Centurion Props. III, LLC v. Chi. Title Ins. Co.

NOTICE: SLIP OPINION
(not the court’s final written decision)

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Supreme Court Cieri<

IN THE SUPREME COURT OF THE STATE OF WASHINGTON

CERTIFICATION FROM THE UNITED )
STATES COURT OF APPEALS FOR THE )
NINTH CIRCUIT ) No. 91932-1
IN )
) En Bane
CENTURION PROPERTIES Ill, LLC; SMI )
GROUP XIV, LLC, )
) Filed JUL. 1 4 2016
Plaintiffs-Appellants, )
)
v. )
)
CHICAGO TITLE INSURANCE )
COMPANY, a Nebraska company, )
)
Defendant-Appellee. )
)

WIGGINS, J,-The United States Court of Appeals for the Ninth Circuit certified

the following question to this court: "Does a title company owe a duty of care to third

parties in the recording of legal instruments?" 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 Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

FACTS

This certified question arises from a civil action for money damages filed in the

United States District Court for the Eastern District of Washington. Plaintiffs Centurion

Properties Ill LLC (CP Ill) and SMI Group XIV LLC (collectively Plaintiffs) assert that

defendant Chicago Title Insurance Company negligently breached its duty of care and

caused damages when it recorded unauthorized liens on CP Ill's property.

Michael Henry, the sole member of SMI, joined with Thomas Hazelrigg to form

CP Ill. They formed CP Ill in order to purchase property and commercial buildings in

Richland, Washington. They further agreed that 90 percent of CP Ill would be owned

by individuals and entities controlled by Hazelrigg and 10 percent would be owned by

SMI. Aaron Hazelrigg, through nonparty Centurion Management Ill LLC, was the

managing member of CP Ill.

To purchase the property, CP Ill obtained a $70.8 million loan from General

Electric Capital Corporation (GECC). The loan was secured by a deed of trust on the

property naming GECC as the beneficiary. The deed of trust and two other

instruments-the CP Ill operating agreement and the GECC loan agreement-

prohibited the placement of any liens or encumbrances on the property without

GECC's approval. Any unauthorized lien or encumbrance would constitute an event

of default.

Defendant Chicago Title served as escrow agent, closing agent, and title

insurer for the purchase of the property at issue. Chicago Title recorded the GECC

deed of trust and is named trustee for GECC's senior lien. Chicago Title, as trustee,

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Centurion Props. 1/1, LLC v. Chicago Title Ins. Co., No. 91932-1

also received and reviewed copies of the CP Ill operating agreement and the GECC

loan agreement as part of the transaction.

Following the sale, four liens were placed on the property without GECC's

approval. The four unauthorized liens were recorded by Chicago Title: two separate

deeds of trust granted by CP Ill in favor of Centrum Financial Services Inc.; a deed of

trust granted by CP Ill to Trident Investments Inc.; and a memorandum of agreement

between CP Ill and Trident. Two additional liens are not at issue in this case.

Each of these liens was a facially valid instrument: the instruments bore the

correct legal description, and they were all signed and notarized through Centurion

Management by either Aaron Hazelrigg or Thomas Hazelrigg as director of CP

Management on behalf of CP 111. 1 Chicago Title initially recorded Centrum Financial's

deed of trust in conjunction with issuing a commitment for title insurance. The

remaining three recordings were done as accommodations.

Later, GECC obtained a title report and learned of the four (prohibited) liens

that Chicago Title recorded. GECC notified CP Ill that the junior liens were events of

default and accelerated the entire unpaid balance of the loan, imposing a default rate

of interest. Though CP Ill attempted to refinance the loan, no lender would refinance

it while the prohibited liens remained on CP Ill's title. GECC moved forward with its

foreclosure, forcing CP Ill to file for bankruptcy2

1 Plaintiffs allege that even though these liens were purportedly entered into by Centurion
Management on behalf of CP Ill, they were not authorized liens. They further assert that
Chicago Title was under a duty to look behind the instruments to determine whether the
signatures were, in fact, valid.
2 During this time, Henry, as the sole member of SMI, took control of CP Ill from the
Hazel riggs. He is now the sole owner of both companies.

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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

Plaintiffs filed a civil action against the Hazelriggs, Centrum Financial, and

others, alleging that the named defendants misappropriated funds from CP Ill,

improperly transferred ownership of CP Ill, and secretly placed liens on CP Ill's

property. These claims sought to (1) enjoin foreclosure of the allegedly unauthorized

liens and (2) quiet title by voiding the instruments that created them. Plaintiffs later

added a sole complaint against Chicago Title; this complaint asserted that Chicago

Title was negligent in recording the prohibited liens and that the resulting defaults

caused CP Ill to incur more than $7.5 million in damages, including $3 million in

default interest. The claims against all other parties settled, leaving only the

negligence claim against Chicago Title. The district court dismissed this claim on

summary judgment, finding that Chicago Title did not owe Plaintiffs a duty of care.

Centurion Props. Ill, LLC v. Chi. Title Ins. Co., No. CV-12-5130-RMP, 2013 WL
3350836 (E.D. Wash. July 3, 2013) (court order). Plaintiffs appealed, and the Ninth

Circuit certified its question to this court. Centurion Props. Ill, LLC v. Chi. Title Ins. Co.,

793 F. 3d 1087 (9th Cir. 2015). We accepted review pursuant to RCW 2.60.020.

ANALYSIS

We are asked whether a title insurance company owes a duty of care to third

parties in the recording of legal instruments. A duty of care is '"an obligation, to which

the law will give recognition and effect, to conform to a particular standard of conduct

toward another."' Affil. FM Ins. Co. v. LTK Consulting Servs., Inc., 170 Wn.2d 442,

449, 243 P.3d 521 (2010) (internal quotation marks omitted) (quoting Transamerica

Title Ins. Co. v. Johnson, 103 Wn.2d 409, 413, 693 P.2d 697 (1985). The duty of care

question implicates three main issues-the existence of a duty, the measure of that

4
             
Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

duty, and the scope of that duty. /d. (quoting DAN B. DOBBS, THE LAW OF TORTS§ 226,

at 578 (2000)). "In a negligence action, in determining whether a duty is owed to the

plaintiff, a court must not only decide who owes the duty, but also to whom the duty is

owed, and what is the nature of the duty owed." Keller v. City of Spokane, 146 Wn.2d

237, 243, 44 P.3d 845 (2002). The existence of a duty and the scope of that duty are

questions of law, and both are determined by considering the factors listed below.

We consider logic, common sense, justice, policy, and precedent, as applied to

the facts of the case, when determining whether a defendant owes a duty in tort. Affil.

FM Ins. Co., 170 Wn.2d at 449. We have long applied these factors when defining

"duty," and they can be traced back for more than 100 years. 3 We apply these factors

here. We first examine precedent and analyze whether our decisions or the decisions

of neighboring jurisdictions support finding a duty here. We next consider whether

Washington's policy of protecting the rights of property owners through the title

recording system is advanced or frustrated by imposing a legal duty of care. Finally,

we consider logic, common sense, and justice. These considerations lead us to

conclude that a title insurance company does not owe a duty of care to third parties in

the recording of legal instruments.

I. Standard of review

Certified questions from a federal court are questions of law that we review de

novo. Gray v. Sutte/1 &Assocs., 181 Wn.2d 329, 337, 334 P.3d 14 (2014). We consider

3 The original language from 1 Thomas Atkins Street, The Foundations of Legal Liability 100,
110 (1906) is quoted time and again from Affiliated FM Insurance Co., 170 Wn.2d at 449, to
Snyder v. Medical Service Corp. of Eastern Washington, 145 Wn.2d 233, 243, 35 P.3d 1158
(2001 ), to Hartley v. State, 103 Wn.2d 768, 779, 698 P.2d 77 (1985), to King v. City of Seattle,
84 Wn.2d 239, 250, 525 P.2d 228 (1974).

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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

the legal issues not in the abstract but rather based on the certified record provided

by the federal court. /d. (citing RCW 2.60.030(2)). Our ruling is not advisory-pursuant

to RCW 2.60.020, our ruling in answer to the certified question resolves actual issues

pending in the federal proceeding and will be legal precedent in all future

controversies involving the same legal question. /d.

II. Precedent

We first consider precedent. Whether a title insurance company owes a duty of

care to third parties in the recording of legal instruments is a question of first

impression for this court. However, our precedent firmly supports the conclusion that

the answer to this certified question is no.

Our analysis begins by considering the duties owed by title insurance

companies in prior cases. We next consider other circumstances that have led us to

recognize a professional duty of care. Washington law treats professional duties as

discrete duties owed to clients-absent a special relationship, we have extended a

professional duty of care to third parties only (1) when the third party is an intended

beneficiary, (2) when the third party justifiably relied on a professional's

representations under a theory of negligent misrepresentation, or (3) when a

professional is best able to mitigate the risk of a physical injury. See, e.g., Stewart

Title Guar. Co. v. Sterling Sav. Bank, 178 Wn.2d 561, 567, 311 P.3d 1 (2013) (no duty

to nonclient absent intent to benefit nonclient); ESCA Corp. v. KPMG Peat Marwick,

135 Wn.2d 820, 832, 959 P.2d 651 (1998) (negligent misrepresentation); Affil. FM Ins.

Co., 170 Wn.2d at 545 (engineer owed a duty of care to third parties who may be

harmed by engineer's negligence). Because Plaintiffs do not assert a theory of

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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

negligent misrepresentation, our analysis considers our rule limiting duties to third

parties who are intended beneficiaries and the rationale extending a duty to

professionals able to mitigate the risk of physical injury. We conclude by considering

the approaches of Arizona and California, the only other states to consider the duty

owed by a title insurance company to a third party when recording legal instruments.

A. Title insurance companies do not owe a general duty to clients to search for
and disclose potential title defects when issuing preliminary commitments

Title insurance companies may perform several services for their own benefit

or for their client's benefit. Consistent with chapter 48.29 RCW ("Title Insurers"), our

analysis of the duty owed by title insurance companies to their clients follows the

nature of the service at issue.

Though we have not considered the duty owed by a title insurance company to

nonclient third parties, we thoroughly analyzed and explored the duty of a title insurer

to its clients-namely to its insureds-in Barstad v. Stewart Title Guaranty Co., 145

Wn.2d 528, 541, 39 P.3d 984 (2002). We specifically considered a title insurance

company's duty to search for and/or to disclose title defects to its clients when issuing

a preliminary commitment. We held that title insurance companies do not owe their

clients a duty to search for and/or to disclose title defects when preparing a

"preliminary title commitment" pursuant to the plain language of RCW 48.29.01 0(3)(c).

/d. at 530. To reach this conclusion, we considered the meaning of chapter 48.29

RCW, the legislative purpose of that statutory scheme, and standard industry practice,

and we conducted a comparative analysis of other states in the Ninth Circuit. /d. at

535-42.

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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

Barstad considered the general duties imposed on title insurance companies

by chapter 48.29 RCW. /d. at 535. There, the insureds asserted that title insurers owe

a duty of care when preparing abstracts of title and argued that a preliminary title

commitment serves the same purpose as an abstract of title, giving rise to the same

duty of care. /d. We rejected this argument. /d.

We began by examining the definitions of the services performed-and

resultant duties owed-by title insurers. /d. We observed that an abstract of title is

"a written representation, provided pursuant to contract, whether written
or oral, intended to be relied upon by the person who has contracted for
the receipt of such representation, listing all recorded conveyances,
instruments, or documents which, under the laws of the state of
Washington, impart constructive notice with respect to the chain of title
to the real property described. An abstract of title is not a title policy as
defined in this subsection."

/d. at 535 n.8 (quoting former RCW 48.29.01 0(3)(b) (1997) 4 ). Due to the contractual

and reliance principles associated with an abstract, we noted that we have long

recognized the potential duties associated with an abstract of title. /d. at 539 n.14.

We contrasted this service with the statutory definition of a "preliminary

commitment" at RCW 48.29.01 0(3)(c):

'"Preliminary report,' 'commitment,' or 'binder' means reports furnished
in connection with an application for title insurance and are offers to issue
a title policy subject to the stated exceptions in the reports, the conditions
and stipulations of the report and the issued policy, and such other
matters as may be incorporated by reference. The reports are not
abstracts of title, nor are any of the rights, duties, or responsibilities
applicable to the preparation and issuance of an abstract of title
applicable to the issuance of any report. Any such report shall not be
construed as, nor constitute, a representation as to the condition of the
title to real property, but shall constitute a statement of terms and

4Minor wording changes were made in 2005 but do not alter the meaning. LAWS OF 2005,
ch. 223, § 14.

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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

conditions upon which the issuer is willing to issue its title policy, if such
offer is accepted."

/d. at 535 n.8 (quoting former RCW 48.29.01 0(3)( c) 5). We observed that a preliminary

commitment is "merely an offer to issue the title insurance subject to the stated

conditions." /d. at 536 (citing former RCW 48.29.010(3)(c)). This research is

performed specifically for the title insurance company's benefit and not for the benefit

of the insured. /d. at 540.

We also considered industry practice, legislative intent, and the approach of

other jurisdictions, as well as the insured's argument that title insurance companies

owe a fiduciary duty to disclose title defects. /d. at 542-44. Every one of these

considerations led to the conclusion that title insurance companies have no general

duty to disclose potential or known title defects when they are not preparing an

abstract of title because these services are not prepared for or intended to be relied

on by a person other than the insurer. /d. at 530.

Our holding in Barstad follows a long line of cases in which we have rejected

attempts to impose a duty on title insurance companies to search for and disclose title

defects. See, e.g., Transamerica Title Ins. Co. v. Johnson, 103 Wn.2d 409, 413-14,
693 P.2d 697 (1985) (no reliance by third party on title insurer's preliminary

commitment); Klickman v. Title Guar. Co. of Lewis County, 105 Wn.2d 526, 528, 716

P.2d 840 (1986) (no liability because no title defect); Lombardo v. Pierson, 121 Wn.2d

5 Minor wording changes were made in 2005, including the following changes to the final
sentence of subsection (3)(c): "Any such The report shall not be construed as, nor constitute,
is not a representation as to the condition of the title to real property, but shall constitute is a
statement of terms and conditions upon which the issuer is willing to issue a its title policy, if
stiGA the offer is accepted." LAWS OF 2005, ch. 223, § 14. The changes do not affect our
analysis.

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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

577, 581-83, 852 P.2d 308 (1993) (same). These cases strongly suggest that title

insurers do not owe a duty of care to third parties when merely recording legal

instruments.

Title companies may record documents with the county recorder's office in

conjunction with the issuance of a title commitment or policy, or as a separate

accommodation recording at the request of the customer. Here, Chicago Title

recorded Centrum Financial's deed of trust in conjunction with issuing a commitment

for title insurance and later completed three such accommodation recordings. No

party requested an abstract of title, and none of these recordings was done at the

request of Plaintiffs.

Chicago Title did not have a duty to identify or disclose title defects to its client,

Centrum Financial, in preparing a commitment for title insurance; such a duty is owed

only in preparing an abstract of title. Accord Barstad, 145 Wn.2d at 536; former RCW

48.29.010(3)(b), (3)(c). Further, Washington's title insurance and recording statutes

do not impose liability for the negligent recording of titles. See generally ch. 48.29

RCW; ch. 65.08 RCW. 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 third parties when recording a legal instrument,

particularly when that legal instrument is facially valid, as it is here. 6

6 Plaintiffs cite Hu Hyun Kim v. Lee for the proposition that title companies owe a duty of
reasonable care when fulfilling professional when fulfilling professional obligations and giving
professional advice to their clients. 145 Wn.2d 79, 91, 31 P.3d 665 (2001) (title company
negligent in rendering an expert opinion when it failed to discover and disclose an existing,
recorded, and perfected lien on the client's property). We are unpersuaded by Kim on these
facts in view of our decision two years later in Barstad, 145 Wn.2d 528, where we held that
title insurance companies do not have a duty of care when preparing commitment reports

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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

B. Our other title insurance company cases do not inform our analysis of this
issue

Plaintiffs' citations to other cases holding that title insurance companies owe

duties in tort are not well taken.

Plaintiffs cite Denaxas v. Sandstone Court of Bellevue, LLC, 148 Wn.2d 654,

663, 63 P.3d 125 (2003) for the proposition that title insurance companies have a duty

to exercise reasonable care in carrying out their instructions. However, Denaxas

actually held that "the Title Company did not have a duty to point out the discrepancy

between the legal description in the Agreement and that in the closing documents."

/d. To the extent Denaxas discussed a duty to follow instructions, we held that an

"'escrow agent's duties and limitations are defined . . . by his instructions."' /d.

(alteration in original) (quoting Nat'/ Bank of Wash. v. Equity Investors, 81 Wn.2d 886,

910, 506 P.2d 20 (1973)). This point arises strictly out of the specific characteristics

governing escrow holders-characteristics that are undisputedly not at issue in this

case as Chicago Title did not perform any escrow services. See Nat'/ Bank of Wash.,

81 Wn.2d at 910.

Plaintiffs also rely on Walker v. Transamerica Title Insurance Co., 65 Wn. App.

399, 828 P.2d 621 (1992). But Walker addresses only proximate cause; the court did

not address duty because Transamerica Title conceded duty for the purpose of its

summary judgment motion. /d. at 402. Further, Walker involved the recording of a

under RCW 48.29.010. Kim addresses neither chapter 48.29 RCW nor liability in regard to
commitments. Furthermore, there being no contract here between Chicago Title and CP Ill,
Kim cannot inform our analysis of the certified question before us.

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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

facially invalid lien that did not contain a description of the property at issue. /d. at 401.

Walker does not inform our duty analysis.

C. Absent a substantial risk to public safety or property damage, professionals
do not owe a duty to third parties when the transaction at issue is not intended
to benefit the third party

The duty of a title insurance company to third parties is a question of first

impression to this court. Therefore, we turn to analogous considerations of a

professional's duty to third-party nonclients for guidance. Using a modified version of

California's multifactor test,? we recently considered whether attorneys owe nonclient

third parties a duty of care in Sterling Savings Bank, 178 Wn.2d 561. Because our

multifactor test is derived from the California test applied in Seeley v. Seymour, 190

Cal. App. 3d 844, 237 Cal. Rptr. 282 (1987) (see infra Section II .D) and because the

issue of a lawyer's duty to a nonclient is similar to the duty of a title insurer to a

nonclient, our analysis in Sterling is instructive to our analysis here.

In Sterling, we applied a multifactor test designed to determine when an

attorney rnay be liable for malpractice to a nonclient third party. These factors are:

"1. The extent to which the transaction was intended to benefit the
plaintiff [that is, the third party suing the attorney];

"2. The foreseeability of harm to the plaintiff;

"3. The degree of certainty that the plaintiff suffered injury;

"4. The closeness of the connection between the defendant's .
conduct and the injury;

7 We first adopted the multifactortest in Trask v. Butler, 123 Wn.2d 835, 872 P.2d 1080 (1993).
In Trask, we considered California's multifactor test and the Illinois "third party beneficiary''
test in deciding whether an attorney owes a duty to a nonclient. /d. at 840. After discussing
both tests, the court combined the two and created Washington's modified multifactor test.
/d. at 841-43.

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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

"5. The policy of preventing future harm; and

"6. The extent to which the profession would be unduly burdened by
a finding of liability."

178 Wn.2d at 565-66 (first alteration in original) (quoting Trask v. Butler, 123 Wn.2d

835, 843, 872 P.2d 1080 (1994)). Quoting Trask, we explained that the first factor is

the '"primary inquiry"' in determining liability to third parties. /d. (quoting Trask, 123

Wn.2d at 842). We further explained that "'under the modified multifactor balancing

test, the threshold question is whether the plaintiff is an intended beneficiary of the

transaction to which the advice pertained'" and held that "'no further inquiry need be

made unless such an intent exists."' /d. (quoting Trask, 123 Wn.2d at 843). Ultimately,

we found no duty because the transaction at issue was not intended to benefit the

third party. /d. at 570.

These factors do not support finding a duty in this case. Neither Chicago Title's

preliminary commitment and recording nor its subsequent accommodation recordings

for the benefit of its client, Centrum Financial, were intended to benefit CP Ill. Indeed,

the opposite is true-any recording of Centrum Financial's interest in the property

would burden CP Ill. Under the multifactor test, this threshold inquiry is dispositive of

Plaintiffs' claim.

Plaintiffs do not argue that the transaction between Centrum Financial and

Chicago Title was intended to benefit them. Instead, they seem to assert two separate

arguments in support of liability. First, they argue that Chicago Title assumed a duty

of care arising out of the foreseeability of the injury to CP Ill when it agreed to issue a

commitment to Centrum Financial and to record its instruments. Second, they assert

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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

that Washington law recognizes tort duties by title insurance companies. Our

precedent requires rejection of both arguments.

Plaintiffs' first argument is that liability to CP Ill arises out of Centrum Financial's

instruction to Chicago Title. From this instruction, Plaintiffs argue that Chicago Title

owed them a duty of care "given the obvious and known risks to the landowner." Pis.'

Reply Br. at 7. This assertion assumes that a duty to CP Ill could be inferred from the

contractual agreement between Centrum Financial and Chicago Title, an argument

we reject. See infra Section IV. a. This argument for a duty also appears to be entirely

predicated on the foreseeability of the harm. However, foreseeability of harm is only

one of six factors necessary to determine whether a duty exists. Sterling, 178 Wn.2d

at 566. Further, we do not consider the foreseeability of harm when a transaction is

not intended to benefit the third-party plaintiff. /d. Thus, foreseeability of harm, alone,

is insufficient to support imposing a duty.

Plaintiffs also assert that title insurance companies are professional institutions

charged with the public trust; therefore, they owe a duty of reasonable care to third

parties in the exercise of their professional responsibilities. Recognizing that title

insurance companies may owe a duty of reasonable care to their clients in certain

scenarios not before us today, we hold that the duty considerations do not support

extending the duties owed by title insurance companies to encompass liability to third

parties in the recording of legal instruments.

Plaintiffs rely heavily on a recent decision establishing a professional duty of

care toward third parties under a theory of general negligence. See Affil. FM Ins. Co.,

170 Wn.2d at 453-54. Plaintiffs read Affiliated FM Insurance Co. too broadly: the policy

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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

considerations, precedent, logic, justice, and common sense underlying that decision

are not present here.

In Affiliated FM Insurance Co., we considered a certified question from the

Ninth Circuit. The question asked whether a party who has a contractual right to

operate commercially and extensively on property owned by a nonparty may sue an

engineering consulting firm in tort for damage to that property when the party and the

engineers are not in privity of contract. /d. at 447. The dispute arose from a fire aboard

a train on Seattle's monorail system. /d. at 445. Though the city of Seattle owned the

property that was physically damaged by the fire, Seattle Monorail Service operated

the monorail and suffered significant economic damages as a result of the fire. /d.

Seattle Monorail Services argued that the fire was the result of an engineer's negligent

design and sued, arguing that the engineers were under a duty to Seattle Monorail

Services to exercise reasonable care, despite the lack of contractual privity. /d. at 446.

We found that a duty existed. /d. at 453-54. In doing so, we balanced the risk

to the physical safety of persons and property arising out of an engineer's work against

the usefulness of private ordering (e.g., preference for contractual remedies) and

against the economic burden a duty would place on engineers. See id. at 451-54.

These policy considerations supported the court's analysis that a duty exists where

"the interest in safety is significant" and the engineers occupy a position of control

such that their training, education, and experience place them in the best position to

prevent harms caused by their work. /d. at 453. We also considered precedent, both

here and nationally, finding that the "engineers' common law duty of care has long

been acknowledged in Washington. /d. at 454.

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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

These considerations do not weigh in favor of a duty here. There is no

significant interest in public safety at issue and no concerns for physical safety. We

therefore reject Plaintiffs' attempts to borrow our professional duty analysis from

inapposite contexts.

D. Other jurisdictions do not provide persuasive authority on this issue

As the Ninth Circuit recognized in its certification order, only two cases have

considered whether title insurance companies owe a duty of care to third parties: the

Arizona Court of Appeals in Luce v. State Title Agency, Inc., 190 Ariz. 500, 950 P.2d

159 (1997) and the California Court of Appeals in Seeley, 190 Cal. App. 3d 844 (1987).

These decisions reach opposite conclusions, in part because the decisions are based

on different legal theories and different facts. Due to the difference in legal theories

and facts, these cases provide limited persuasive reasoning for our consideration in

this case.

On facts nearly identical to this case, the Arizona Court of Appeals considered

whether a title agency owed a professional duty of care to protect a third party from

foreseeable harm when it gratuitously recorded a deed of trust on behalf of a lender.

See Luce, 190 Ariz. at 502. In Luce, a general partner signed a deed of trust to a

lender without the approval of his limited partners, despite the fact that the partnership

agreement required him to have their approval. /d. at 501. The lender asked State

Title Agency to insure the policy and to record the deed of trust. /d. State Title issued

a preliminary title report, provided a lender's policy of title insurance, and gratuitously

recorded the deed. /d. State Title acknowledged that it read the partnership agreement

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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

during this process, and the court inferred that State Title had actual knowledge of the

agreement's limitations on the general partner's authority. !d.

The limited partners sued, asserting that State Title owed a duty based on either

its review of the partnership agreement or its gratuitous recording of the deed of trust.

!d. at 501-02. The trial court granted summary judgment in favor of State Title, id. at

501, and the Court of Appeals affirmed. !d. at 504. The Court of Appeals first held that

there was no professional duty arising out of the foreseeable harm because State Title

had no contractual relationship with anyone, no special relationship (or indeed, any

relationship at all) with the injured plaintiff, and no ability to control the behavior of the

general partner. !d. at 502-03.s

The facts presented to the Arizona Court of Appeals are virtually identical to

those in the case before us and reinforce our conclusion here. Further, as discussed

supra Section ll.c of this opinion, Washington recognizes that foreseeability of harm

is one of six factors the court considers in deciding whether a duty is owed to a

nonclient. Though Arizona applied a different legal analysis and did not explicitly

consider the intent to benefit, the application of the "intent to benefit" factor would have

resulted in the same conclusion. Their conclusion that no duty exists on analogous

facts supports our decision here.

In Seeley, the California Court of Appeals reached the opposite conclusion on

significantly different facts. See 190 Cal. App. 3d 844. In Seeley, a buyer attempted

8The Arizona Court of Appeals also considered whether State Title owed a duty of care under
Restatement (Second) of Torts § 324A (Am. Law lnst. 1965) and concluded that the section
was inapplicable.

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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

to buy property owned by Seeley. /d. at 850. Seeley was not interested in selling but

indicated that he would consider a long term lease of the property. /d. at 851. The

parties negotiated the terms of the lease at length but did not come to an agreement.

/d.

Following further negotiations, the buyer unilaterally prepared a "'Memorandum

of Agreement"' that set forth the terms of a 60-year lease between himself and Seeley.

/d. The buyer signed the agreement and had his signature notarized; he never

presented the agreement to Seeley. /d. Instead, the buyer took the agreement to a

title insurance company. /d. The buyer was a regular customer of the title insurance

company, which agreed to file the unsigned agreement for recording. /d. The title

insurance company filed the agreement in a stack of documents insured by their

company, and the recorder recorded the invalid, unsigned encumbrance on Seeley's

property. /d. Seeley knew nothing of this agreement. /d.

The encumbrance affected Seeley's ability to sell his title. /d. at 852. He then

sued the county recording office for negligent recording; he later amended his

complaint and sued the title insurance company for negligence. /d.

The California Court of Appeals considered whether a title insurance company,

not acting as escrow, may be held liable "for the negligent recordation of a

nonrecordable document." /d. at 860. In holding that the title company here was liable,

the court considered six factors:

"(1) the extent to which the transaction was intended to affect the plaintiff;
(2) the foreseeability of harm to the plaintiff; (3) the degree of certainty
that the plaintiff suffered injury; (4) the closeness of the connection
between the defendant's conduct and the injury suffered; (5) the moral

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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

blame attached to the defendant's conduct; and (6) the policy of
preventing future harm."

!d. at 861 (quoting Earp v. Nobmann, 122 Cal. App. 3d 270, 290, 175 Cal. Rptr. 767

(1981 )). As discussed earlier, these factors are comparable to Washington's

multifactor test in Sterling and support our adoption of that test here. Compare Seeley,

190 Cal. App. 3d at 861, with Sterling, 178 Wn.2d at 566.

But there are critical differences between Seeley and this case that limit its

persuasive value here. Seeley first considered whether the transaction was intended

to affect a third-party plaintiff. 190 Cal. App.3d at 861. The transaction was intended

to undermine Seeley's interest in the property. !d. at 861. Conversely, the recordation

in the instant case was intended to secure Centrum Financial's procured lien; there

was no intent to benefit or harm CP 111. 9

Further, the instrument at issue in Seeley was facially invalid. 10 Thus-unlike

our case-the title insurance company in Seeley did not have to review any other

documents to know that the document was not recordable. The title insurer in Seeley

also submitted the facially invalid instrument to a special "'stopped clock"' station. /d.

at 861 n.7. The county recorder automatically recorded all instruments dropped at that

station pursuant to a contract with the title insurer that required the title insurer to

review all documents for recording compliance prior to filing; the title insurer in Seeley

violated its contract with the recording office by submitting the invalid instrument with

other, compliant instruments at this station. /d.

9 In Washington, the factor to be considered is whether the transaction was intended to benefit
the third party. Sterling, 178 Wn.2d at 566 (emphasis added).
10 The Arizona Court of Appeals also distinguished the case on this ground. Luce, 190 Ariz.

at 503 (citing Seeley, 190 Cal. App. 3d at 861 ).

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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

These facts played a significant role in the Seeley court's evaluation of factors

two, four, five, and six. /d. at 861. The court held that these facts made the harm

foreseeable and that the title insurance company's actions gave the invalid instrument

a presumption of validity-establishing both a close connection between the act and

the harm, and rendering the title insurer's conduct worthy of moral blame. /d. at 861-

62. The title insurance company's violation of the recording statutes as well as its

contract with the county recording office also presented a danger to title stability in the

future, satisfying California's sixth factor. /d. at 862.

These considerations are not present here, where a title insurer presented

facially valid instruments to a county recording office. We discuss the arguments

against burdening title insurance companies to look behind facially valid instruments

before recording throughout this memorandum; in sum, placing this burden on title

insurance companies frustrates Washington's strong public policy of protecting

property owners through the recording process. These factual differences are

substantial; Seeley's facts and conclusions are inappositen

In sum, our precedent supports our conclusion that title insurance companies

have a duty of care in only limited situations outside of a contractual relationship and

no duty to third parties in the recording of legal instruments. Plaintiff's argument that

a duty is created merely because the harm is foreseeable is inconsistent with our

11 We recognize the slight variations between the Seeley factors and the Sterling factors.
Compare Seeley, 190 Cal. App.3d at 861, with Sterling, 178 Wn.2d at 566. Due to the
significant factual differences, we do not address the differences in the factors. We also note
that the Seeley court expressly denied that it was recognizing a "tort of 'negligent slander of
title"' or that liability arose "solely from the recordation of the document." 190 Cal. App. 3d at
862 n.8.

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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

jurisprudence; their remaining citations to our case law and to other jurisdictional

approaches are not instructive to our analysis. Our review of our precedent suggests

that the answer to the certified question is no.

Ill. Public policy does not support extending a duty on title companies recording
legal instruments to search for and disclose potential title defects

We next consider public policy. "The concept of duty is a reflection of all those

considerations of public policy which lead the law to conclude that a 'plaintiff's interests

are entitled to legal protection."' Taylorv. Stevens County, 111 Wn.2d 159, 168, 759

P.2d 447 (1988) (quoting W. PAGE KEETON, ET AL., PROSSER AND KEETON ON THE LAW

OF TORTS § 53, at 357 (5th ed. 1984 )). We balance the interests at stake to determine

whether a title insurance company owes a duty to search for and disclose potential

title defects when recording legal instruments. Accord Affil. FM Ins. Co., 170 Wn.2d at

450.

Plaintiffs encourage us to find a duty, arguing that the Washington state courts

and legislature have long recognized the important public policy of protecting the

rights of property owners. We agree that this is an important policy of this State, but

Plaintiffs are incorrect to suggest that extending a duty of care to title insurance

companies would further this public policy. Washington has a comprehensive title

insurance scheme, see generally ch. 48.29 RCW, and extensive recording

requirements, see generally ch. 65.08 RCW. The purpose of the recording acts is to

ensure stability and certainty of title to real property. See Ellingsen v. Franklin County,

117 Wn.2d 24, 28-29, 810 P.2d 910 (1991 ). These recording requirements further this

purpose by holding recorded interests superior to unrecorded interests. See RCW

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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

65.08.070. Thus, these statutory schemes further Washington's policy of protecting

property rights by encouraging parties to record their interests.

We evaluate whether finding a duty of care from title insurance companies to

third parties in the recording of legal instruments fulfills or frustrates these public

policies. Washington's statutory schemes do not contemplate liability to third parties

for the negligent recording of titles. See generally ch. 65.08 RCW. In lieu of a statutory

remedy, Washington protects the valid interests of property owners from improper

recording through the torts of slander of title and tortious interference with a contract. 12

Rorvig v. Douglas, 123 Wn.2d 854, 873 P.2d 492 (1994) (slander of title); Calbom v.
Knudtzon, 65 Wn.2d 157, 396 P.2d 148 (1964) (tortious interference). These torts,

discussed below, are not within the scope of this opinion. 13

"Slander of title is defined as: (1) false words; (2) maliciously published; (3) with

reference to some pending sale or purchase of property; (4) which go to defeat

plaintiff's title; and (5) result in plaintiff's pecuniary loss." Rorvig, 123 Wn.2d at 859.

Tortious interference with a contract requires (1) the existence of a valid contractual

relationship or business expectancy, (2) knowledge of the relationship or expectancy

on the part of the interferer, (3) intentional interference inducing or causing a breach

or termination of the relationship or expectancy, and (4) resultant damage to the party

whose relationship or expectancy has been disrupted. Ca/bom, 65 Wn.2d at 162-63.

12 Washington residents may also secure their property rights through equitable actions to
quiet title. See, e.g., Kobza v. Tripp, 105 Wn. App. 90, 93, 18 P.3d 621 (2001 ).
13 CP Ill does not argue that its proposed duty arises out of a special relationship, such as a

fiduciary duty, between itself and Chicago Title. Nor do they argue that Chicago Title acted
maliciously or in bad faith. Plaintiffs assert only that Chicago Title owes them a duty under
general negligence principles. In rejecting Plaintiffs' argument, our decision does not suggest
that title insurance companies are not liable for their intentional torts.

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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

Neither of these torts is satisfied by simple negligence. Tortious interference

with a contract requires intentional conduct, and slander of title requires malicious

conduct. The reason for this rule is clear: if simple negligence were the rule, a party

claiming an erroneous but good faith interest in real property would not be entitled to

litigate his claim and have an adjudication without fear of being penalized in damages.

See, e.g., Ward v. Mid-West & Gulf Co., 1923 OK 972, 97 Okla. 252, 223 P. 170; see

a/so RESTATEMENT (SECOND) OF TORTS § 773 (AM. LAW INST. 1979) (recognizing

privilege to assert claim in good faith). These heightened requirements further the

policy of protecting the rights of property owners by encouraging property owners to

assert valid property rights while protecting property owners from unlawful claims.

Thus, we agree with Chicago Title that recognizing liability for the "negligent recording"

of a facially valid instrument would have a chilling effect on recording documents and

undermine the goals of RCW 65.08.070. Policy supports our answer of no; to hold

otherwise would frustrate Washington's policy of protecting property rights through the

title recording process.

IV. Considerations of common sense, logic, and justice provide further support

Our conclusion that title insurance companies do not owe third parties a duty

of care when recording legal instruments is consistent with Washington's policies and

precedent. The remaining considerations of common sense, logic, and justice only

reinforce this conclusion.

A. Logic and common sense weigh against finding a duty of care

Logic and common sense require us to reject Plaintiffs' argument that Chicago

Title's duty of care to CP Ill arises out of Centrum Financial's instruction to Chicago

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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

Title directing it to record the leasehold deed of trust only if they are committed to

providing title insurance. That instruction reads in full:

You may record the Leasehold [deed of trust]. provided you are
irrevocably committed to insure the enclosed Mortgage, on a
mortgagee's extended basis with coverage of $10,000,000.00, as a valid
SECOND lien against the leasehold property which is the subject of the
commitment for title insurance issued under the referenced file number,
subject only to the matters set forth therein.

2 Appellant's Excerpts of R. at 58.

This instruction plainly directs Chicago Title to issue an insurance policy on the

mortgage and to record if it is committed to issue that insurance policy. Chicago Title

did so: it issued a commitment, insured the lien as valid, and recorded it. Under

Barstad, Chicago Title did not owe a duty to Centrum Financial (its actual client) in

issuing the title commitment because the commitment was for Chicago Title's benefit.

145 Wn.2d at 541. If the lien was not valid, Centrum Financial may have had a claim

under its insurance policy. But it is impossible to understand how this action and

agreement between Centrum Financial and Chicago Title created a duty to CP Ill

when CP Ill could not possibly have relied on the commitment or the insurance policy.

See ESCA Corp., 135 Wn.2d at 832 (accountant did not owe a duty of care to bank

absent justifiable reliance on accountant's draft report in making loan).

As a matter of logic and common sense, CP Ill is not entitled to something for

not11ing; not having entered into a contract with Chicago Title relating to future

recordings, CP Ill is not entitled to the benefit of Centrum Financial's bargain with

Chicago Title. Nor are they entitled to have Chicago Title review operating agreements

and presumably lengthy loan agreements without a contract for-and paying for-that

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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

benefit. These factors reinforce our conclusion that title insurance companies do not

owe third parties a duty of care when recording legal instruments.

B. Justice does not support finding a duty to search for and disclose potential
title defects to third-party nonclients

Finally, considerations of justice do not support finding a duty of care for the

recording of these legal instruments. This factor supports placing liability on the party

best able to mitigate or control the anticipated harm. Cf. Affil. FM Ins. Co., 170 Wn.2d

at 453-54 (responsibility on party best able to mitigate the risks; balancing engineer's

ability to design a project safely against an "innocent party who never had the

opportunity to negotiate the risk of harm"); see also Zabka v. Bank of Am. Corp., 131

Wn. App. 167, 173, 127 P.3d 722 (2005) (bank owed no duty of care to plaintiffs who

could have easily taken steps to avoid fraud by bank's customer). Here, the manager

of CP Ill had signed the documents filed by Chicago Title. When facially valid

instruments are at issue, justice supports placing liability on the parties to those

instruments.

Plaintiffs urge us to hold that justice requires title insurance companies to look

behind the signatures on the document and police the parties' agreements against

conflicting corporate documents or loan agreements. This is not a just result, and

placing this burden on title insurance companies increases their costs, slows the

recording process, and frustrates public policy, with no appreciable benefit. Here, the

existence of the invalid liens was the result of an (arguably invalid) agreement

between CP Ill and Centrum Financial. These liens, which were signed and notarized

by CP Ill's manager, placed CP Ill in default and caused damages. These actions

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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

placed CP Ill in default regardless of any action taken by Chicago Title. We decline to

impose these damages on Chicago Title. 14

After considering each of the duty factors, we hold that title insurance

companies do not owe third parties a duty of care when recording legal instruments.

CONCLUSION

In light of the foregoing, we answer the certified question as follows:

Question: Does a title company owe a duty of care to third parties in the
recording of legal instruments?

Answer: No.

14 Plaintiffs' argument that Chicago Title "knew" it was recording invalid liens is unavailing.
Chicago Title conceded, for the purposes of its summary judgment motion arguing that it did
not owe Plaintiffs a duty, that it could be charged with knowledge of the GECC loan
agreement's prohibition on secondary liens because it had access to that information but did
not check it. Washington recognizes that both actual and constructive notice provides a party
with knowledge of another person's real property interest. E.g., Miebach v. Colasurdo, 102
Wn.2d 170, 175-76, 685 P.2d 1074 (1984). Requiring title insurance companies to look behind
every facially valid instrument because they have documents in their possession that may
undermine that instrument frustrates public policy, increases costs, and asks title insurance
companies to police legal instruments entered into by the independent parties.

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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

WE CONCUR.

27