Case of the Month Tait v. Commonwealth Land Title Insurance Company

The California Court of Appeal recently reversed a trial court’s decision to grant a summary judgment motion in a significant title insurance case. The plaintiffs had purchased a residential property in Danville for $1.25 million in 2016 and the title company issued an American Land Title Association (ALTA) Homeowner’s Policy of Title Insurance accordingly. Per the terms of the policy, it insured against “actual loss” from covered risks, including undisclosed easements. Of note, the term “actual loss” was not defined in the policy.

The dispute arose when the plaintiffs discovered an unknown 1988 maintenance easement on their property, which they believed reduced its value and interfered with their plans to subdivide the lot. The trial court granted the title company’s summary judgement motion regarding limitation of damages, ruling that the policy only required compensation based on the property’s use as a single residential lot, not its potential highest and best use as subdividable land.

The plaintiffs argued that the title company should compensate them for the diminution in value based on the property’s highest and best use. The title company’s appraisal valued the diminution at $43,500, considering the property as a single lot, and paid this amount. The plaintiffs, however, obtained their own appraisal, which valued the property without the easement at $2.08 million and with it at $1.38 million, calculating a diminution in value of $700,000.

In overruling the trial court, the Appellate Court referred to Overholtzer v. Northern Counties Title Ins. Co. (1953), which established that damages in title insurance cases should be based on the depreciation in market value caused by the defect. The Court of Appeal agreed with the plaintiffs, stating that the policy entitles them to reimbursement based on the property’s highest and best use. This created a triable issue of fact regarding the actual loss under the policy, precluding summary judgment.

The appellate court emphasized that “actual loss” should reflect the property’s value based on its highest and best use, including the potential for subdivision. This decision highlights the importance of considering potential future uses and highest value applications in determining actual loss in title insurance cases.

The case underscores the complexities of title insurance policies and the necessity for property owners to understand their rights and coverage extent. It also reminds title insurance companies to consider the highest and best use standard when evaluating claims for undisclosed easements and other defects.