Ohio Supreme Court Issues Decision With Significant Impact on Title Insurance Companies

Anne Marie Sferra
Bricker & Eckler LLP
March 2006

Full text of decision

On Wednesday, March 15, 2006, the Ohio Supreme Court released a decision that is likely to have a significant impact on title insurance companies. In Henderson v. Lawyers Title Insurance Corporation, 108 Ohio St.3d 265, 2006-Ohio-906, the Court affirmed the decision of the lower courts finding that the arbitration clauses in two title insurance policies (issued in connection with residential real estate transactions) are not binding on the Plaintiffs. Even though the Court affirmed, it did so on entirely different grounds than the lower courts and rejected the rationale of the appellate court.

Factual Background

The Plaintiffs purchased a home and sold a home in 1999 and both transactions involved title insurance issued by Lawyers Title Insurance Corporation ("Lawyers Title"). The Plaintiffs did not receive the title insurance policy until after the closing on the house they purchased. As is customary in the industry, as sellers the Plaintiffs never received a copy of the title insurance policy. In January 2002, the Plaintiffs filed a class action complaint, alleging that under the applicable rate schedule filed by lawyers title, they are entitled to a 40 percent reissue credit against the premiums they paid. Lawyers Title moved for an order compelling the Plaintiffs to proceed to arbitration, relying on the arbitration clauses in the title insurance policies.

Legal Analysis

The court of appeals affirmed the trial court, holding that the parties had not formed a valid contract because the title insurance policy was not delivered to the Plaintiffs prior to its effective date. The Ohio Supreme Court rejected this rationale, indicating, "For quite some time . . . the law in Ohio has been to the contrary." The Court cited to well established Ohio law making clear that "[a] contract of insurance is consummated upon the unconditional acceptance of the application of the insured by the insurer." And, where nothing is said about special rates or conditions, it may be presumed that the usual and customary rates and conditions were intended. With respect to the Plaintiffs' purchase, the application was accepted by Lawyers Title when it issued a commitment for the title insurance policy more than a month prior to the closing. Because there were no negotiations for a special rate or conditions, the Court proceeded to determine whether the usual and customary terms include an arbitration clause.

Lawyers Title argued that as a matter of "usual and customary" practice, both nationally and in Ohio, title insurance policies have included arbitration provisions since at least 1987. Evidence was presented to show that five form policies were filed with and approved by the Ohio Department of Insurance between 1970 and 1992, and each of the last three included an arbitration clause. The 1992 form policy was the one issued to the Plaintiffs. The Court rejected this argument and concluded that the arbitration clause included in the policy is not a "usual and customary" term of the policy. In reaching this conclusion the Court relied heavily on the testimony of Lawyers Title's vice president and area manager who testified that all five form policies were available for purchase in 1999 and that arbitration provisions are in some policies and not others. He also testified that Lawyers Title will delete an arbitration provision at no extra cost and that some other title insurance companies issue policies that do not contain arbitration clauses. The Court found that "the inclusion of arbitration clauses in title insurance policies does not appear to be as uniform and consistent as Lawyers title suggests."

The Court also rejected Lawyers Title's estoppel argument -- that the Plaintiffs are deemed to have accepted the terms of the policies since they had them for nearly three years before objecting to their terms and are estopped from now complaining that the terms are not enforceable. The Court noted that Plaintiffs had not received their policy until after the closing, so they could not have voided their contract even if they had objected to the arbitration provision upon receipt of the policy. Although the estoppel argument is applicable to automobile and homeowners policies, the Court found that these types of policies are distinguishable from title insurance policies where "coverage is provided for a continuing and indefinite period of time in exchange for a one-time premium payment, without the need to renew the policy." As a result, the Plaintiffs were not free to cancel the policy without the risk of loss of coverage or their premium once they learned of the arbitration clause.

Justice Resnick wrote the majority opinion. Judge Julie Edwards sat for Justice O'Donnell and joined the majority. Justices Lanzinger and Lundberg Stratton dissented. The dissenting opinion focused on the fact that the last three insurance policy forms filed with the Ohio Department of Insurance include arbitration provisions, beginning in 1987. The dissenting justices believed this was sufficient to establish arbitration as a usual and customary feature of the title insurance.