Opinion #26. Limitation of Liability in Title Opinion

Issued by the Professional Ethics Commission

Date Issued: April 2, 1981

Question

The Grievance Commission has been asked whether the practice of limiting liability in opinions on the title to real estate is a violation of Rule 3.6(b) of the Maine Bar Rules. A typical such limitation would be the following: “our liability to you as a consequence of this opinion shall not exceed the amount of $30,000.00. Our liability to you shall not extend beyond the time during which you are the owner of the property in question.”

Opinion

Rule 3.6(b) of the Maine Bar Rules provides as follows:

A lawyer shall not attempt to exonerate himself from, or limit, his liability to his client for his personal malpractice or that of his partners or salaried employees. This rule shall not prevent a lawyer from settling or defending a malpractice claim.

The first sentence of the rule is identical to DR 6‑102(A) of the ABA Code of Professional Responsibility. The former canons of ethics apparently contained no counterpart. Ethical consideration 6‑6 of the ABA Code of Professional Responsibility enlarged somewhat upon DR 6‑102(A) as follows:

A lawyer should not seek, by contract or other means, to limit his individual liability to his client for malpractice. The lawyer who handles the affairs of his client properly has no need to attempt to limit his liability for his professional activities and one who does not handle the affairs of his client properly should not be permitted to do so.

The practice of attempting to limit liability for errors in a title opinion falls squarely within the language of Rule 3.6(b) and is plainly prohibited by it. If allowed, the practice described in the question could leave the client without any effective remedy for damages directly caused by the malpractice of the lawyer. For example, title opinions containing such a disclaimer sometimes attempt to limit liability to the amount of the first mortgage, even though the opinion is directed to the borrower. Obviously, the client‑borrower’s loss could be much greater, particularly if the property has been improved. The loss of the client‑bank may also exceed the original principal amount of the mortgage, although this would not ordinarily be the case.

Neither limitations of liability in policies of title insurance nor the practice, if it exists, of basing the fee for a title examination on exposure to liability, alter this result. Attorneys are not title insurance companies; the practice of their profession is subject to the Maine Bar Rules. Unlike title insurance companies, attorneys are subject to liability only if they fail to exercise due care. Attorneys may, of course, base the amount of their fee in part upon the responsibility assumed. Because attorney’s fees may in the past have been calculated upon the basis of an erroneous legal conclusion about the extent of that responsibility is, however, no reason to disregard the plain meaning of Rule 3.6(b).

We do not mean to intimate that an attorney rendering a title opinion necessarily incurs liability to or represents both the bank and the borrower. The former is a question of law on which this Commission does not undertake to express any opinion. As to the latter, see Opinion #12.


Enduring Ethics Opinion