White v. Western Title Insurance Co

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.

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.

Facts. 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?

Held. Yes. Judgment affirmed.
The Court found that the insurance policy did not exclude coverage for the easement in question, despite the exclusion in the policy. The provisions of the policy must be construed so as to give the insured the protection, which he reasonably had a right to expect. The policy was to protect against recorded interests and the easement at issue herein was recorded.
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.
The covenant of good faith and fair dealing, in this jurisdiction, can be breached after litigation has begun. The Defendant here made several offers to compromise, found to have not been made in good faith and supported by evidence, such as a report of the appraiser.
The Court found that the provision in the insurance policy, which provided for payment of expenses and attorneys’ fees by the insurer for any such fees and costs incurred by the Plaintiffs, could apply in a suit against the insurer. Normally, such cases are against third parties, rather than against the title insurance company. These costs of litigation are recoverable because of the insurance company’s breach of the covenant of good faith and fair dealing.

Dissent. The dissent disagreed with the Court’s decision to allow the jury to consider evidence of prior settlement offers by the Defendant. The evidence of prior settlement offers would potentially confuse jurors who might feel that such offers are admissions of liability.

Discussion. The opinion sets out in great detail the various acts, which led to the jury’s finding that the Defendant had breached the covenant of good faith and fair dealing. Ordinarily, offers to compromise are excluded from introduction as evidence in a case in chief. The Court found a pattern of conduct on the part of the Defendant to evade responsibility for its omission of the easement in the preliminary title report.