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Title Policy Delivered After Closing is Binding, Presumed to Offer ‘Usual and Customary’ Terms

2004-0574. Henderson v. Lawyers Title Ins. Corp., 2006-Ohio-906.
Cuyahoga App. No. 82654, 2004-Ohio-744. Judgment affirmed, and cause remanded for further proceedings.
Moyer, C.J., Resnick, Pfeifer, O'Connor and Edwards, JJ., concur.
Lundberg Stratton and Lanzinger, JJ., dissent.
Julie A. Edwards, J., of the Fifth Appellate District, sitting for O'Donnell, J.
Opinion: http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2006/2006-Ohio-906.pdf

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(March 15, 2006) The Supreme Court of Ohio held today that when a title insurance policy is issued in response to an unqualified request for coverage, and is not delivered to the insured until after the closing, the policy is binding on the parties to the extent that it contains the usual and customary terms found in similar insurance policies. In applying that standard to 1999 Lawyers Title Insurance Corp. policies purchased by Miles and Patricia Henderson, the Court ruled that a policy clause requiring arbitration of all disputes between the insurer and insured was not enforceable against the Hendersons.

The Court's 5-2 majority opinion was written by Justice Alice Robie Resnick.

Within a four-month span in 1999, the Hendersons bought a home in South Russell and subsequently sold their former home in Shaker Heights. In both transactions, the buyer and seller split the cost of a title insurance policy obtained from Lawyers Title.

The Hendersons later became aware that Lawyers Title had charged its full premium for both policies, despite indicating in its rate schedule filed with the Ohio Department of Insurance that the company offered a “reissue rate” 40 percent lower than the full premium if a previous title insurance policy had been issued on the property being purchased within the preceding 10 years (a condition which applied to both the South Russell and Shaker Heights properties). The Hendersons subsequently filed a class action lawsuit in Cuyahoga County Common Pleas Court on behalf of themselves and other purchasers of Lawyers Title policies, alleging that the company routinely overcharged its customers by not offering the reissue rate to qualified applicants. The suit sought reimbursement and damages.

In responding to that lawsuit, Lawyers Title asked the trial court to refer the entire case to arbitration. The company cited a clause included in the policies it had issued to the Hendersons and to the buyers of their Shaker Heights home that authorized either the insurer or policyholder to demand arbitration of “any controversy or claim … arising out of or related to this policy.”

Following an evidentiary hearing, the trial court denied the motion to compel arbitration. The judge ruled that, because Lawyers Title had not given the Hendersons a copy of its policy to review before the closing of their transactions, they had no opportunity to understand and consent to the terms of the policy prior to its issuance. In light of that fact, the trial court found that there was no “meeting of the minds” between the insurer and insured, and ruled that this defect rendered not only the arbitration clause but the entire policy invalid and unenforceable. In the absence of a valid arbitration agreement, the judge ruled that his court had jurisdiction to hear the Hendersons' class-action complaint.

On review, the 8th District Court of Appeals affirmed the trial court's ruling. Lawyers Title appealed the 8th District's decision to the Supreme Court.

In today's decision, the Court affirmed the lower court rulings negating the arbitration clause, but indicated that its legal reasons supporting that judgment were “substantially different from those of the courts below.” Writing for the majority, Justice Resnick said the trial and appellate courts applied an incorrect legal standard in holding that the insurance company's failure to deliver a copy of its policy to a policyholder prior to the effective date rendered the entire contract of insurance invalid.

Quoting from Supreme Court decisions that date back to the 19 th Century, Justice Resnick wrote that: “‘A contract of insurance is consummated upon the unconditional acceptance of the application of the insured by the insurer.' Hartford Fire Ins. Co. v. Whitman (1906). ‘And where nothing is said, in the negotiation for insurance, about special rates or conditions, it may be presumed that those which were usual and customary, were intended.' Newark Machine Co. v. Kenton Ins. Co. (1893).”

She noted that the historical reason for enforcing insurance contracts during the interim between agreement of the parties and actual delivery of the policy “‘is that the parties may have the benefit of them during that incipient period when the papers are being perfected and transmitted. It is sufficient if one party proposes to be insured, and the other party agrees to insure, and the subject, the period, the amount, and the rate of insurance is ascertained or understood, and the premium paid if demanded. It will be presumed that they contemplate such form of policy, containing such conditions and limitations as are usual in such cases, or have been used before between the parties.' Eames v. Home Ins. Co. (1877).”

In this case, wrote Justice Resnick, “(a) valid contract was formed … when Lawyers Title acceded to the Hendersons' request for an owner's policy of title insurance. And since the parties did not negotiate for any special terms or conditions, they are presumed to have intended that the ensuing policy would include the usual and customary provisions found in similar title insurance policies. Thus, contrary to the holdings below, the delivery of the policy after closing does not vitiate the parties' agreement for insurance. … Accordingly, we hold that a title insurance policy that is issued in response to an unqualified request for coverage, but is not delivered to the insured until after the closing, is binding to the extent that it contains the usual and customary terms found in similar insurance policies.”

Turning to the specific issue of the arbitration clause, Justice Resnick wrote that trial testimony by Lawyers Title vice president Terry Endress indicated that some, but not all, of the standard American Land Title Association (ALTA) policy forms the company used in 1999 included mandatory arbitration provisions.

“ It was not Endress's testimony that the more recent ALTA policies, which include arbitration clauses, have supplanted the previous policies, which do not. Instead, all five versions of ALTA policies, some with and some without arbitration provisions, continue in general use,” wrote Justice Resnick. “To say that the use of an arbitration clause may vary from one transaction to the next, or that some title insurance policies but not others may be issued with an arbitration clause, is hardly sufficient evidence of a usual and customary practice. … Accordingly, Lawyers Title's assertion that an arbitration clause is a usual and customary term in title insurance policies is not supported by the record.”

Justice Resnick's opinion was joined by Chief Justice Thomas J. Moyer and Justices Paul E. Pfeifer, Maureen O'Connor and Julie A. Edwards of the 5th District Court of Appeals, who sat in place of Justice Terrence O'Donnell.

Justice Judith Ann Lanzinger entered a dissenting opinion, joined by Justice Evelyn Lundberg Stratton, in which she agreed with the majority holding that title insurance policies delivered after their effective date are binding, but said she viewed the evidence presented by Lawyers Title as sufficient to establish that an arbitration clause was a usual and customary term in the standard ALTA insurance contracts in place when the Hendersons ' policies were issued.

“For Lawyers Title, the usual and customary practice was that, following an unqualified request for title insurance, it would issue the most recently approved ALTA policy. At the time of the Hendersons ' transactions in 1999, the most recently approved policy was the 1992 ALTA policy, which contained an arbitration clause,” wrote Justice Lanzinger. “The majority suggests that in order for a term to be usual and customary, there must be consistency and regularity in its use. … I would hold that there is evidence of consistent and regular use to establish arbitration as a usual and customary term and would, therefore, reverse (the court of appeals' decision).”

Thomas J. Scanlon, 216.696.0022, for Lawyers Title Insurance Corp.

Marvin L. Karp, 216.621.8400, for Miles and Patricia Henderson et al.