The Court of Appeal for the State of California, First District, recently held that a putative insured is entitled to title insurance coverage where the preliminary title report provided could cause them to reasonably believe that they had purchased title insurance coverage of a specified parcel.
A copy of the opinion is available at: http://www.courtinfo.ca.gov/opinions/documents/A124730.PDF
Plaintiff borrowers ostensibly purchased property identified by two tax assessor parcel identification numbers. Defendant title company provided a preliminary report that repeatedly referred to both parcels and that also included a map describing both parcels and a metes and bounds description of the covered property. The legal description of the insured property referred to only one parcel, which matched the deed, and it was this description that was incorporated into the title insurance policy. Plaintiffs later discovered that they did not own both parcels and made a claim under the policy, which was denied by Defendant on the basis that the legal description did include the second parcel. The trial court awarded summary judgment in favor of the defendant. The Appellate Court reversed.
In reaching its ruling, the Court first examined fifty-year-old precedent set in Lagomarsino v. San Jose Title Ins. Co., 178 Cal. App. 2d 455, 465 (1960), which holds that where a title insurer is attempting to avoid liability based on ambiguity in the legal description of real property, "'[t]he ambiguity should be resolved in favor of the insured'" and that "[t]he function of the title company is to give the insured the protection which he reasonably had a right to expect," because "[t]he risk of a proper description was assumed by the [title] company, and it should bear the responsibility for the mistake." (Id. at p. 465).
The Court considered the underlying facts at length in reaching its ruling, noting first that the preliminary title report provided to the plaintiffs was an offer to insure a given parcel. This offer provided detailed information regarding the subject parcel within its coverage description and also included both a map and arrow depicting the subject parcel. A legal description, which excluded the subject parcel, was also provided, but as that was a surveyor's metes and bounds description, the Court ruled, it would have been ambiguous to a layperson. Thus, the Court concluded, "[p]laintiffs could have reasonably expected, under the circumstances, that they were buying a title insurance policy on [the subject parcel]."
The Court then referred to White v. Western Title Ins. Co., 40 Cal.3 d 870, 881 (1985) in further clarifying its ruling, noting that although "the provisions of [a] policy 'must be construed so as to give the insured the protection which he reasonably had a right to expect'," that an insured is only entitled to coverage based on their objectively reasonable expectation. A property owner unable to speak English, for example, would not be able to claim that a coverage description was ambiguous after failing to obtain a translation of documents provided.
The Court also considered, but discounted, the title insurer's argument that a claim for breach of insurance contract would have been outside a two-year statute of limitations provided under California law, noting that "the operative date is the date of discovery of the loss, not the date when discovery would have been possible."
Ralph T. Wutscher
Kahrl Wutscher LLP
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