Can I Sue My Title Company?

A title insurance company assumes a fiduciary duty to both parties when it acts as an escrow agent in a transaction. See Capcor at KirbyMain, L.L.C. v. Moody Nat’l Kirby Houston S, L.L.C., No. 01–13–00068–CV, ––– S.W.3d ––––, ––––, 2014 WL 982858, at *3 (Tex.App.-Houston [1st Dist.] Mar. 13, 2014, no pet.)(mem. op.). These fiduciary duties consist of: (1) the duty of loyalty; (2) the duty to make full disclosure; and (3) the duty to exercise a high degree of care to conserve the money and pay it only to those persons entitled to receive it. Id. (citing Trevino v. Brookhill Capital Res., Inc., 782 S.W.2d 279, 281 (Tex.App.-Houston [1st Dist.] 1989, writ denied)).  The escrow agent may affirmatively assume a duty, outside the contract, by its actions. Colonial Sav. Ass’n v. Taylor, 544 S.W.2d 116 (Tex. 1976) (“one who voluntarily undertakes an affirmative course of action for the benefit of another has a duty to exercise reasonable care that the other’s person or property will not be injured thereby.”)

When acting as an escrow agent, however, the title company’s authority is limited to the closing of the transaction; it does not extend to an investigation of title. Tamburine, 583 S.W.2d at 949; see Holder–McDonald v. Chicago Title Ins. Co., 188 S.W.3d 244, 248 (Tex.App.-Dallas, 2006, pet. denied) (observing that title insurance company’s fiduciary duties are strictly limited to role as escrow agent); see generally Home Loan Corp. v. Tex. Am. Title Co., 191 S.W.3d 728, 733 (Tex.App.-Houston [14th Dist.] 2006, pet. denied) (explaining that fiduciary’s duties do not extend beyond scope of fiduciary relationship) (citing Joe v. Two Thirty Nine Joint Venture, 145 S.W.3d 150, 159–60 (Tex.2004)).

In Holder–McDonald, the Dallas Court of Appeals held that a title insurance company was not liable when it prepared an affidavit that contained an incorrect legal *872 description of the land. Id. at 249. The court explained that no breach of duty occurred because the agent prepared the incorrect affidavit in connection with its role as agent for the title insurer and not as part of its duties as escrow agent. Id. The Holder–McDonald court cautioned against unwarranted expansion of an escrow agent’s duties, warning that conflating a title insurance company’s contractual obligation to indemnify the insured with an escrow agent’s fiduciary duties would cause the escrow agent to “become a second title insurer with unlimited liability.” Id. at 248.

We follow Holder–McDonald’s reasoning. Witt, an STC employee, served as an escrow agent and oversaw the signing and recording of conveyance documents at closing. IQ and Barnard agreed that IQ would deposit $100,000 as earnest money with Witt as escrow agent. Like the escrow agent in Holder–McDonald, Witt complied with his escrow agent duties—IQ does not challenge that the earnest money was properly accounted for, and the transaction closed.

Instead, IQ seeks to impose liability against the escrow agent for failing to disclose the limitations of the Association’s waiver of the right of first refusal, and proceeding to close the transaction even with the waiver’s purported deficiencies. Along those lines, IQ adduced testimony from STC’s employees that STC owed IQ a duty to ensure that IQ received good title at closing. But that duty was found on the written title insurance policy and is limited by its exceptions. IQ and STC did not form a written contract that explained or expanded Witt’s duties as escrow agent and closer. Because “good title” was limited to that which the policy protected, IQ’s fiduciary duty claim is unsupported by the underlying facts. See Rizkallah v. Conner, 952 S.W.2d 580, 587 (Tex.App.-Houston [1st Dist.] 1997, no pet.).

IQ misplaces its reliance on Home Loan Corp. v. Texas American Title Co. There, our sister court of appeals held that an escrow agent had a duty to disclose to a mortgage loan funder that the seller had requested half of its proceeds to be paid to a mortgage loan broker. 191 S.W.3d at 734. As an escrow agent, Witt owed IQ a duty of full disclosure. See Capcor at KirbyMain, L.L.C, ––– S.W.3d at ––––, 2014 WL 982858, at *3. Witt’s duty to disclose, however, did not extend beyond the scope of his duties relating to the management of the earnest money. See Home Loan Corp., 191 S.W.3d at 733. Unlike IQ’s allegations against Witt in this case, the escrow agent in Home Loan breached a duty of disclosure in a matter relating to the escrow agent’s disbursement of funds. Id. at 730. In contrast, IQ’s complaint relates to the nondisclosure of an excepted title defect, which does not fall within the scope of the escrow agent’s fiduciary obligations. See Holder–McDonald, 188 S.W.3d at 248; Tamburine, 583 S.W.2d at 949.

IQ further cites to STC’s failure to follow its internal guidelines in failing to flag the difference between the waiver and the sales contract as support for its breach-of-fiduciary-duty claim. Internal guidelines, however, do not create any benefit in favor of IQ. See, e.g., White v. Mellon Mortg. Co., 995 S.W.2d 795, 802–03 (Tex.App.-Tyler 1999, no pet.) (holding that servicing guidelines between insurer and bank did not create benefit entitling appellant to automatic cancellation of mortgage guaranty insurance). The guidelines refer to STC’s role as insurance agent in issuing a title insurance policy, not to its conduct in acting as an escrow agent. Accordingly, we hold that the trial court properly granted *873 STC summary judgment on IQ’s breach-of-fiduciary-duty claim.

Finally, IQ complains that STC was negligent in failing to obtain good title for IQ and in failing to disclose the defect in the Association’s waiver letter. IQ further contends that STGC is vicariously liable for STC’s negligence, because STC was its insurance agent. In a negligence case, the threshold inquiry is whether the defendant owes a legal duty to the plaintiff. Boerjan v. Rodriguez, 436 S.W.3d 307, 310 (Tex.2014). STC did not owe a legal duty to IQ to provide it with title coverage beyond the scope of the written policy or to disclose risks that the policy did not cover. Accordingly, it cannot be held liable under a negligence theory. See Holder–McDonald, 188 S.W.3d at 248; Tamburine, 583 S.W.2d at 949; Boerjan, 436 S.W.3d at 310.

In response, IQ relies on Dixon v. Shirley to contend that STC had a duty to disclose the defect in the waiver. 558 S.W.2d 112 (Tex.Civ.App.-Corpus Christi, 1977, writ ref’d n.r.e.). In Dixon, the parties to a real-estate contract instructed a title insurance company to issue a title policy for a lot. Id. at 116. After discovering a title defect in the south half of the lot, the title insurance company prepared a warranty deed for the north half of the lot only and issued a policy covering only that half. Id. at 114, 117. The title insurance company did not inform the parties of this limitation; rather, it erroneously told the parties that the title policy conformed to their contract. Id. at 114. The court of appeals held that “[a] title company cannot close its eyes to known irregularities or discrepancies between its title policy and the order for the title policy.” Id. at 117.

The facts here are inapposite. Unlike the title policy in Dixon, STC’s policy covered the property described in the contract and expressly excluded title risks stemming from the terms and conditions set forth in the Association’s Declaration, including any obligation to comply with its right-of-first-refusal restriction. As the court of appeals in Dixon acknowledged, generally “a title insurance company has no duty to examine title and to apprise the insured of any defects found therein.” Id. at 116. The Uniform Condominium Act, the Texas enactment of which postdates Dixon, affirmatively requires the seller of a condominium unit to provide the buyer with a copy of the condominium association’s declaration and a resale certificate that includes “any right of first refusal or other restraint contained in the declaration that restricts the right to transfer a unit.” TEX. PROP.CODE ANN. § 82.157(a)(1). We interpret this provision as giving the condominium unit’s seller, in the first instance, the duty to inform the prospective buyer of transfer restrictions imposed by the condominium association. No evidence shows that STC assumed an independent duty to disclose title defects beyond those covered by the policy or, like the company in Dixon, that STC affirmatively misrepresented the extent of its title coverage.

IQ’s reliance on Zimmerman v. First Am. Title Ins. Co., 790 S.W.2d 690 (Tex.App.-Tyler 1990, writ denied), is similarly misplaced. There, the parties to a real estate contract instructed a title insurance company to convey a lot “free and clear of liens” to a real estate agent, in payment of a commission owed. Id. at 695. The title insurance company disregarded these instructions and created a lien on the lot without notifying the parties. Id. In contrast, IQ did not instruct STC to obtain an additional waiver as a condition of the closing, and STC did not affirmatively represent that it did. Rather, IQ seeks to expand STC’s obligations beyond those that the parties agreed to in the title insurance *874 policy. Because the title policy expressly excepted any obligation to ensure that the sale complied with the Association’s deed restrictions, we decline to further expand STC’s duties to encompass that obligation. See Holder–McDonald, 188 S.W.3d at 248.

Because IQ has not shown that STC is liable for breach of a legal duty that it owed to IQ, we hold that STGC has no vicarious liability. The trial court therefore properly granted summary judgment to STC and STGC on IQ’s negligence claim.