## Facts

- A residential developer purchased three vacant lots with knowledge of preliminary sewer district assessments affecting the parcels.
- The developer’s listing agreements initially stated the buyer would assume the sewer assessment, but that language was later removed.
- Purchasers signed earnest-money agreements requiring title to be “free of encumbrances,” and the developer conveyed by statutory warranty deeds without excepting the sewer assessment liens.
- By the time the title insurer issued preliminary commitments and final policies to the purchasers, the assessments had become final liens.
- The insurer negligently failed to disclose or except the liens in its commitments and policies.
- After the liens were asserted, the insurer paid the assessments for its insured purchasers and sued the developer under a policy subrogation clause to recover the amounts paid.
- The trial court granted summary judgment to the insurer; the intermediate appellate court affirmed; the state supreme court granted review.

## Issues

1. Whether a title insurer owes a tort duty of reasonable title search and disclosure to a non-insured seller-grantor absent foreseeable and actual reliance on the insurer’s commitments or representations.
2. Whether the insurer’s negligent failure to discover and except liens bars or reduces its contractual subrogation claim against the seller-grantor for breach of warranty and contract.

## Decision

- The court held the title insurer owed no negligence duty to the non-insured seller-grantor because the seller did not show foreseeable and actual reliance on the insurer’s commitments or representations.
- The court held the insurer could enforce contractual subrogation and recover from the seller the amounts paid to discharge the liens.
- The court affirmed summary judgment for the insurer.

## Legal Principles

- A title insurer’s tort duty to search and disclose runs to insureds and to non-insureds only upon a showing of foreseeable and actual reliance on the insurer’s preliminary commitment or representations.
- A seller-grantor who covenants to convey title free of encumbrances remains liable for breach of warranty and related contractual promises when liens exist, particularly when the seller knew of the encumbrance.
- Contractual subrogation allows an insurer that pays the insured’s covered loss to assert the insured’s claims against the responsible third party; the insurer’s negligent search does not, by itself, extinguish those subrogated rights where the third party’s liability rests on independent contractual and warranty obligations.

## Conclusion

The court declined to extend a title insurer’s negligence liability to a non-insured seller absent reliance, and it permitted the insurer—after paying its insureds—to recover from the seller in contractual subrogation because the seller’s breach of warranty and contract, not the insurer’s mistake, was the source of the seller’s liability.


Transamerica Title Ins. Co. v. Johnson, 693 P.2d 697 (Wash. 1985)