This is the second part of a two-part blog series analyzing a recent decision from the 9th Circuit regarding an insured’s right to damages under a title insurance policy. Part I of this blog focuses on the court’s rejection of a noncoverage defense after conceding coverage prior to and during litigation while Part II focuses on the appropriate calculation of damages.
The insured sought summary judgment on the issue of the proper measure of damages. The title policy provided that the policy insures “against loss or damage, not exceeding the amount of insurance stated in Schedule A [$3,550,710], and costs, attorneys’ fees and expenses which [the insurer] may become obligated to pay hereunder, sustained or incurred by the insured by reason of . . . any defect or lien or encumbrance on such title . . . or unmarketability of such title.” The policy then limits liability to the policy limit or the “actual loss” of the policyholder.
Because the policy did not define the term “actual loss”, the court acknowledged that the policy must be construed in terms most favorable to the insured because of the resulting ambiguity. The title insurer claimed that any damages were limited to the disparity in value of the property with the plat at the time the title defect was discovered and the value of the property without the encumbrance at the same point in time. The court rejected this position because the policy included no definition of “actual loss” and no language limiting coverage in the manner proposed by the insurer. There are two separate methods for calculating damages for a title defect according to the court: (1) the diminution in market value or (2) the amount necessary to remove the existing encumbrance.
The court reasoned that the failure to cure the title defect within a reasonable time after electing to eliminate the encumbrance through nonjudicial means constituted a separate and independent breach of the title insurance policy. The court concluded that an insurer that has materially breached its duty to act with reasonable diligence in curing a cloud on title after electing a non-litigation resolution cannot insist on the insured’s compliance with other terms, such as policy loss limitations. The court concluded that an insured is entitled to all foreseeable damages for breach of a title policy, including incidental and consequential damages, if the insurer fails to act diligently in curing the defect.
This case stands for a couple of different propositions that are relevant to policyholders. When a title insurer fails to identify a cloud on title, the insurer might attempt to avoid the cost of litigation or paying policy limits by pursuing other approaches to cure a title defect. If the insurance carrier chooses to perform this type of alternative solution, the insurer has an obligation to proceed with reasonable haste in curing the defect. If the insurer does not act with reasonable promptness, this failure might be considered a separate and discrete breach of contract from the original failure to uncover and disclose the cloud on title. Further, the title insurer might be liable for more extensive damages under these circumstances.
Another takeaway from this decision involves the importance of legal representation when dealing with ambiguity under an insurance policy. When the terms of the policy are unclear or undefined, basic contract law requires that the insurer interpret the policy in terms most favorable to the policyholder. However, the question of whether the language or a provision of a title insurance policy is ambiguous typically is complicated and open to debate, so it is important to have an experienced insurance claims lawyer to represent your interests and advocate for appropriate compensation under the title insurance policy.
If your title insurance company refuses to pay for losses because of an unreferenced title defect, you might have a legal claim for the full measure of your compensable damages, which can include reasonably foreseeable consequential and incidental damages. My law firm represents title insurance policyholders in claims disputes in Miami and throughout Florida. The Law Firm of J.P. Gonzalez-Sirgo, P.A. offers free consultations and case evaluations. No Recovery, No Lawyer Fees. Call 305-461-1095 or Toll Free 1-866-71-CLAIM.