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Citation. 22 Ill.40 Cal.3d 870, 221 Cal.Rptr. 509, 710 P.2d 309 (1985)
Brief Fact Summary. In this case, the Plaintiffs’, Brian and Helen White (Plaintiffs), predecessor in title had granted an easement deed for subsurface water rights. The Plaintiffs were unaware of the easement at the time of the sale. The Plaintiffs were issued title insurance by the Defendant, Western Title Insurance Co. (Defendant) and neither policy (there were two lots) mentioned the easement. The title insurance policy stated that it would protect the Plaintiffs against title being vested in a person other than the Plaintiffs and against any defect in or lien or encumbrance on title. Facts.
Synopsis of Rule of Law. The Court found that under negligence law, the Defendant had a duty to list all matters of public record regarding the subject property in its preliminary report. The title insurer is liable for his negligent failure to list recorded encumbrances in preliminary title reports.
In this case, the Plaintiffs’ predecessor in title had granted an easement deed for subsurface water rights and Plaintiffs was unaware of the easement at the time of the sale. The Plaintiffs were issued title insurance and neither policy (there were two lots) mentioned the easement. The title insurance policy stated that it would protect the Plaintiffs against title being vested in a person other than the Plaintiffs and against any defect in or lien or encumbrance on title. The title insurance, issued by the Defendant, also purported to exclude from coverage any loss arising from easements which were not shown by the public record (the easement in this case was recorded) and from water rights or claims to title to water. The easement holder notified the Plaintiffs of its intention to enter the land and utilize the easement. The Plaintiffs notified the Defendant, and Defendant agreed to defend. However, Plaintiffs rejected the Defendant’s offer to defend and hired their own cou
nsel. The easement holder eventually dismissed its suit and decided not to enforce the easement. After Plaintiffs had an appraisal of the potential loss of groundwater performed, which found the diminution in value to be worth $62,947. Defendant at that time acknowledged its responsibility for the loss of value due to the easement, but declined to pay the claim on the basis that the claim of loss was based on the diminution of groundwater. The Plaintiffs filed this suit and alleged breach of contract and negligence in the preparation of preliminary title reports. The Defendant retained an appraiser and made an offer to settle for $3,000, but did not provide Plaintiffs with a copy of the appraisal. The issues of liability and damages were bifurcated by the trial court. The lower court found the Defendant liable on breach of contract and negligence and left the jury to decide the damages. The jury fixed the loss at $100 per acre, total of $8,400. The jury also found the Defendant to hav
e breached the covenant of good faith and fair dealing and found the Defendant liable to the Plaintiffs for the breach in the amount of $20,000 compensatory, in addition to the $8,400. The Defendant appealed. Issue.
Under the facts presented, is the Defendant liable to the Plaintiffs?