Last year (as we blogged about here and wrote a more in depth Law360 article about here), the Ninth Circuit certified to the Washington Supreme Court the question of whether title companies owe a duty of care to third parties when they record legal instruments. We finally have an answer…
“We answer the certified question no and hold that title companies do not owe a duty of care to third parties in the recording of legal instruments. Such a duty is contrary to Washington’s policy and precedent, and other duty of care considerations.”
Centurion Properties III, LLC v. Chicago Title Ins. Co., 375 P.3d 651, 653 (Wash. 2016).
Facts of the Case
As described more fully in our prior articles, the fact pattern involved a title company that knew that a borrower was contractually prohibited from recording junior liens against a commercial property, but nevertheless recorded multiple junior liens at the request of the junior lender to the detriment of the borrower. The legal issue was whether the title company owed a duty of care to the borrower when it recorded the junior liens.
The Supreme Court of Washington’s Analysis
The Washington Court began its analysis by looking at the nature of a legal duty. “The duty of care question implicates three main issues—the existence of a duty, the measure of that duty, and the scope of that duty.” Centurion, 375 P.3d at 654 (citing Dan B. Dobbs, the Law of Torts § 226, at 578 (2000)). To decide the legal questions of the existence and scope of a duty, the Washington Court examined the considerations of “logic, common sense, justice, policy, and precedent” which “lead [the Court] to conclude that a title insurance company does not owe a duty of care to third parties in the recording of legal instruments.” Id. The Washington Supreme Court analyzed these considerations in reverse order, and we do the same.
Precedent
In analyzing precedent, the Washington Court first noted that Washington precedent does not impose a duty on the title company to disclose title defects—even to its client—unless the title company prepares an abstract of title. Id. (citing Barstad v. Stewart Title Guaranty Co., 145 Wash.2d 528, 541 (2002)). Since no party requested an abstract of title in the Centurion case, the Court concluded as follows: “Because our title insurer liability precedent does not support finding a duty to identify and disclose title defects to its own clients, it cannot support extending this duty of care to nonclient...
