New York Law Review

Tag: title insurance

  • L. Smirlock Realty Corp. v. Title Guarantee Company, 63 N.Y.2d 955 (1984): Determining Interest Accrual on Title Insurance Claims

    L. Smirlock Realty Corp. v. Title Guarantee Company, 63 N.Y.2d 955 (1984)

    A title insurance company’s liability for a defect in title accrues, and the insured’s cause of action arises, at the time the insured acquires the defective title and the policy is issued, thus establishing the date from which interest on damages should be calculated.

    Summary

    L. Smirlock Realty Corp. sued Title Guarantee Company for a defect in title insurance policy. The dispute centered on when interest should begin accruing on the damages awarded for the defect. The Court of Appeals modified the Appellate Division’s order, holding that interest on the damages should run from the date the defective title was acquired and the policy was issued (May 14, 1969), not from a later date as determined by the Appellate Division. The court reasoned that the title company’s liability and the plaintiff’s cause of action arose simultaneously with the acquisition of the defective title.

    Facts

    On May 14, 1969, L. Smirlock Realty Corp. acquired a property title insured by Title Guarantee Company.
    A defect existed in the title related to access rights to the property.
    The defect resulted in a diminution of the property’s value.
    Litigation ensued to determine the extent of the title company’s liability and the date from which interest on the damages should accrue.

    Procedural History

    The Supreme Court made initial factual determinations regarding the defect and its impact on the property value.
    The Appellate Division affirmed the Supreme Court’s factual findings but differed on the date from which interest should run, setting it as April 14, 1972.
    L. Smirlock Realty Corp. appealed the interest accrual date to the Court of Appeals.

    Issue(s)

    Whether the interest on damages awarded for a defect in a title insurance policy should accrue from the date the defective title was acquired and the policy was issued, or from a later date.

    Holding

    Yes, because the title insurance company’s liability for a defect in the title against which the policy insured accrued, and the plaintiff’s cause of action existed, at the time the plaintiff acquired the defective title and the policy was issued.

    Court’s Reasoning

    The Court of Appeals agreed with the Appellate Division’s substantive findings regarding the defect and damages amount, affirming those aspects based on evidence in the record.
    However, the court disagreed with the Appellate Division’s determination of the interest accrual date.
    The court emphasized that the defendant’s liability and the plaintiff’s cause of action arose when the plaintiff acquired the defective title and the insurance policy was issued on May 14, 1969.
    The court cited CPLR 5001(b), stating that the right to interest ran from that date.
    The court reasoned that the damages were ascertainable as of the date of the title transfer, and the plaintiff was deprived of the full value of the property from that point forward.
    The court explicitly stated: “Defendant’s liability for a defect in the title against which the policy insured accrued, and plaintiff’s cause of action existed, at the time plaintiff acquired the defective title and the policy was issued, May 14, 1969. Its right to interest on the $593,850 accordingly ran from that date (CPLR 5001, subd [b]).”
    This case clarifies that the trigger for interest accrual in title insurance disputes is tied to the moment the insured is demonstrably harmed by the title defect, which is the date of title transfer.

  • Lawyers Title Ins. Corp. v. Edmar Constr. Corp., 61 N.Y.2d 635 (1984): Subrogation Rights of Title Insurers

    Lawyers Title Ins. Corp. v. Edmar Constr. Corp., 61 N.Y.2d 635 (1984)

    A title insurer who pays taxes on a property due to its contractual obligation with a mortgagee is subrogated to the rights of the mortgagee and the taxing authority against the property owner, and is not considered a volunteer.

    Summary

    Lawyers Title Insurance Corp. (Lawyers Title) sued Edmar Construction Corp. (Edmar) to recover taxes Lawyers Title paid on Edmar’s property. Lawyers Title had a contract with the bank (mortgagee) to pay these taxes. Edmar claimed it was also covered by Lawyer’s Title insurance policy, thus barring Lawyer’s Title from recovering from him. The court held that Lawyers Title was not a volunteer in paying the taxes, as it was subrogated to the rights of the bank, who was subrogated to the rights of the taxing authority. Therefore, Lawyers Title was entitled to judgment unless Edmar could prove he was also insured under the policy.

    Facts

    Lawyers Title had a contract with a bank to provide title insurance. This contract required Lawyers Title to pay any outstanding taxes on properties with mortgages held by the bank.
    Edmar owned property subject to a mortgage held by the bank.
    Edmar failed to pay property taxes, creating a lien on the property.
    Lawyers Title, pursuant to its contract with the bank, paid Edmar’s outstanding taxes.

    Procedural History

    Lawyers Title sued Edmar to recover the amount of taxes paid.
    Edmar claimed he was also covered by the title insurance policy, which would prevent Lawyers Title from recovering from him.
    The lower court granted summary judgment to Lawyers Title.
    The Appellate Division affirmed.
    Edmar appealed to the New York Court of Appeals.

    Issue(s)

    Whether a title insurance company that pays taxes on a property pursuant to a contract with the mortgagee is considered a volunteer, thereby precluding it from being subrogated to the mortgagee’s rights against the property owner.

    Holding

    No, because the title insurance company is subrogated to the rights of the bank, which was in turn subrogated to the rights of the taxing authorities against the property owner. Therefore the bank’s interest in the premises which secured its mortgage gave it an interest sufficient to take it out of the classification of a volunteer.

    Court’s Reasoning

    The court reasoned that Lawyers Title was not a volunteer because it was contractually obligated to pay the taxes under its agreement with the bank.
    This contractual obligation created a right of subrogation, allowing Lawyers Title to step into the shoes of the bank. The bank, as the mortgagee, had a legitimate interest in protecting its security interest by ensuring the property taxes were paid. The bank itself was subrogated to the rights of the taxing authority.
    The court referenced Nassau Trust Co. v Montrose Concrete Prods. Corp., 56 NY2d 175, noting that if Edmar was an insured party under the Lawyers Title policy, then Lawyers Title could not recover from him. The court emphasized that the key question remaining was whether Edmar was in fact an insured under the policy.

  • L. Smirlock Realty Corp. v. Title Guarantee Co., 63 N.Y.2d 957 (1984): Duty to Disclose Title Defects

    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.

  • Matter of American Title Ins. Co. v. State Tax Comm., 25 N.Y.2d 181 (1969): Taxation of Title Examination Fees as Premiums

    Matter of American Title Ins. Co. v. State Tax Comm., 25 N.Y.2d 181 (1969)

    Fees charged by title insurance companies for title examinations, conducted as a prerequisite to issuing title insurance policies, are considered part of the ‘gross direct premiums’ subject to state franchise tax.

    Summary

    This case concerns whether fees for title examinations, conducted by title insurance companies before issuing policies, are taxable as ‘gross direct premiums’ under Section 187 of the Tax Law. The Tax Commission argued that these fees, along with others, were taxable, leading to an additional assessment against American Title. The Appellate Division agreed regarding title examination fees. The Court of Appeals affirmed, holding that the statutory scheme, incorporating both Insurance and Tax Laws, mandates taxation of these fees as part of the overall premium. This decision ensures consistent taxation across insurance and non-insurance businesses.

    Facts

    American Title Insurance Company charged fees for title examinations as part of its title insurance business. These examinations constitute approximately three-quarters of the overall cost of title insurance. Historically, the company and others in the New York metropolitan area reported title insurance premiums earned and service charges (including title examinations) as separate income items in annual statements filed with the Superintendent of Insurance. The company only paid taxes on the portion of fees labeled as ‘premiums,’ which was a small fraction of the total fees collected for title insurance.

    Procedural History

    The Tax Commission issued an additional tax assessment against American Title Insurance Company, arguing that fees for title examinations should be included in the calculation of ‘gross direct premiums.’ American Title challenged this assessment. The Appellate Division upheld the commission’s determination regarding title examination fees but eliminated taxes on other services. The Court of Appeals granted permission for further appeal.

    Issue(s)

    Whether fees charged by title insurance companies for title examinations, performed prior to the issuance of title insurance, constitute ‘gross direct premiums’ subject to taxation under Section 187 of the Tax Law.

    Holding

    Yes, because the statutory framework, encompassing both the Insurance Law and the Tax Law, treats these fees as part of the overall premium for title insurance, thus making them subject to franchise tax.

    Court’s Reasoning

    The court reasoned that Section 187 of the Tax Law requires a tax on premiums, and Section 550(1) of the Insurance Law broadly defines ‘premium’ to include all compensation received for insurance contracts. Furthermore, Section 46(18) of the Insurance Law defines ‘title insurance’ as encompassing not only insuring the correctness of searches but also procuring and furnishing related information. The court emphasized that the Insurance Law and Tax Law must be read together. To exclude title examination charges, which constitute a significant portion of the policy’s cost, would allow title insurance companies to avoid paying their fair share of taxes compared to other businesses. The court cited Matter of City Tit. Ins. Co. v. Superintendent of Ins. of State of N. Y., 13 N.Y.2d 686 (1963), as prompting the reevaluation of past practices. The court noted that the policies themselves often state that title insurance is provided “in consideration of the payment of * * * charges for examination of title and of the premium”. The court also stated that a tax on insurance premiums is analogous to a tax on the ‘ ‘net income’ ’ of other types of business corporations. Therefore, the court concluded that the entire cost of the policy, including both the ‘risk’ and the ‘title examination’ portions, is subject to taxation.