Centennial Dev. Group v. Lawyer's Title Ins. Corp., 669 Ariz. Adv. Rep. 11 (App. Div. I, September 19, 2013) (J. Johnsen)
TITLE REPORT IS NOT A REPRESENTATION OF THE CONDITION OF TITLE OF PROPERTY BY STATUTE BUT "CONTINUATION OF INSURANCE" CREATES POTENTIAL FOR BREACH OF CONTRACT CLAIM FOR DAMAGES INCURRED WHILE INSURED HELD TITLE TO PROPERTY EVEN IF CLAIM IS BROUGHT AFTER PROPERTY IS SOLD
Title insurer failed to disclose an easement on real estate purchased by plaintiff. Plaintiff discovered easement and returned all but one small parcel of property to the seller. Plaintiff then sued title company claiming the failure to disclose the easement significantly diminished the value of the real estate necessitating the return of the property. Claims were brought for negligent misrepresentation and breach of contract. The trial court granted the insurer summary judgment on both counts. The Arizona Court of Appeals affirmed as to the negligence claim but reversed as to breach of contract.
ARS sec 20-1562 provides in relevant part: "[A title] report is not a representation as to the condition of title to real property but does constitute a statement of the terms and conditions on which the issuer is willing to issue its title insurance policy if the offer is accepted." As such a title insurer is not liable, even if negligent, in failing to discover and disclose an easement on real property because it is not an abstractor of title under the statute and the title report is not a representation of the condition of title on the property.
However, as to the breach of contract claim the policy insures plaintiff "against loss or damage . . . sustained or incurred . . . by reason of . .. [a]ny defect in or lien or encumbrance on the title. . . .
2. CONTINUATION OF INSURANCE AFTER CONVEYANCE OF TITLE. The coverage of this policy shall continue in force as of Date of Policy in favor of an insured only so long as the insured retains an estate or interest in the land, . . . or only so long as the insured shall have liability by reason of covenants of warranty made by the insured in any transfer or conveyance of the estate or interest."
Based upon this provision the court of appeals found that although the plaintiff did not bring its claim while it still retained an interest in the land, its damage theory was that it paid too much for the property because it was unaware of the easement, and ultimately had to give back the property because it is not worth the purchase price. Thus, plaintiff alleges it incurred damages while it owned the property, within the "continuation of coverage" condition of the policy. As such summary judgment should not have been granted on the breach of contract claim.