Kenny v. Safeco Title Insurance

California Court of Appeal Dec 12, 1980 No. Civ. 22486Published

Before: Kilgarif

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Holding. A title insurance company owes no duty of care to a property seller for negligence in failing to identify a lien, nor are sellers third-party beneficiaries of a buyer's title insurance policy, particularly when the sellers had prior knowledge of the lien.

Issues

Whether a title insurance company owes a duty of care to a property seller despite a lack of privity of contract.
Whether a property seller qualifies as a third-party beneficiary of a title insurance policy issued to the buyer.

Disposition. Affirmed

Quotations verified verbatim against the opinion

“The facts in this case, wherein sellers had prior knowledge of the tax lien on the property, clearly negates any possible duty on the part of the title insurance company to advise them of the existence of said lien.”

“In the present case, the Kennys are at most incidental beneficiaries to the policy of title insurance issued to the buyers, Parsons, as no intention to confer upon them a right against the promisor can be imputed to the title insurer.”

Opinion

KILGARIF, J.

Appellants appeal from a judgment rendered January 23, 1980, dismissing appellants’ first amended complaint for negligence pursuant to an order sustaining respondents’ demurrer without leave to amend.

Appellants sold certain real property to buyers Robert G. Parsons and Jeanne K. Parsons. Appellants agreed to convey property free of all encumbrances except 1978-1979 taxes and instructed escrow holder to pay all “liens of record” other than 1978-1979 taxes. Respondents issued a policy of title insurance on May 10, 1978, to the buyers insuring their title to be free from any liens and encumbrances with some exceptions. On March 14, 1978, a federal tax lien for $32,132.49 for 1976 taxes had been imposed upon appellants and their property. The lien was recorded March 15, 1978.

Respondents failed to note said lien and on May 10, 1978, respondents issued the policy of title insurance to the buyers failing to show said lien as an exclusion under their policy. The buyers, respondents’ insured, became aware of the federal tax lien on their property, made demand for payment to clear their title and respondents extinguished the tax lien for the benefit of the insured buyers by paying the sum of $31,504.44 to the Internal Revenue Service.

[560]

Respondents’ insured, Robert G. Parsons and Jeanne K. Parsons, assigned to respondents all causes of action, claims and demands arising out of the federal tax lien against appellants. Respondents, in their exercise of subrogation rights, filed a complaint against appellants for breach of contract against encumbrances for recovery of $31,504.44 plus costs.

Appellants admitted under penalty of perjury in their answer and cross-complaint that the tax of $32,132.49 was due and unpaid at time of opening of escrow and that they had knowledge of the tax lien. They alleged in their cross-complaint “at the time we were negotiating with the Federal Government to negotiate this lien.”

Appellants filed a cross-complaint for damages, alleging that respondents’ negligence precluded them from effecting a compromise and settlement with the IRS in the amount of $10,000.

Kenny v. Safeco Title Insurance

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KILGARIF, J.

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