L. Smirlock Realty Corp. v. Title Guarantee Co., 63 N.Y.2d 957 (1984)

An insured party under a title insurance policy has no duty to disclose facts readily ascertainable from public records to the insurer, and the policy is only voided by intentional concealment of non-public information tantamount to fraud.

Summary

L. Smirlock Realty Corp. sued Title Guarantee Co. to recover damages under a title insurance policy after discovering that the property’s access streets had been condemned. The title policy included a misrepresentation clause. Smirlock’s agent, Tucker, had been informed of a condemnation affecting the property, but it was not disclosed to the title company. The New York Court of Appeals held that the insured had no duty to disclose facts readily ascertainable from public records, absent intentional concealment. The court reversed the lower court’s decision, finding no basis to void the policy because the condemnations were matters of public record.

Facts

In 1967, the Town of Hempstead condemned property adjacent to 31-39 Carvel Place, owned by Bass Rock Holding, Inc. This property had access to public streets, St. George Street, Jeanette Avenue, and Carvel Place. Bass Rock defaulted on mortgage payments, leading to foreclosure proceedings. Gerald Tucker, representing a mortgagee, negotiated to purchase the property and formed L. Smirlock Realty Corp. Abraham Lee, Special Counsel for the Town, informed Tucker of a condemnation affecting the property abutting Carvel Place, but Tucker proceeded with the foreclosure. At the title closing, a condemnation award was discussed and assigned to Smirlock. After the purchase, Smirlock discovered that St. George Street and Jeanette Avenue roadbeds had also been condemned, a fact not revealed in the title search. Pan American, Smirlock’s tenant, vacated the premises, and Smirlock lost the property in foreclosure.

Procedural History

Smirlock sued Title Guarantee Co. to recover damages under the title insurance policy. The trial court dismissed the claim, finding that Smirlock, through Tucker, had knowledge of the condemnations and failed to disclose it. The Appellate Division affirmed, but found Tucker only had knowledge of the Carvel Place taking. They held that failing to disclose the Carvel Place taking was material because it would have prompted the title company to discover the other condemnations. Smirlock appealed to the New York Court of Appeals.

Issue(s)

Whether a title insurance policy is voided by the insured’s failure to disclose a material fact (a condemnation affecting the property) when that fact is a matter of public record?

Holding

No, because a policy of title insurance will not be rendered void pursuant to a misrepresentation clause absent a showing of intentional concealment tantamount to fraud; moreover, an insured is under no duty to disclose facts readily ascertainable by reference to the public records.

Court’s Reasoning

The Court of Appeals noted that title insurance protects against defects in title, emphasizing the title company’s expertise in searching public records. The court recognized that, unlike other insurance types, the insured provides minimal information, relying on the title company’s search capabilities. The court stated, “[T]itle insurance is procured in order to protect against the risk that the property purchased may have some defect in title. The emphasis in securing these policies is on the expertise of the title company to search the public records and discover possible defects in title.” The court reasoned that imposing a duty on the insured to disclose publicly available information would undermine the purpose of title insurance. The court held that only intentional concealment of information not readily discernible from public records voids the policy. “[A]n insured under a policy of title insurance such as is involved herein is under no duty to disclose to the insurer a fact which is readily ascertainable by reference to the public records. Thus, even an intentional failure to disclose a matter of public record will not result in a loss of title insurance protection.” Here, there was no evidence of intentional concealment, and the condemnations were publicly recorded. Therefore, Smirlock’s failure to disclose did not void the policy. The court modified the Appellate Division’s order, remitting the case for a trial on damages.