Opinion issued November 20, 2014.




                                    In The

                             Court of Appeals
                                   For The

                         First District of Texas
                           ————————————
                             NO. 01-13-00952-CV
                          ———————————
                      IQ HOLDINGS, INC., Appellant
                                       V.
   STEWART TITLE GUARANTY COMPANY AND STEWART TITLE
    COMPANY F/K/A STEWART TITLE COMPANY OF HOUSTON,
                        Appellees


                  On Appeal from the 281st District Court
                           Harris County, Texas
                     Trial Court Case No. 2012-09859


                                OPINION
     In this real estate dispute, IQ Holdings, Inc. sued its title insurer and its

escrow agent to recover damages it sustained in connection with the sale of a

condominium unit. During pre–trial discovery, IQ also sought a spoliation–of–
evidence finding and sanctions against both defendants. The trial court denied

IQ’s motions for spoliation sanctions and for partial summary judgment. The court

granted summary judgment to the defendants, Stewart Title Guaranty Company

(STGC) and Stewart Title Company (STC).

      On appeal, IQ contends that (1) STGC and STC destroyed and fabricated

evidence; (2) STGC breached its title insurance policy contract; (3) STC owed a

duty to IQ to ensure good title and disclose that a waiver of the condominium

Association’s right of first refusal was inadequate; (4) STC was negligent in

closing the transaction; and (5) STGC is vicariously liable for STC’s negligence.

Finding no error, we affirm.

                                  Background

      On October 19, 2006, in a residential condominium contract, David Barnard

agreed to sell Unit 264 of the Villa d’Este Condominiums to IQ for $3 million.

Like all Texas condominiums, Villa d’Este was created by recording a declaration

in the county’s real property records pursuant to the Texas Uniform Condominium

Act. See TEX. PROP. CODE ANN. § 82.051 (West 2014).

      In the condominium contract, Barnard agreed to provide IQ with copies of

the resale certificate, the condominium declaration, and the condominium




                                       2
Association’s by–laws and rules within five days. 1 The contract made was subject

to the buyer’s cancellation by the sixth day after receipt of those documents.

      The first page of the sales contract names IQ as the buyer. The record

contains two copies of the last page, both executed on October 19. One copy

shows Yohanne Gupta’s signature above text naming “YOHANNE GUPTA AND

OR ASSIGNS” as the buyer. On the second, Linda Haynes Gupta signed above

text naming “IQ HOLDINGS, INC.” as the buyer. The contract names Stewart

Title as escrow agent. Both are also signed by Barnard, the seller.

      As the escrow agent, STC accepted a $100,000 check in earnest money,

drawn on an IQ account and signed by Yohanne Gupta. Parker Witt, an STC

employee, oversaw the transaction.

      STGC, the title insurer, provided an insurance policy that covered title risks

to the property, subject to express exceptions. Among those, in Schedule B of the

contract, STGC excepts: “Restrictive Covenants . . . set out in the Declaration for

Villa d’Este, recorded in Film Code No. 173042 of the Condominium Records of

Harris County, Texas.” STGC further excepts: “Terms and Conditions of the

Declaration for Villa d’Este, recorded in Film Code No. 173042 of the

Condominium Records of Harris County, Texas.”
1
      The Uniform Condominium Act, as adopted by the Texas Legislature, requires a
      condominium unit owner to furnish the purchaser with a current copy of the
      declaration, bylaws, and any condominium association rules before executing a
      contract for sale. TEX. PROP. CODE ANN. § 82.157(a)(1) (West 2014).

                                          3
      In its recorded Declaration, Villa d’Este grants the condominium’s Owners’

Association a right of first refusal in connection with the prospective re–sale of any

condominium. On October 20, 2006, the Association provided a letter waiving its

right of first refusal as to a sale between Barnard and Yohanne Gupta. The record

does not reveal whether the Association disclosed information required by the sales

contract and section 82.157 of the Texas Property Code or whether, before closing,

Barnard provided the Guptas with copies of Villa d’Este’s Declaration, by–laws,

and Association rules. 2 At the closing, Witt noticed that the Association’s waiver

of its right of first refusal named Gupta but not IQ. Witt nonetheless closed the

transaction without reporting it.

      Denial of claim

      Almost four years later, in August 2010, in a suit between IQ and the Villa

d’Este Condominium Association, the Association posited that it had never

consented to the October 2006 conveyance from Barnard to IQ. 3 The Association,

however, did not challenge the validity of Barnard’s 2006 sale to IQ. Rather, it


2
      Chief among these in this appeal, section 82.157 required the Association to
      provide the prospective buyer with statements of “any right of first refusal or other
      restraint contained in the declaration that restricts the right to transfer a unit . . . .”
      TEX. PROP. CODE ANN. § 82.157(a)(1).
3
      That dispute was resolved through arbitration. See IQ Holdings, Inc. v. Villa
      d’Este Condo. Owner’s Ass’n, Inc., No. 01-11-00914-CV, 2014 WL 982844 (Tex.
      App.—Houston [1st Dist.] Mar. 3, 2014, no pet.) (affirming confirmation of
      arbitration award).

                                               4
challenged IQ’s later conveyance to Saroj Gupta and Yohanne Gupta in February

2009.

        After filing suit, IQ’s counsel notified Victor Davis, STGC’s claims counsel,

of IQ’s litigation with the Association. IQ’s counsel asserted that it should cover

IQ’s title risk and should indemnify it for attorney’s fees, costs, and expenses

incurred in the suit with the Association. Davis denied IQ’s claim for two reasons:

(1) the title insurance coverage expressly excepted the restrictions set forth in the

Declaration, including the right of first refusal; and (2) the Association challenged

the February 2009 sale from IQ to the Guptas, not the October 2006 sale from

Barnard to IQ covered by the policy. Davis notified IQ of its right to contest his

denial of its claim through litigation.

        In the present suit, Davis averred that he denies about 40 title insurance

claims per year, and less than five percent of them result in litigation. He also

averred that IQ’s claim was a “clear cut exception” to the title insurance policy that

he did not believe was likely to result in litigation at the time he denied it.

        STC’s document retention policy

        After Davis reviewed the claim, STC “stripped, scanned, and destroyed” its

hard–copy closing file.     According to STC’s ordinary course of business, its

employees electronically preserved “all the pertinent data” in a system called

FileStor. IQ contended in the trial court that STC did not preserve all of the hard-



                                            5
copy documents in the FileStor system. At the time, however, STC also used

another electronic file retention system called SureClose. STC represented to the

trial court that it had preserved all of the documents pertaining to the 2006

transaction in the SureClose system.

      Course of proceedings

      In February 2012, IQ sued STGC and STC for breach of contract, breach of

fiduciary duty, and negligence, among other claims, to recover damages arising

from its suit with the Association. STGC and STC moved for summary judgment

on traditional and no–evidence grounds. IQ moved for partial summary judgment

on its breach–of–fiduciary–duty claim against STC. IQ also sought sanctions

against STGC and STC in connection with the destruction of the hard–copy

closing file. The trial court denied IQ’s motion for sanctions. The trial court

granted STGC and STC’s motions.

                                     Discussion

I.    Spoliation of Evidence

      A.     Standard of review

      We review the trial court’s legal determination of whether a party spoliated

evidence for an abuse of discretion. See Brookshire Bros. v. Aldridge, 438 S.W.3d

9, 27 (Tex. 2014). A trial court abuses its discretion when it acts in an arbitrary or

unreasonable manner, or if it acts without reference to any guiding rules or


                                          6
principles. Miner Dederick Constr., LLP v. Gulf Chem. & Metallurgical Corp.,

403 S.W.3d 451, 465 (Tex. App.—Houston [1st Dist.] 2013, pet. denied); Clark v.

Randall’s Food, 317 S.W.3d 351, 356 (Tex. App.—Houston [1st Dist.] 2010, pet.

denied). A trial court does not abuse its discretion when it bases its decisions on

conflicting evidence, but a trial court has no discretion in determining what the law

is or in applying the law to the undisputed facts. Miner Dederick, 403 S.W.3d at

465; Clark, 317 S.W.3d at 356. If the trial court’s summary–judgment ruling rests

on an erroneous spoliation finding, then we must reverse. Clark, 317 S.W.3d at

356.

       B.    Duty to preserve

       “[T]the party seeking a remedy for spoliation must demonstrate that the

other party breached its duty to preserve material and relevant evidence.”

Brookshire Bros., 438 S.W.3d at 20 (citing Wal–Mart Stores, Inc. v. Johnson, 106

S.W.3d 718, 722 (Tex. 2003)). A duty to preserve evidence exists when (1) a party

knows or reasonably should know that there is a substantial chance a claim will be

filed; and (2) the evidence is relevant and material. Id.; Miner Dederick, 403

S.W.3d at 465.

       A party reasonably should know that a substantial chance of a claim against

it exists if a reasonable person would conclude from the severity of the incident,

and other circumstances surrounding it, that there was a substantial chance for



                                         7
litigation when the alleged spoliation occurred. Brookshire Bros., 438 S.W.3d at

20 (citing Wal–Mart, 106 S.W.3d at 722); Miner Dederick, 403 S.W.3d at 465.

“[A] ‘substantial chance of litigation’ arises when ‘litigation is more than merely

an abstract possibility or unwarranted fear.’” Brookshire Bros., 438 S.W.3d at 20

(quoting Nat’l Tank Co. v. Brotherton, 851 S.W.2d 193, 204 (Tex. 1993)). A party

can anticipate litigation before it receives actual notice of potential litigation.

Clark, 317 S.W.3d at 357; accord Brookshire Bros., 438 S.W.3d at 20.

      A party must preserve material evidence reasonably calculated to lead to the

discovery of admissible evidence. Miner Dederick, 403 S.W.3d at 466; Clark, 317

S.W.3d at 357. The party seeking a spoliation sanction thus must also demonstrate

that the alleged spoliator knew or reasonably should have known that the evidence

would be relevant to a lawsuit. Miner Dederick, 403 S.W.3d at 466; Clark, 317

S.W.3d at 357.

      Pointing to the relatively few claims denials that result in litigation each

year, STGC and STC argue that Davis believed that no substantial chance existed

that IQ would file suit. But Davis’s subjective belief does not relieve STGC and

STC of their duty to preserve evidence; we apply an objective standard in making

this determination. See Brookshire Bros., 438 S.W.3d at 20 (applying “reasonable

person” standard to duty determination). Given Davis’s repeated correspondence

with IQ’s counsel and Davis’s knowledge of IQ’s suit with the Association, Davis



                                        8
should have known that there was a substantial chance IQ would file suit. The

Insurance Code also requires evidence of a title insurance policy or contract to be

preserved in a title insurance company’s files for at least 15 years after the date of

issuance of the policy or contract. TEX. INS. CODE ANN. § 2704.001(4) (West

2009). Because the documents in the closing file were at least potentially relevant

to IQ’s claims against STGC and STC, we hold that Davis had a duty to preserve

them. See Miner Dederick, 403 S.W.3d at 466; Clark, 317 S.W.3d at 357.

         C.    Breach

         “If a party possesses a duty to preserve evidence, it is inherent that a party

breaches that duty by failing to exercise reasonable care to do so.” Brookshire

Bros., 438 S.W.3d at 20. Here, the hard–copy closing file itself was destroyed, but

STC electronically preserved closing files in two different storage systems. Ed

Lester, STC’s corporate representative, testified that under the company’s records

retention policy, its employees stripped the hard–copy closing file and

electronically preserved “all the pertinent data” in a system called FileStor. It is

unclear from the record if all of the documents were electronically preserved in the

FileStor system. Davis testified that “it may be that nothing was removed,” but IQ

observes that Davis wrote in an email to IQ: “No Title Commitment remains in the

file.”




                                            9
      Davis did not know to look anywhere other than the Filestor system. At the

hearing in the trial court, Lester explained that STC also uses SureClose, another

electronic file retention system. According to Lester, an escrow officer typically

scans every document related to the transaction into the SureClose system at or

near the time of the closing and provides the parties with online access

information. Lester testified the documents pertaining to the 2006 transaction were

preserved in the SureClose system.

      IQ alleges that STGC and STC destroyed the title commitment letter. But

STGC and STC produced a copy of the title commitment that had been preserved

in the SureClose system. IQ responds that STGC and STC fabricated that copy in

2013 after destroying the real letter, because the document they produced (1) lists a

nonsensical date and (2) has a “fraudulent” signature.

      First, the title commitment cover letter lists an issuance date of October 24,

2005, whereas the effective date of the commitment is October 9, 2006. Lester

conceded that the issuance date is incorrect, but he explained that the discrepancy

resulted from a typographical error that occurred during data entry and caused the

date field to generate a 2005 date instead of the correct date—October 24, 2006.

Lester testified that the title commitment letter is issued on the date the actual title

examination is completed, typically ten to fifteen days after the effective date of




                                          10
the commitment. The trial court reasonably could have accepted this explanation

for the inconsistencies between the dates.

      Second, the title commitment that STGC and STC produced is signed by

Malcolm Morris, as STGC’s president. According to IQ, a genuine copy of the

title commitment would have been signed by Michael Skalka, as STGC’s

president, pointing to a copy of the title policy signed by Skalka. But the record

also contains a different copy of the title policy—one originally provided by IQ

with its claims notice—that was signed by Morris. IQ does not allege that this

copy of the title policy has been fabricated. Because the signature on the title

commitment matches the signature on the title policy that IQ produced, the trial

court reasonably could have found that Morris’s signature on the title commitment

was not fraudulent, but genuine.

      IQ also contends that STGC and STC may have destroyed other documents

unavailable to it because STC destroyed the hard–copy file. Lester, however,

testified that, to the best of his knowledge, all the documents pertaining to the 2006

transaction were preserved in the SureClose system. The trial court could have

credited this testimony, believed that STC had electronically stored the closing file,

and thus reasonably could have determined that STGC and STC did not breach




                                         11
their duty to preserve. 4 Accordingly, we hold that the trial court acted within its

discretion in denying IQ’s motion for sanctions. See Miner Dederick, 403 S.W.3d

at 465; Clark, 317 S.W.3d at 356.

II.   Summary Judgment

      A.    Standard of review

      We review a trial court’s decision to grant or to deny a motion for summary

judgment de novo. GCI GP, LLC v. Stewart Title Guar. Co., 290 S.W.3d 287, 291

(Tex. App.—Houston [1st Dist.] 2009, no pet.) (citing Tex. Mun. Power Agency v.

Pub. Util. Comm’n of Tex., 253 S.W.3d 184, 192 (Tex. 2008)). Although a denial

of summary judgment is not normally reviewable, we may review such a denial

when both parties move for summary judgment and the trial court grants one

motion and denies the other. Id. In our review of such cross–motions, we review

the summary–judgment evidence presented by each party, determine all questions

presented, and render the judgment that the trial court should have rendered. Id.

(citing Tex. Mun. Power Agency, 253 S.W.3d at 192).

      B.    Breach of contract

      IQ contends that STGC breached the title insurance policy agreement. We

construe an insurance policy according to the rules of contract construction. See

4
      Applying Brookshire Brothers v. Aldridge, the existence of these electronic
      records also supports a finding that IQ did not suffer any prejudice from the
      destruction of the hard-copy files. See 438 S.W.3d 9, 21 (Tex. 2014).

                                        12
Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex. 2003). Our

primary concern in interpreting a policy is to ascertain and to give effect to the

parties’ intentions as expressed in the document. Seagull Energy E & P, Inc. v.

Eland Energy, Inc., 207 S.W.3d 342, 345 (Tex. 2006); Frost Nat’l Bank v. L & F

Distribs., Ltd., 165 S.W.3d 310, 311–12 (Tex. 2005). We construe contracts to

avoid a construction that is unreasonable, inequitable, or oppressive. Frost Nat’l

Bank, 165 S.W.3d at 312. If, after applying the pertinent rules of construction, the

policy has a definite legal meaning, then it is unambiguous, and we construe it as a

matter of law. Id.; Schaefer, 124 S.W.3d at 157. If, in contrast, after applying the

rules of construction, a contract term is ambiguous, we construe it in favor of the

insured. See Fiess v. State Farm Lloyds, 202 S.W.3d 744, 746 (Tex. 2006);

Archon Invs., Inc. v. Great Am. Lloyds Ins. Co., 174 S.W.3d 334, 338 (Tex. App.—

Houston [1st Dist.] 2005, pet denied).

      The cover page of the title insurance policy issued to IQ explains that the

policy covers title risks “subject to the Exceptions (p. 4).” Under Schedule B on

page 4, the policy excepts: “Restrictive Covenants . . . set out in the Declaration for

Villa d’Este, recorded in Film Code No. 173042 of the Condominium Records of

Harris County, Texas.” The policy also excepts: “Terms and Conditions of the

[Declaration].” The policy’s unambiguous language excepts title risks arising from




                                          13
the Declaration. Article IX of the Declaration gives the Association the right of

first refusal to purchase any condominium.

      IQ directs our attention to GCI GP, in which we addressed a title insurance

policy coverage dispute involving mechanic’s liens that allegedly predated the

issuance of the title policy. 290 S.W.3d at 289. The trial court had granted

summary judgment in favor of the title insurer based on the policy’s provision

excluding “removables.” On appeal, this Court addressed the interplay between

that exclusion and the policy’s coverage for losses or damages caused by the

“‘[l]ack of the priority of the lien of the insured mortgage over any statutory

mechanic’s lien having its inception on or before the [d]ate of [p]olicy.’” Id. at

291, 293. The Court considered the statutory backdrop for mechanic’s liens,

observing that a “mechanic’s lien may only attach to land and items that have

become annexed to land, such as improvements (including fixtures), not to

chattel.” Id. at 295 (citing, inter alia, TEX. PROP. CODE ANN. § 53.022 (West

2014)). But, the Court noted, “chattels that have been incorporated into the realty

become ‘fixtures’ and are subject to a statutory mechanic’s lien.” Id. GCI GP held

that the lien attached to improvements made by the lienholder “that could be

removed without material injury to the land and pre–existing improvements or to

the improvements themselves,” and thus, could not be excluded from coverage

pursuant to the “removables” provision. Id. at 296. As a result, we reversed the



                                        14
summary judgment in favor of Stewart Title and remanded the case for further

proceedings. Id. at 297.

      Unlike the mechanic’s–lien statute’s effect on the policy language in GCI

GP, the statutory backdrop applicable to condominium declarations does not

detract from the clarity of the policy’s exception of the restrictions set forth in

Villa d’Este’s Declaration. The Texas Property Code requires the condominium

unit owner to provide a prospective buyer with a current copy of the declaration

before contracting to convey the unit and provide a resale certificate that

specifically addresses whether the declaration contains a right of first refusal or

other restraint that restricts the right to transfer. TEX. PROP. CODE ANN. § 82.157.

Thus, we reject IQ’s assertion that GCI GP supports reversal of the trial court’s

summary judgment.

      IQ further complains that STGC’s reference in the policy to the Declaration

is general; rather, IQ contends, the contract should have included specific language

excepting the Association’s right of first refusal. In Southwest Title Insurance Co.

v. Northland Building Corp., the Texas Supreme Court rejected a similar

complaint. 552 S.W.2d 425, 429 (Tex. 1977). It held “[t]here is no question but

that a title insurance company may provide for an exception from its coverage by

reference to the provisions of an instrument without setting forth in detail the

content of those provisions.” Id. Here, the policy’s reference to the Declaration



                                        15
effectively excepts all title risks arising from that instrument, including title risks

arising from the Association’s right of first refusal. See id. Under Texas law and

the condominium contract, IQ should have received from the seller a copy of the

Declaration and the Association’s waiver of its right of first refusal before closing;

it had the right to terminate the sale contract if it did not.

       Read together with the applicable law, the policy’s exception has a definite

legal meaning, putting the prospective buyer on notice that it excepts coverage for

any right–of–first–refusal restriction. STGC had no independent obligation to

recite the Declaration’s restraints on sale in order to except them from insurance

coverage.    Accordingly, we hold that the trial court did not err in granting

summary judgment to STGC on IQ’s breach–of–contract claim.

       C.     Breach of fiduciary duty

       IQ’s claim against STC as its escrow agent and as STGC’s title insurance

agent is that STC owed it a duty to ensure that IQ received good title at closing; it

claims that STC breached its fiduciary duty to IQ by failing to obtain a proper

waiver of the right–of–first–refusal covenant on IQ’s behalf. Whether a fiduciary

duty exists is a question of law. Dernick Res., Inc. v. Wilstein, 312 S.W.3d 864,

877 (Tex. App.—Houston [1st Dist.] 2009, no pet.)).

       As STGC’s agent, STC owed no duty to IQ to obtain good title. A title

insurance policy is an indemnity contract; the only duty it imposes is the duty to



                                            16
indemnify the insured against losses caused by defects in title which are not

excepted by the policy. Hahn v. Love, 394 S.W.3d 14, 35 (Tex. App.—Houston

[1st Dist.] 2012, pet. denied). STC’s title investigation inured to its principal’s

benefit, not to IQ: “[a]lthough the insurer must examine the title (or have someone

do so in its behalf), this investigation is done for the insurer’s own information in

order to determine whether or not it will commit itself to issue a policy. The

investigation is not done for the benefit of the party insured.” Stewart Title Co. v.

Cheatham, 764 S.W.2d 315, 320 (Tex. App.—Texarkana 1988, writ denied). A

title insurance company is not a title abstractor and owes no duty to examine a title

or point out any outstanding encumbrances. Hahn, 394 S.W.3d at 25 (citing

Tamburine v. Ctr. Sav. Ass’n, 583 S.W.2d 942, 947 (Tex. Civ. App.—Tyler 1979,

writ ref’d n.r.e.)); Martinka v. Commw. Land Title Ins. Co., 836 S.W.2d 773, 777

(Tex. App.—Houston [1st Dist.] 1992, writ denied). STC did not assume an

obligation beyond STGC’s contractual one as indemnitor in connection with its

role as the agent for the title insurer.

       A title insurance company assumes a fiduciary duty to both parties when it

acts as an escrow agent in a transaction. See Capcor at KirbyMain, L.L.C. v.

Moody Nat’l Kirby Houston S., L.L.C., No. 01-13-00068-CV, 2014 WL 982858, at

*3 (Tex. App.—Houston [1st Dist.] Mar. 13, 2014, no pet.) (mem. op.). These

fiduciary duties consist of: (1) the duty of loyalty; (2) the duty to make full



                                           17
disclosure; and (3) the duty to exercise a high degree of care to conserve the money

and pay it only to those persons entitled to receive it. Id. (citing Trevino v.

Brookhill Capital Res., Inc., 782 S.W.2d 279, 281 (Tex. App.—Houston [1st Dist.]

1989, writ denied)).

      When acting as an escrow agent, however, the title company’s authority is

limited to the closing of the transaction; it does not extend to an investigation of

title. Tamburine, 583 S.W.2d at 949; see Holder–McDonald v. Chicago Title Ins.

Co., 188 S.W.3d 244, 248 (Tex. App.—Dallas, 2006, pet. denied) (observing that

title insurance company’s fiduciary duties are strictly limited to role as escrow

agent); see generally Home Loan Corp. v. Tex. Am. Title Co., 191 S.W.3d 728, 733

(Tex. App.—Houston [14th Dist.] 2006, pet. denied) (explaining that fiduciary’s

duties do not extend beyond scope of fiduciary relationship) (citing Joe v. Two

Thirty Nine Joint Venture, 145 S.W.3d 150, 159–60 (Tex. 2004)).

      In Holder–McDonald, the Dallas Court of Appeals held that a title insurance

company was not liable when it prepared an affidavit that contained an incorrect

legal description of the land. Id. at 249. The court explained that no breach of

duty occurred because the agent prepared the incorrect affidavit in connection with

its role as agent for the title insurer and not as part of its duties as escrow agent. Id.

The Holder–McDonald court cautioned against unwarranted expansion of an

escrow agent’s duties, warning that conflating a title insurance company’s



                                           18
contractual obligation to indemnify the insured with an escrow agent’s fiduciary

duties would cause the escrow agent to “become a second title insurer with

unlimited liability.” Id. at 248.

      We follow Holder-McDonald’s reasoning. Witt, an STC employee, served

as an escrow agent and oversaw the signing and recording of conveyance

documents at closing. IQ and Barnard agreed that IQ would deposit $100,000 as

earnest money with Witt as escrow agent. Like the escrow agent in Holder-

Donald, Witt complied with his escrow agent duties—IQ does not challenge that

the earnest money was properly accounted for, and the transaction closed.

      Instead, IQ seeks to impose liability against the escrow agent for failing to

disclose the limitations of the Association’s waiver of the right of first refusal, and

proceeding to close the transaction even with the waiver’s purported deficiencies.

Along those lines, IQ adduced testimony from STC’s employees that STC owed IQ

a duty to ensure that IQ received good title at closing. But that duty was found on

the written title insurance policy and is limited by its exceptions. IQ and STC did

not form a written contract that explained or expanded Witt’s duties as escrow

agent and closer.    Because “good title” was limited to that which the policy

protected, IQ’s fiduciary duty claim is unsupported by the underlying facts. See

Rizkallah v. Conner, 952 S.W.2d 580, 587 (Tex. App.—Houston [1st Dist.] 1997,

no pet.).



                                          19
      IQ misplaces its reliance on Home Loan Corp. v. Texas American Title Co.

There, our sister court of appeals held that an escrow agent had a duty to disclose

to a mortgage loan funder that the seller had requested half of its proceeds to be

paid to a mortgage loan broker. 191 S.W.3d at 734. As an escrow agent, Witt

owed IQ a duty of full disclosure. See Capcor at KirbyMain, L.L.C., 2014 WL

982858, at *3. Witt’s duty to disclose, however, did not extend beyond the scope

of his duties relating to the management of the earnest money. See Home Loan

Corp., 191 S.W.3d at 733. Unlike IQ’s allegations against Witt in this case, the

escrow agent in Home Loan breached a duty of disclosure in a matter relating to

the escrow agent’s disbursement of funds. Id. at 730. In contrast, IQ’s complaint

relates to the nondisclosure of an excepted title defect, which does not fall within

the scope of the escrow agent’s fiduciary obligations. See Holder–McDonald, 188

S.W.3d at 248; Tamburine, 583 S.W.2d at 949.

      IQ further cites to STC’s failure to follow its internal guidelines in failing to

flag the difference between the waiver and the sales contract as support for its

breach–of–fiduciary–duty claim. Internal guidelines, however, do not create any

benefit in favor of IQ. See, e.g., White v. Mellon Mortg. Co., 995 S.W.2d 795,

802–03 (Tex. App.—Tyler 1999, no pet.) (holding that servicing guidelines

between insurer and bank did not create benefit entitling appellant to automatic

cancellation of mortgage guaranty insurance). The guidelines refer to STC’s role



                                         20
as insurance agent in issuing a title insurance policy, not to its conduct in acting as

an escrow agent. Accordingly, we hold that the trial court properly granted STC

summary judgment on IQ’s breach–of–fiduciary–duty claim.

      D.     Negligence

      Finally, IQ complains that STC was negligent in failing to obtain good title

for IQ and in failing to disclose the defect in the Association’s waiver letter. IQ

further contends that STGC is vicariously liable for STC’s negligence, because

STC was its insurance agent. In a negligence case, the threshold inquiry is whether

the defendant owes a legal duty to the plaintiff. Boerjan v. Rodriguez, 436 S.W.3d

307, 310 (Tex. 2014). STC did not owe a legal duty to IQ to provide it with title

coverage beyond the scope of the written policy or to disclose risks that the policy

did not cover. Accordingly, it cannot be held liable under a negligence theory. See

Holder–McDonald, 188 S.W.3d at 248; Tamburine, 583 S.W.2d at 949; Boerjan,

436 S.W.3d at 310.

      In response, IQ relies on Dixon v. Shirley to contend that STC had a duty to

disclose the defect in the waiver. 558 S.W.2d 112 (Tex. App.—Corpus Christi,

1977, writ ref’d n.r.e.). In Dixon, the parties to a real–estate contract instructed a

title insurance company to issue a title policy for a lot.        Id. at 116.    After

discovering a title defect in the south half of the lot, the title insurance company

prepared a warranty deed for the north half of the lot only and issued a policy



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covering only that half. Id. at 114, 117. The title insurance company did not

inform the parties of this limitation; rather, it erroneously told the parties that the

title policy conformed to their contract. Id. at 114. The court of appeals held that

“[a] title company cannot close its eyes to known irregularities or discrepancies

between its title policy and the order for the title policy.” Id. at 117.

      The facts here are inapposite. Unlike the title policy in Dixon, STC’s policy

covered the property described in the contract and expressly excluded title risks

stemming from the terms and conditions set forth in the Association’s Declaration,

including any obligation to comply with its right–of–first–refusal restriction. As

the court of appeals in Dixon acknowledged, generally “a title insurance company

has no duty to examine title and to apprise the insured of any defects found

therein.” Id. at 116. The Uniform Condominium Act, the Texas enactment of

which postdates Dixon, affirmatively requires the seller of a condominium unit to

provide the buyer with a copy of the condominium association’s declaration and a

resale certificate that includes “any right of first refusal or other restraint contained

in the declaration that restricts the right to transfer a unit.” TEX. PROP. CODE ANN.

§ 82.157(a)(1). We interpret this provision as giving the condominium unit’s

seller, in the first instance, the duty to inform the prospective buyer of transfer

restrictions imposed by the condominium association. No evidence shows that

STC assumed an independent duty to disclose title defects beyond those covered



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by the policy or, like the company in Dixon, that STC affirmatively misrepresented

the extent of its title coverage.

       IQ’s reliance on Zimmerman v. First Am. Title Ins. Co., 790 S.W.2d 690

(Tex. App.—Tyler 1990, writ denied), is similarly misplaced. There, the parties to

a real estate contract instructed a title insurance company to convey a lot “free and

clear of liens” to a real estate agent, in payment of a commission owed. Id. at 695.

The title insurance company disregarded these instructions and created a lien on

the lot without notifying the parties. Id. In contrast, IQ did not instruct STC to

obtain an additional waiver as a condition of the closing, and STC did not

affirmatively represent that it did. Rather, IQ seeks to expand STC’s obligations

beyond those that the parties agreed to in the title insurance policy. Because the

title policy expressly excepted any obligation to ensure that the sale complied with

the Association’s deed restrictions, we decline to further expand STC’s duties to

encompass that obligation. See Holder–McDonald, 188 S.W.3d at 248.

       Because IQ has not shown that STC is liable for breach of a legal duty that it

owed to IQ, we hold that STGC has no vicarious liability. The trial court therefore

properly granted summary judgment to STC and STGC on IQ’s negligence claim.




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                                   Conclusion

      We hold that the trial court did not abuse its discretion in denying a

spoliation sanction. Because the trial court properly concluded that IQ’s claims

against STC and STGC are unavailing as a matter of law, we affirm its judgment.




                                             Jane Bland
                                             Justice

Panel consists of Justices Higley, Bland, and Sharp.




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