Does title insurance coverage survive a quitclaim deed transfer? Durbano & Garn v. First American Title Explained

The Utah Court of Appeals addressed a critical question about title insurance coverage continuity in Durbano & Garn Investment Company v. First American Title Insurance Company, clarifying when coverage terminates and which entities may claim protection under existing policies.

Background and facts: Durbano & Garn purchased property in 1993 and obtained a title insurance policy from First American. In 1994, deciding to exit real estate operations, the company conveyed the property to Durbano Properties via quitclaim deed. Eight years later, when Durbano Properties attempted to sell the property, a title defect emerged—an adjacent property owner held superior title to a strip of land included in the original property description. First American denied the resulting claim, leading to litigation.

Key legal issues: The court examined two fundamental questions: whether Durbano & Garn retained coverage after conveying the property, and whether Durbano Properties acquired coverage as a successor entity under the policy’s definition of “insured.”

Court’s analysis and holding: The court applied correctness review to contract interpretation issues and found that the title policy clearly stated coverage would continue only if the insured retained an estate or interest in the land or had liability from warranty covenants. Since quitclaim deeds convey the grantor’s complete interest without warranties, Durbano & Garn’s coverage terminated in 1994. The court also determined that Durbano Properties did not qualify as an insured under the policy’s “operation of law” provision, which covers heirs, distributees, and similar successors who obtain rights automatically rather than through voluntary transfers.

Practice implications: This decision emphasizes the importance of carefully reviewing title insurance policy terms when transferring property. Practitioners should advise clients that quitclaim deed transfers typically terminate coverage unless specific provisions preserve it. When succession of coverage is desired, consider warranty deed transfers or explicit policy assignments to ensure continued protection for successor entities.