recover is a result of their actions concerning the easement….

Although it was not a part of the Hughes opinion, depending upon the circumstances a title insurance company might fund—on behalf of its insured—a lawsuit to challenge the validity of an easement. Evidently that did not happen in Hughes, possibly because Title Company determined the easement was in fact valid.

Related posts.

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Part of my practice includes litigation surround title insurance claims. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Title Work And Foreclosures In Indiana

One of the common themes on this blog has been the importance of obtaining title work in connection with an Indiana commercial mortgage foreclosure case.  If you’re wondering why your foreclosure counsel recommends that you incur the expense of a title commitment and later premiums for a title insurance policy, keep reading.

Procedural context.  Before the filing of the foreclosure complaint, certain steps should be undertaken to analyze the loan collateral, in this case the real estate.  One such step is to determine priority in title.  We strongly recommend that lenders order a foreclosure (title insurance policy) commitment.  (Tip:  If the lender has a prior title insurance policy related to the property, such as a lender’s policy, then you can save some expense simply by placing the order from the same company.  Or, a separate title insurance company may provide a cheaper commitment faster based upon a prior policy.) 

ID parties/priority.  The commitment should be reviewed for purposes of determining all parties with an interest in the real estate and their relative priorities.  I.C. § 32-29-9-1 articulates the necessary parties to be named in the suit.  The provision essentially requires that the plaintiff name such necessary parties to the suit in the same manner in which the person or entity’s lien or claim appears on the public records of the county where the suit is brought.  Service of summons upon such necessary parties is sufficient to make the court’s judgment binding as to those parties.  In order for there to be clear title secured at the sheriff’s sale, all parties with a recorded interest in the real estate need to be named in the lawsuit to answer as to their interests.  (Tip:  Also review the commitment to ensure that the legal description of the collateral in the commitment matches the legal description in the mortgage.)  An early priority determination will guide decisions as to settlement or workout negotiations, or whether to proceed with the foreclosure action in the first place.   

Update title work.  Normally, there will be a time gap between the date of the foreclosure commitment and the date of the filing of the complaint.  Conceivably, interests in the subject real estate could arise in this gap period.  For example, a mechanic’s lien could be filed, or the borrower could obtain a loan secured by a junior mortgage on the property.  It is thus critical to update or “date down” the title insurance policy commitment after the complaint is filed.  For more on this issue, see my December 21, 2006 post and House v. First American Title Company, 858 N.E.2d 640 (Ind. Ct. App. 2006), which held that a foreclosure action’s filing date is the “only relevant date used to determine the proper parties to a mortgage foreclosure.”   

Amend complaint.  Again, clear title cannot be obtained upon a sheriff’s sale unless all lien holders are named as defendants in the suit so that their interests can be foreclosed.  Should the updated title work disclose new lien holders, then such parties need to be added to the case by filing an amended complaint.  If no new interests are uncovered, then lenders can be comfortable proceeding with the original defendants named in the suit. 

No bona fide purchaser.  Third-parties who secure an interest in the mortgaged property after the filing of the foreclosure complaint do not need to be named as defendants in the action.  Lenders need not continuously search title during the course of litigation and worry about adding new parties to their foreclosure complaint.  “The only relevant date” is the foreclosure action’s commencement date – the day the lender filed the complaint.  Here’s what I wrote on December 21, 2006, which is particularly relevant in the wake of my October 4, September 25 and May 28, 2009 posts that touch upon Indiana’s bona fide purchaser doctrine:

Any party obtaining an interest in the property after the filing of the action will not be considered a bona fide purchaser without notice and thus will be bound by the foreclosure as if named as a party defendant to the foreclosure action.  (Such parties, upon learning of the suit, should intervene in the action to assert their rights to the property.)

Finish the job.  Arguably, the secured lender’s ultimate goal in its mortgage foreclosure action is to acquire title to (repossess) the real estate collateral free and clear of all liens.  This is why the commitment is important, as is the date down.  Lenders and their counsel should not forget the final step, however.  Once the lender obtains the sheriff’s deed (title) to the property, lenders are advised to purchase a title insurance (owner’s) policy.  Certainly the premium can be expensive, but in most commercial foreclosure cases the benefits of being insured (as free and clear title holder) far outweigh the costs.  For more insight into the wisdom of ordering an owner’s policy, please see my July 20, 2009 post.


Unrecorded Deed Immediately Transferred Ownership

Lesson.  An unrecorded quitclaim deed executed and delivered during owner’s lifetime terminated a beneficiary’s interest under a “transfer on death” deed that had been executed previously.  An Indiana deed generally will effect a transfer regardless of whether it is recorded.

Case cite.  Robinson v. Robinson, 125 N.E.3d 1 (Ind. Ct. App. 2019).

Legal issue.  Whether subsequent, unrecorded quitclaim deed revoked a beneficial interest in real estate that previously had been created by a recorded transfer on death (TOD) deed.

Vital facts.  On October 24, 2014, Mom executed a TOD deed in which the fee simple title in her house would transfer, upon her death, to her kids Rea and Radley as tenants in common.  Mom recorded that deed on November 12, 2014.  Two years later, Mom executed and delivered a quitclaim deed of the house to Rea only, effective immediately.  However, this subsequent deed was not recorded until after Mom died.

Procedural history.  Radley filed a lawsuit seeking to enforce the TOD deed.  The trial court entered summary judgment in Radley’s favor and concluded that Radley and Rea owned the house as tenants in common.  Rea appealed.

Key rules.  Indiana has a statute called the Transfer on Death Property Act (ACT) at 32-17-14.  The Indiana Court of Appeals sliced and diced the Act in terms of its application to the Robinson dispute. 

The TOD deed was valid.  However, Section 19(a) of the Act provides, among other things, that a beneficiary of a TOD deed takes the owner’s interest in the property at the time of the owner’s death and subject to all conveyances made by the owner during the owner’s lifetime.

Indiana Code 32-21-1-15 controls quitclaim deeds.

In Indiana, generally “a party to a deed is bound by the instrument whether or not it is recorded.”

Holding.  The Indiana Court of Appeals reversed the trial court’s summary judgment for Radley and entered summary judgment for Rea.  “As a matter of law, Radley’s contingent interest in the real estate was extinguished before [Mom’s] death.” 

Policy/rationale.  If you have probate and estate issues under the Act, the Robinson opinion has a nice explanation of why the TOD deed did not hold up.  For purposes of mortgage servicing and title issues, the key takeaway is that, as to Radley (one of potential co-owners under the TOD deed), the quitclaim deed to Rea cut off Radley’s beneficial interest - even though the deed was never recorded.  The deed complied with Ind. Code 32-21-1-15.  Title passed.  The fact that the deed had not been recorded was immaterial to Radley’s claim to ownership.

Related posts. 

*Don’t Forget To Record The Deed

*Sampling Of Indiana Deed Law, And Judgment Lien Attachment Issues

*In Indiana, An Unrecorded Mortgage Has Priority Over A Subsequent Judgment Lien

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I represent lenders, loan servicers, borrowers, and guarantors in foreclosure and real estate-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.  


Title Agents May Be Liable For Negligent Misrepresentation In Indiana

Mortgagees and their Indiana counsel rely heavily on title commitments.  In Indiana, if a loan commitment fails to identify a prior lien, and if that oversight leads to losses, there are potential consequences to the issuer of the commitment - commonly known as the title agent, abstractor or searcher - not just to the issuer of the insurance policy.  The Indiana Supreme Court in U.S. Bank v. Integrity Land Title, 210 Ind. LEXIS 396 (Ind. 2010) (.pdf) broke new ground in this regard. 

Missed it.  U.S. Bank held what it believed to be a senior mortgage on its borrower’s real estate.  Before making its loan, U.S. Bank ordered a title commitment from Integrity, which also closed the transaction.  The commitment did not disclose a prior judgment lien held by another lender, LPP, against the seller/owner.  LPP later prevailed in its foreclosure action and sold the subject property at a sheriff’s sale that netted no proceeds to U.S. Bank.  In other words, LPP’s lien rendered U.S. Bank’s loan unsecured.  (Notably, Southern National Title Insurance underwrote a loan policy with U.S. Bank as the insured, but Southern later dissolved.  A conventional title insurance claim thus was unavailable.) 

Breach of contract.  Privity of contract refers to a connection between contracting parties.  In U.S. Bank, the Court concluded that there was no privity between Integrity and U.S. Bank and, as such, U.S. Bank had no breach of contract claim against Integrity.    

Tort liability.  The critical question became whether Integrity owed a duty in tort (a civil wrong, other than a breach of contract, that gives rise to an action for damages).  The answer to that question turned upon the Court’s analysis of Indiana’s economic loss rule that, if applicable, would shield Integrity from liability.  The Court found that the economic loss rule did not apply.  (To learn more about the rule, read U.S. Bank, as well Indianapolis-Marion County Public Library v. Charlier Clark & Linard (.pdf), in which the Court addresses the rule and its exceptions in depth.   

Negligent misrepresentation.  U.S. Bank sought to hold Integrity, a title commitment issuer with which U.S. Bank had no contractual privity, liable for negligence in failing to uncover a defect in title during the search.  The Court posed the legal question as “whether the issuance of a title commitment gives rise in Indiana to a tort cause of action for negligent misrepresentation against a commitment insurer, separate and apart from the contractual obligations of the title policy.”  The theory is that, once the commitment issuer assumes the responsibility of performing a title search and disclosing defects, that company should be liable to all foreseeable third parties injured by the issuer’s failure to exercise reasonable care in supplying information.  The Court held that Integrity had a duty to communicate the state of title accurately when issuing the commitment.  Here’s the rationale:

Integrity should have known that Texcorp (U.S. Bank’s predecessor in interest), in closing the loan to buyer, would act in justifiable reliance on the statement in the preliminary commitment that title was free and clear of any encumbrances.  …  Armed with direct knowledge of Texcorp’s interests and requirement of accurate title information to guide its lending practices, Integrity prepared the title commitment that indicated that it had performed a title search on the subject property and had found no prior judgment liens.


Not a foreclosureU.S. Bank did not involve a foreclosure commitment (leading to an owner’s policy) but rather a loan commitment (leading to a lender’s policy).  The U.S. Bank negligent misrepresentation claim comes into play in a loan default/foreclosure case only when the lender discovers that its mortgage is primed by a prior lien that should’ve been identified pre-closing.  In that instance, foreclosure may not be a viable option (depending upon the amount of the prior lien and the equity in the property).  A title claim under the loan policy and/or a negligence claim against the title agent may be the only avenue for recovering losses.  (For scenarios when a foreclosure commitment misses a lien, please see my October 14, 2009 post for background and my Strict Foreclosure category of posts regarding the remedy.)

In scenarios involving defective loan commitments, U.S. Bank seemingly permits the lender to sue two parties – the carrier and the agent.  Maybe this would be redundant, but maybe not.  It  depends on the circumstances of the particular case.  I welcome e-mails or comments on experiences or thoughts concerning whether, under circumstances like those in U.S. Bank, lenders should assert claims against both its title company (under an insurance policy) and its title agent (based on the commitment). 


Title Work And Foreclosures In Indiana

One of the common themes on this blog has been the importance of obtaining title work in connection with an Indiana commercial mortgage foreclosure case.  If you’re wondering why your foreclosure counsel recommends that you incur the expense of a title commitment and later premiums for a title insurance policy, keep reading.

Procedural context.  Before the filing of the foreclosure complaint, certain steps should be undertaken to analyze the loan collateral, in this case the real estate.  One such step is to determine priority in title.  We strongly recommend that lenders order a foreclosure (title insurance policy) commitment.  (Tip:  If the lender has a prior title insurance policy related to the property, such as a lender’s policy, then you can save some expense simply by placing the order from the same company.  Or, a separate title insurance company may provide a cheaper commitment faster based upon a prior policy.) 

ID parties/priority.  The commitment should be reviewed for purposes of determining all parties with an interest in the real estate and their relative priorities.  I.C. § 32-29-9-1 articulates the necessary parties to be named in the suit.  The provision essentially requires that the plaintiff name such necessary parties to the suit in the same manner in which the person or entity’s lien or claim appears on the public records of the county where the suit is brought.  Service of summons upon such necessary parties is sufficient to make the court’s judgment binding as to those parties.  In order for there to be clear title secured at the sheriff’s sale, all parties with a recorded interest in the real estate need to be named in the lawsuit to answer as to their interests.  (Tip:  Also review the commitment to ensure that the legal description of the collateral in the commitment matches the legal description in the mortgage.)  An early priority determination will guide decisions as to settlement or workout negotiations, or whether to proceed with the foreclosure action in the first place.   

Update title work.  Normally, there will be a time gap between the date of the foreclosure commitment and the date of the filing of the complaint.  Conceivably, interests in the subject real estate could arise in this gap period.  For example, a mechanic’s lien could be filed, or the borrower could obtain a loan secured by a junior mortgage on the property.  It is thus critical to update or “date down” the title insurance policy commitment after the complaint is filed.  For more on this issue, see my December 21, 2006 post and House v. First American Title Company, 858 N.E.2d 640 (Ind. Ct. App. 2006), which held that a foreclosure action’s filing date is the “only relevant date used to determine the proper parties to a mortgage foreclosure.”   

Amend complaint.  Again, clear title cannot be obtained upon a sheriff’s sale unless all lien holders are named as defendants in the suit so that their interests can be foreclosed.  Should the updated title work disclose new lien holders, then such parties need to be added to the case by filing an amended complaint.  If no new interests are uncovered, then lenders can be comfortable proceeding with the original defendants named in the suit. 

No bona fide purchaser.  Third-parties who secure an interest in the mortgaged property after the filing of the foreclosure complaint do not need to be named as defendants in the action.  Lenders need not continuously search title during the course of litigation and worry about adding new parties to their foreclosure complaint.  “The only relevant date” is the foreclosure action’s commencement date – the day the lender filed the complaint.  Here’s what I wrote on December 21, 2006, which is particularly relevant in the wake of my October 4, September 25 and May 28, 2009 posts that touch upon Indiana’s bona fide purchaser doctrine:

Any party obtaining an interest in the property after the filing of the action will not be considered a bona fide purchaser without notice and thus will be bound by the foreclosure as if named as a party defendant to the foreclosure action.  (Such parties, upon learning of the suit, should intervene in the action to assert their rights to the property.)

Finish the job.  Arguably, the secured lender’s ultimate goal in its mortgage foreclosure action is to acquire title to (repossess) the real estate collateral free and clear of all liens.  This is why the commitment is important, as is the date down.  Lenders and their counsel should not forget the final step, however.  Once the lender obtains the sheriff’s deed (title) to the property, lenders are advised to purchase a title insurance (owner’s) policy.  Certainly the premium can be expensive, but in most commercial foreclosure cases the benefits of being insured (as free and clear title holder) far outweigh the costs.  For more insight into the wisdom of ordering an owner’s policy, please see my July 20, 2009 post.


Memo To Title Insurers: Disclose All Recorded Liens, Even Legally-Deficient Ones

As reported on this blog, over the past several months the Indiana Court of Appeals has issued a number of opinions directly or indirectly related to defective titles searches.  On March 31, 2008, in House v. First American Title, et. al., 2008 Ind. App. LEXIS 618, the Court again provides guidance to commercial lenders and other parties affected by title defects post-foreclosure.  As always, I provide .pdf's of the opinions I discuss:  House.pdf.

Situation.  The facts of House are straightforward.  Plaintiff Wayne House bought a home from Centex, which held title after foreclosing on the prior owners.  Defendant Security Title had performed a title search for House and reported no liens on the property.  House improved the property and then attempted to flip it.  A prospective buyer wouldn't close upon learning that judgment liens existed on the property.  The judgment liens were held against the prior owners - the owners upon which Centex foreclosed.  House filed suit to clear title.

Security Title exposed to liability.  Security Title claimed it did not have to disclose the judgment liens because they were legally deficient.  The Court noted, however, that neither Indiana law nor Security Title's contract with House supported the proposition that Security Title was not required to disclose recorded liens it believed were legally deficient.  Moreover, given the procedural context of the decision - a Trial Rule 12(B)(6) motion to dismiss - the Court could not at the pleading stage determine as a matter of law, without further factual inquiry, whether the liens were in fact legally deficient. 

Some Indiana lien laws.  Security Title asserted that a handful of well-settled laws applicable to judgment liens, and enforcement of such liens, warranted a dismissal of House's case.  It's helpful to be reminded of these Indiana legal principles:

  • Real property held by the entireties is immune to seizure and satisfaction of the individual debts of the husband or wife.  A husband and wife are presumed to hold real property as tenants by the entireties.  Ind. Code 32-17-3-1.
  • A purchase money mortgage has priority over a prior judgment.  Ind. Code 32-29-1-4
  • Liens on real property expire ten years after judgment is rendered.  Ind. Code 34-55-9-2
  • A judgment lien can be executed after ten years, however, upon leave of court.  Ind. Code 34-55-1-2

The litigation continues....  Given the nature of the subject liens, Indiana's laws seemingly should protect Security Title from liability stemming from the judgment liens.  Nevertheless, issues regarding whether the prior owners held the property as tenants by the entireties and/or the priority or enforceability of the judgment liens were factual and thus inappropriate for a T.R. 12(B)(6) dismissal.  The House case generally teaches us that companies conducting title searches should disclose all recorded liens, regardless of whether the searchers believe such liens are deficient.  Indeed this is one of the primary reasons why foreclosing lenders order title work in the first place - to determine whether there are liens on the property that need to be dealt with during the foreclosure suit.