[Reprinted in its entirety with express permission from Fox Rothschild, LLP, Attorneys at Law, Title Insurance Practice Group ALERT, April 2005. For more information about Fox Rothschild, LLP, please see www.foxrothschild.com.]

Routine language in title abstract limits abstractor’s liability to $40.

In order to issue a title insurance commitment, title agents often rely on an abstract of title prepared by a third party search company. The information contained in that abstract of title is important because it provides the basis for the exceptions to coverage listed in the title insurance commitment issued by the agent. When an agent receives an abstract of title from its search company, it carefully reviews the findings so that a proper commitment is issued. What is not carefully reviewed or considered by most agents, however, is the limitation of liability language contained in most, if not all, of the abstracts provided by search companies. Often overlooked is the fact that the provisions of the abstract of title, viewed together with the agent’s written or oral request for title search services, may form the basis for the contractual relationship between the agent and the abstracter. A recent decision from the Monroe County (Pennsylvania) Court of Common Pleas, Express Financial Services, Inc. v. Gateway Abstract, Inc., highlights this misunderstood facet of the abstract of title and illustrates the importance of the limitation of liability language contained therein.

Like many title insurance agents, Express Financial Services, Inc. employed an abstract company, Gateway Abstract, Inc., to perform the search work prerequisite to the issuance of its title insurance commitments. There was no written contract between Express Financial and Gateway Abstract regarding this arrangement; rather, the parties engaged in a practice, common in the title insurance industry, whereby Gateway Abstract provided abstracts of title at the request of Express Financial. The form of report issued by Gateway Abstract to convey the results of its search contained language purporting to limit its liability for negligence, mistakes or omissions to a sum not to exceed the cost of the search. While this limitation of liability provision was not the subject of negotiation between the parties, Gateway Abstract always included this language in its reports without objection from Express Financial.That failure to object turned out to be a costly mistake for Express Financial in this case.

Acting as an agent of Chicago Title Insurance Company, Express Financial requested a title search from Gateway Abstract in April 1998 in connection with a loan to be made by The Money Store. The cost of the search was $40.00. While the abstract of title provided by Gateway Abstract included a mortgage held by CoreStates Mortgage Services Corporation, the report missed a $292,000.00 mortgage held by Champion Mortgage Servicing Corp., Inc. and recorded in the Monroe County Recorder’s Office in November 1997. As had been the course of practice between Express Financial and Gateway Abstract, the cover page of the abstract included the limitation of liability language.