Bad Faith Insurance – Misrepresentation Regarding Policy Issues

A 1994, Texas Supreme Court opinion styled, Chicago Title Ins. Co. v. McDaniel, is a case that says title insurance is different than your normal insurance.

This is a summary judgment case in favor of the insurer.  This Court affirmed the finding in favor of Chicago Title.

In September 1983, the McDaniel’s purchased on home from Couch Mortgage Company and at closing the McDaniel’s also purchased a title policy from Chicago Title.  In relevant part the title policy reads, that Chicago Title “for value does hereby guarantee to the Insured … that as of the date hereof, the Insured has good and indefeasible title to the estate or interest in the land described or referred to in this policy.”

In December 1988, the McDaniel’s received notice from the bankruptcy trustee of Couch Mortgage that their property was subject to a preexisting lien that had been properly filed and recorded in April 1983.

The McDaniels brought suit seeking damages under the DTPA based on Chicago Title’s representations.  Chicago Title later secured the release of the preexisting lien.

Chicago Title asserts that it has discharged its obligation under the title policy, and that it cannot be liable under the DTPA because it has made no representations regarding the status of the title to the McDaniels’ property.  This Court agreed.

A title policy is a contract of indemnity.  In other words, the only duty imposed by a title insurance policy is the duty to indemnify the insured against losses cause by defects in title.  Thus, Chicago Title’s issuance of a policy did not constitute a representation regarding the status of the property’s title; rather , it constituted an agreement to indemnify the McDaniels against losses caused by any defects.

This case is unusual an the Court discusses how a pleading defect may be the reason the Court found in favor of Chicago Title.

As was discussed in the 2006, opinion, Minn. Life Ins. Co. v. Vasquez, it is problematic in bad faith cases to consider only the evidence offered in support of a finding that the insured failed to pay a claim after coverage had become reasonable clear.  Coverage will almost always be reasonably clear if reviewing courts must disregard all evidence that it was unclear.  Instead, appellate courts for some time have looked at all the evidence in such cases, crediting favorable evidence if reasonable jurors could, and disregarding contrary evidence unless reasonable jurors could not.