Tait v. Commonwealth Land Title Ins. Co.

322 Cal.Rptr.3d 877

103 Cal.App.5th 271

Martin TAIT et al., Plaintiffs and Appellants,

v.COMMONWEALTH LAND TITLE INSURANCE COMPANY, Defendant and Respondent.

A166676

Court of Appeal, First District, Division 4.

Filed June 28, 2024

Trial court: Contra Costa County Superior Court, Trial judge: Honorable Claire M. Maier (Contra Costa County Super. Ct. No. MSC19-02313)

NEWMEYER & DILLON LLP, James J. Ficenec, Walnut Creek

GARRETT & TULLY P.C., Ryan C. Squire, Candie Y. Chang, Pasadena

BROWN, P. J.

Plaintiffs Martin Tait, Jane Tait, and Bry-Mart, LLC (collectively, the Taits) sued Commonwealth Land Title Insurance Company (Commonwealth) for breach of a title insurance policy and alleged that Commonwealth failed to pay the full amount by which their property’s value was diminished due to an undisclosed easement. The trial court granted Commonwealth’s motion for summary judgment, ruling that the policy required Commonwealth to compensate the Taits only for the value of their actual use of the property as a vacant residential lot suitable for only one home rather than its highest and best use as a subdividable lot. We agree with the Taits that the policy entitles them to reimbursement for the diminution in value of their property based on its highest and best use. As a result, the Taits’ evidence of the likelihood of subdivision and the value of a subdividable lot created a triable issue of fact regarding the amount of the Taits’ loss under the policy, thereby precluding summary judgment. We will therefore reverse.

BACKGROUND

In 2016, the Taits purchased a residential property in Danville for $1.25 million. Commonwealth issued the Taits an American Land Title Association (ALTA) Homeowner’s Policy of Title Insurance for the property. The policy insures the Taits against "actual loss" arising from certain defined covered risks, which include someone else having an easement on the property.

The policy limits Commonwealth’s liability for an unknown easement to the lesser of the Taits "actual loss" or the policy limit of $1.25 million. The policy does not define "actual loss." The policy excepts from coverage certain building and subdivision restrictions recorded by the Town of Danville (town) and a recorded irrevocable offer of dedication of a drainage easement. The building restrictions prohibit further subdivision of the property and the construction of any building within the area of the offered drainage easement.

As they had intended upon purchasing the property, the Taits proceeded with plans to subdivide the property into two lots. Between May 2016 and February 2017, the Taits engaged in informal talks with the town’s development services coordinator, Fred Korbmacher, about their proposed subdivision. The town’s staff recommends applicants engage in such talks prior to a formal application, to determine whether the staff will support the application.

The town could eliminate or modify the offer of dedication of the drainage ease- merit and building restrictions to permit the subdivision. The town’s staff were supportive of the Taits’ subdivision plan. Staff support is not a guarantee that an application will be approved, but according to Korbmacher, it is "very, very rare" that the town’s planning commission or town council does not approve a subdivision that the staff supports. Korbmacher therefore believed that if the Taits had submitted an application, the town most likely would have approved the subdivision. At the end of 2016, the Taits had a complete application for a tentative map, ready for submission. But the Taits never submitted a formal subdivision or tentative map application.

On February 10, 2017, the Taits learned about a separate 1988 maintenance easement covering the same area as the drainage easement. The Taits believed the maintenance easement would impact the marketability and value of property and interfere with its potential development, so they tendered a claim on the policy to Commonwealth. Commonwealth accepted coverage.

Commonwealth obtained an appraisal from AGI Valuations to calculate the property’s diminution in value resulting from the maintenance easement. AGI Valuations stated that it applied the standard in Overholtzer v. Northern Counties Title Ins. Co. (1953) 116 Cal.App.2d 113, 253 P.2d 116 (Overholtzer) and analyzed the highest and best use of the property on the date of loss. This appraisal assumed that it was reasonably likely the town would extinguish the building restrictions and the offer of dedication of the drainage easement. It also assumed that the maintenance easement prohibited development within its area. AGI Valuations determined that the value of the property without the maintenance easement as of February 10, 2017, was $1.3 million, and with it was $1.1 million, for a diminution in value of $200,000.

Commonwealth asked AGI Valuations to revise the appraisal by omitting the assumptions that the town would extinguish the offer of dedication of the drainage easement and the building restrictions and that the maintenance easement prohibited development within its area. AGI Valuations prepared a revised appraisal stating, as it had before, that it applied the Overholtzer standard and omitting those assumptions. AGI Valuations’ second appraisal concluded the value of the property without the maintenance easement as of February 10, 2017, was $1.3 million, and with it was $1,256,500 million, for a diminution in value of $43,500. Commonwealth sent the Taits a check for $43,500.

The Taits obtained their own appraisal from Valbridge Property Advisors (Valbridge). Like both of AGI Valuations’ appraisals, Valbridge said it computed the property’s diminution in value pursuant to Overholtzer. Valbridge said there was a high probability that without the maintenance easement the Taits could expunge the building restrictions and offer of dedication of the flood control easement and could subdivide the property into two developable lots. Valbridge therefore valued the property without the maintenance easement as two separate developable parcels. With the maintenance easement, the property could not be subdivided into two developable lots, so Valbridge valued it as a single parcel. Valbridge determined that the value of the property without the maintenance easement as of February 10, 2017, was $2.08 million, and with it was $1.38 million, for a diminution in value of $700,000.

The Taits provided Commonwealth a copy of the Valbridge appraisal and requested that it pay the $656,500 difference between Valbridge's calculation of diminu- non in value and the $43,500 Commonwealth had already sent. Commonwealth denied their request. The Taits filed suit, and their operative complaint alleged a single cause of action for breach of contract. The trial court granted Commonwealth’s motion for summary judgment, ruling, as relevant here, that there was no triable issue of material fact about whether Commonwealth breached the policy by paying the Taits the $43,500.¹ The court reasoned that the legal standard for title insurance losses did not permit consideration of a property’s highest and best use, only its actual use as vacant residential land. The trial court therefore disregarded the Taits’ appraisal based on the property’s highest and best use and found Commonwealth’s appraisal was the only evidence of the Taits’ losses. The trial court entered judgment for Commonwealth.

DISCUSSION

I. Standard of review

[1, 2] "On appeal after a motion for summary judgment has been granted, we review the record de novo, considering all the evidence set forth in the moving and opposition papers except that to which objections have been made and sustained. [Citation.] Under California’s traditional rules, we determine with respect to each cause of action whether the defendant seeking summary judgment has conclusively negated a necessary element of the plaintiff’s case, or has demonstrated that under no hypothesis is there a material issue of fact that requires the process of trial, such that the defendant is entitled to judgment as a matter of law." (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 334., 100 Cal.Rptr.2d 352, 8 P.3d 1089.)²

II. Owner’s actual loss under title insurance policy

[3, 4] "Title insurance ‘is a customary incident of practically every California real estate transaction,’ including a sale or refinancing. [Citations.] Title insurers insure ‘the record title of real property for persons with some interest in the estate, including owners, occupiers, and lenders.’ [Citation.] A title insurance policy is not a guarantee as to the state of the property’s title. [Citations.] It instead offers indemnification to the insured against many losses arising from title defects not disclosed in the title policy or report, as well as errors by the entity performing the title search. [Citations.]

[5, 6] "Title insurance differs in some respects from other forms of insurance. While most other forms of insurance provide protection against future loss, title insurance instead relates to the past; it protects against undisclosed encumbrances and defects in title that exist at the time the policy is issued. [Citations.] Thus, rath- er than requiring periodic, ongoing premiums to obtain continuing future coverage, title insurance requires a one-time payment [citation] compensating for the risk assumed and the services rendered in connection with researching and preparing the policy [citation]." (Villanueva v. Fidelity National Title Co. (2021) 11 Cal.5th 104, 112–113, 276 Cal.Rptr.3d 209, 482 P.3d 989.)

The trial court ruled there was not a triable issue of material fact about whether Commonwealth’s $43,500 payment completely discharged its duty under the policy to indemnify the Taits for their losses on the property. The propriety of this ruling hinges, in the first instance, on what losses the policy covers. The Taits’ policy requires Commonwealth to indemnify them for their "actual loss" resulting from...