In U.S. Bank, N.A. v Integrity Land Title Corp., 929 NE2d 742 (Ind., 2010), the Indiana Supreme Court recognized the tort of negligent misrepresentation where a title company's commitment failed to identify a preexisting lien, which resulted in an economic loss for a lender. The court found a duty between the title company and the lender even though the title company was not a party to the mortgage and had no contractual relationship with the lender. This case creates a specific exception to the general "economic loss rule" recognized in Indiana. However, Illinois and Wisconsin courts have held precisely the opposite on this issue, so title abstracters operating in those states do not face the same potential liability.

The Economic Loss Rule

Indiana courts follow the "economic loss rule." This rule states that "a defendant is not liable under a tort theory for any purely economic loss caused by its negligence." Integrity, 929 NE2d at 745 (quoting Indianapolis-Marion County Public Library, 929 NE2d 722, 726-27 (2010)). Thus, a plaintiff generally may recover only for a tort that includes some element of harm to property or personal injury. However, the economic loss rule "is a general rule and [is] open to appropriate exceptions," such as negligent misrepresentation. Id. (quoting Indianapolis Marion County Public Library, 929 NE2d at 736). In its Integrity decision, the court found just such an exception in a title company's preliminary commitment.

US Bank, NA v Integrity Land Title Corp

Integrity is a ruling on U.S. Bank, N.A.'s appeal of summary judgment in favor of Integrity Land Title Corp. As such, the court based its decision on the facts presented most favorable to U.S. Bank. In January 2006, a buyer of real property secured a loan from Texcorp Mortgage Bankers. Texcorp contracted with Integrity to prepare a title commitment, conduct the closing, and provide Texcorp with an insured first mortgage. Integrity issued a title commitment to Texcorp stating that it did not find any judgments pending against the seller of the real estate. In February 2006, the closing was held at Integrity's offices, and Integrity was paid for its title search, the policy premium, and other closing costs. Subsequently, Southern National Title Insurance Corporation underwrote a policy insuring Texcorp and its successor and/or assigns. U.S. Bank, N.A. succeeded to Texcorp's interest.

In August 2006, LPP Mortgage Ltd. filed a complaint against the owner and US Bank to enforce a 1998 judgment lien that was not discovered by Integrity. Ultimately, LPP won a judgment in February 2008, and the property was sold to satisfy that judgment.

U.S. Bank filed a complaint against Integrity and Southern, citing the following: (1) breach of contract; and (2) the tort of negligent real estate closing. The trial court granted US Bank summary judgment against Southern, but denied its motion against Integrity. It also granted Integrity's cross-motion for summary judgment against U.S. Bank, finding that Integrity neither had contractual obligations to U.S. Bank nor any duty to avoid negligent conduct. U.S. Bank appealed, but after both a hearing and rehearing by the court of appeals, the ruling in favor of Integrity was affirmed on all counts. The Indiana Supreme Court granted U.S. Bank's motion to transfer, thus automatically vacating the court of appeals' ruling. Ind. Appellate Rule 58(A).

As an initial matter, the court affirmed the ruling as to breach of contract. Because Integrity had no privity of contract with U.S. Bank, there could be no claim of breach. However, as to the tort claim, the court ruled that Integrity did have a duty to U.S. Bank.

First, the court explained that Indiana generally follows the economic loss rule, but that rule has exceptions. In this case, the potential exception was that of negligent misrepresentation, which was already recognized in Indiana. Integrity, 929 NE2d at 747 (citing Passmore v Multi-Mgmt Servs Inc., 810 NE2d 1022, 1025 (Ind., 2004)). However, the court framed the issue in the instant case as "whether the issuance of a title commitment and subsequently issued title insurance policy give rise in Indiana to a tort cause of action for negligent misrepresentation against a title insurer or commitment issuer." Integrity, 929 NE2d at 746. State courts throughout the United States were split on this issue and it had not yet been addressed in Indiana.

Next, the court rejected Integrity's argument that it could have no duty to avoid negligent misrepresentation beyond its contractual duties, if any, citing Greg Allen Const Co, Inc. v Estelle, 798 NE2d 171 (Ind., 2003). However, the court stated that Greg Allen was inapposite as it was a construction case and was subject to a narrower scope of liability than an insurance case. This is because Indiana courts may "go beyond the terms of the insurance contract to explore whether a duty might lie in tort as well as contract." Integrity, 929 NE2d at 748. Furthermore, the court stated that "special exceptions" and "overriding public policies" may sometimes create tort liability even where parties could have, but chose not to, enter into a contract. See Id.

Finally, the court found such special circumstances in the context of a title insurance commitment. The court stated that preliminary title insurance commitments are commonly relied upon by parties to a real estate transaction. Id. at 749. They are prepared by title companies, which have "superior knowledge and expertise," at the specific request of a party. Id. at 749-50. Title companies realize the extent that these commitments are relied upon and the extent of the harm these parties expose themselves to through this reliance. In fact, title companies often encourage such reliance. Id. Thus, the court unanimously concluded that Integrity owed a duty to U.S. Bank, Integrity potentially committed a tort, and the trial court's summary judgment ruling for Integrity must be reversed.

The Consequences of Integrity in Indiana

Pursuant to the ruling in Integrity, a title insurance company may be liable in tort to a lender if the lender suffers pecuniary-only harm because the title insurance commitment incorrectly stated that no liens existed against a property. Thus, "agents are in the business of supplying information, not insurance." "Indiana Adopts Abstractor Liability Against Agents," Bushnell Nielsen, The Title Insurance Law Newsletter, August 2010, page 6. This coincides with the court's analysis of the Restatement (Second) of Torts § 552(1), Information Negligently Supplied for the Guidance of Others. In Integrity, the court quoted this section:

Per the court's ruling, title companies face potential tort liability under this provision of the Restatement.

Abstracter Liability in Illinois and Wisconsin

The Indiana Supreme Court specifically addressed other states' stances on abstracter liability. Among cases opposed to Indiana's ultimate conclusion, the Court cited the Wisconsin Supreme Court, which rejected such liability in Greenberg v Stewart Title Guaranty Co., 171 Wis 2d 485, 492 NW2d 147 (Wis., 1992). Under that decision, Wisconsin does not recognize a title abstracter as anything except an insurance company; the abstracter is not "employed to examine title." Greenberg, 492 NW2d at 151. Furthermore, issuing a commitment does not create a duty for the issuer to independently conduct the title search; the "only duty undertaken by a title insurance company ... is to indemnify the insured." Id.

More recently, Illinois also rejected such liability in First Midwest Bank, N.A. v Stewart Title Guaranty Co., 218 Ill 2d 326, 843 NE2d 327 (Ill., 2006). Like Indiana, Illinois recognizes the economic loss rule subject to certain exceptions, including negligent misrepresentation. First Midwest Bank, N.A., 843 NE2d at 333. However, the Illinois Supreme Court concluded that "a title insurer is not in the business of supplying information when it issues a title commitment or a policy of title insurance." Id. at 336. Therefore, "the negligent misrepresentation exception . . . does not apply." Id.

Per Greenberg and First Midwest Bank, N.A., Wisconsin and Illinois hold the opposite rule that Indiana recently adopted. Title abstracters, which do not purport to examine or search for title, are not liable outside of their contractual obligations. They are not in the business of transmitting information; they are in the business of providing insurance. Therefore, they are not potentially liable for the tort of negligent misrepresentation based on a title commitment that fails to identify a preexisting lien.