Tax Deeds; Title Insurance; Unfair Competition Law

Quelimane Co v Stewart Title Guar Co, 960 P 2d 513 (Cal 1998).

Facts: Landowners brought suit against two title insurers alleging three claims: (1) a conspiracy between the insurers to refuse to issue title insurance policies on real property obtained pursuant to a tax sale; (2) intentional, willful, and deliberate interference by the insurers with contractual relations of members of the general public for the sale of land purchased through tax sales; and (3) negligence, based upon the assertion that the insurers had a duty to members of the general public to issue title insurance to any parcel of land without discrimination. The suit stemmed from the refusal of the only two title insurers in a county to issue policies to properties with a tax sale deed in the chain of title. The Court of Appeals held that the California Insurance Code displaced the Unfair Competition Law (UCL) of the California Business and Professions Code. Thus, title insurance companies were exempt from civil liability under those laws prohibiting conduct in restraint of trade and unfair business practices not identified in the California Insurance Code. The appeals court also determined that the landowners failed to state a cause of action for negligence, because there is no duty to issue a policy of title insurance.

Holding: Reversed and remanded. Landowners' complaint does not state a cause of action for negligence, but the allegations are sufficient to state causes of action for unfair competition and intentional interference with contractual relations. The Insurance Code does not displace the UCL except as to title company activities related to setting rates. Although an insurer does not have a duty to do business with or issue a policy of insurance to any applicant for insurance, here, the claim is that the insurers conspired together to deny title insurance on all titles derived from tax deeds. While refusing to sell a product to a consumer does not itself create an unlawful restriction on trade or commerce, when the refusal is the result of a combination, agreement, or conspiracy to make that product unavailable in a given market, a prohibited restraint of trade may be found. Further, the insurers may have violated the UCL through unfair, deceptive, untrue, or misleading advertising. An insurer's advertising that title insurance is necessary and will be issued on any property with good title, when in fact it will not be issued on tax-deeded property, may be deemed both misleading and false.

The insurers may have also interfered with the contractual relations between the landowners and their lending institutions as title insurance was a required condition of their loans. Whether the landowners can prove that the insurers intended to interfere with land sale contracts when title insurance was denied, or if the insurers can establish that they had a legitimate business purpose that justified their actions, should be decided at trial.

Finally, the landowners' allegations failed to state a cause of action for negligence. Here, the insurers had no relationship to the subject properties. The insurers had no control over the sale and no pre-existing relationship with the purchasers. The possible impact of the unavailability of title insurance on sellers of tax-defaulted property was incidental as is the impact of most business transactions on third parties. It is foreseeable that if title insurance is not readily available, the seller may not receive the same price that insurable title would bring. Foreseeability of financial injury to third persons alone is not a basis for imposition of liability for negligent conduct.

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