Case Study: Whether a Title Company is Liable for Lead-Paint Contamination When Documents Indicated Lead Paint Existed

November 7, 2019

By Adam Leitman Bailey

Title insurance gets no respect.  Worse, governments have banned it (Iowa), curtailed and limited to the point where normal business practices are banned (New York). Many title insurance consumers question its benefits. I have listened to many attorneys fail to adequately teach its advantages and benefits. I blame the failure to educate the public, their attorneys, government officials and I have implored title professionals to start with such an education. We need to start with basic materials educating all the ways and examples title insurance and its professionals have become heroes. We need to simply explain what title insurance provides coverage for and its benefits and limitations as if the listener is 5 years old. We cannot expect our government and judiciary to hear our complaints if they cannot understand what we are selling.

And that is how cases like this one evolved—the sympathetic purchasers failed to understand the title insurer’s job. The case below tells a sad story about a purchaser’s daughter who was diagnosed with lead-paint poisoning. After the closing, the purchaser’s daughter was tested positive for lead exposure. The purchasers then searched the Village of Pelham Manor's public records concerning the property and found two Westchester County Health Department letters to the sellers from 19 years earlier disclosing lead contamination at the property.

It should be stressed that the purchasers are not asserting any claim under the policy nor would they have any legal claim under the title policy. In the present case, Ilkowitz v. Durand, the purchasers sued the title company for (1) violations of the Residential Lead-Based Hazard Reduction Act (the "Lead Paint Act.; (2) negligent misrepresentation or concealment; (3) fraud; (4) breach of contract; and (5) negligence. The purchasers claimed that the defendants including the title company did not disclose the presence of known lead-based hazards before they purchased the residence, and Plaintiffs seek damages related to the cost of repairs to the home and any resulting medical expenses.

On behalf of the title company, Adam Leitman Bailey PC attempted to end the entire case by filing papers based on the law and title policy as well as moving for sanctions and attorney fees against the plaintiff’s attorney. The law firm carefully filed papers explaining what is in the title policy, the law with regard to how far reaching a title policy extends—to disclose defects in title and the right to unencumbered ownership and possession—and why our law firm and client deserves sanctions and attorney fees. Most importantly, the law firm’s papers clearly explained that the title company does not provide insurance for lead paint found on a property. 

In its decision, Justice Paul G. Gardephe of the U.S. District Court, Southern District of New York, artfully and persuasively ruled in favor of the title company:

“[The Title Company]  argues that Plaintiffs' negligence claim fails as a matter of law because [it] did not owe Plaintiffs a duty to determine whether the Property was contaminated with lead-based paint. Plaintiffs have not submitted a substantive response to this argument. Indeed, Plaintiffs have not cited any case in which liability has been imposed on a title insurance company or title agent for failure to discover and disclose lead-based paint. To the contrary, all of the cases Plaintiffs cite involve circumstances in which good title to the property was not conveyed. [M]arketability of title is concerned with impairments on title to a property, i.e., the right to unencumbered ownership and possession, not with legal public regulation of the use of the property" [T]itle reports function to apprise title insurers of defects in title; they do not serve to warn prospective purchasers of every risk facing the property." TIMAC Realty, 121 A.D.3d at 458 (dismissing plaintiff's claims against title agent and insurer based on their failure to disclose water meter charges in the title report; ‘[i]f plaintiff relied on the title report for a list of water meters on the property, it did so at its own risk").       

Accordingly, "the possible presence of environmental hazards on property does not implicate marketability of title, regardless of any potential remediation which might be required of the owner, since such a situation affects the property's value, not 'one's right to 'unencumbered ownership and possession.’ [The title company] also gave clear written notice to the plaintiffs that it was not warranting that its report concerning municipal records regarding the property was complete and accurate. Title Report contains a list of items that would appear as exceptions from coverage.) Schedule B expressly states that "municipal departmental searches are not insurable items and this company assumes no liability for the accuracy." (Morano Decl., Ex. 2 (Schedule B) (Dkt. No. 77-2) at 1) In its municipal data search report, [Title Company] also disclosed that it had not searched municipal health records. In sum, even if Plaintiffs' negligence claim were not foreclosed by the merger of the certificate of title with the policy, the plaintiffs' claim would still fail as a matter of law, because Judicial Title did not owe the paintiffs a duty to determine whether (1) the Property was contaminated with lead paint; or (2) there were municipal records disclosing such contamination.”

The title company’s law firm, Adam Leitman Bailey, had been begging the adversary to discontinue the case. Keeping an eye on saving its client attorney fees and seeing how frivolous a case that had been filed, Adam Leitman Bailey first called the adversary and slowly went through the facts and law and pleaded with the defendant to discontinue the case.

The law firm next set the stage for formal sanctions and attorney fees. It sent a Rule 11 (base claim sanctions statute) safe harbor letter notifying Plaintiff that their “negligence claim was frivolous because the certificate of title had merged in the subsequently issued title insurance policy and accordingly Plaintiff’s negligence claim was foreclosed; and the title company did not have a duty to search for or disclose lead-based paint hazards.” (quoting court decision).  On behalf of the title company, the law firm notified the plaintiffs of its intendent to file a motion for sanctions if the plaintiffs did not withdraw their negligence claim against Judicial Title. The plaintiff refused. Six months later the law firm served its sanctions motion on counsel.

On the issue of sanctions, the judge ruled that the law firm’s motion for sanctions against the plaintiffs' attorney Jean-Claude Mazzola was granted.  The court noted that “It should have been apparent from the outset of this litigation that Plaintiffs' negligence claim against the [title company] was baseless.” The law firm collected all its attorney fees and costs.

Adam Leitman Bailey is the founder of the New York-based law firm Adam Leitman Bailey PC. He can be reached at [email protected].

Contact ALTA at 202-296-3671 or [email protected].