DAMAGES UNDER A TITLE INSURANCE POLICY
Presented by Homer Duvall Senior Major Claims Counsel Fidelity National Title Group, Inc.
Types of Policies Owner’s Title Insurance Lender’s Title Insurance Simultaneous Issued Policies (Owner’s and
Lender’s) Payment on one policy is payment on both policies.
Forms of Policies ALTA 1970 (Amended 10/17/84) ALTA 1992 (Amended 10/17/92) ALTA 2006 (Amended 6/17/2006) and as subsequently
amended.
TOTAL LOSS Owner’s Policy—the value of the property within the limits of the policy. Lender’s Policy—the lesser of: The amount due the insured (i.e. the remaining indebtedness; The face amount of the Policy; and The value of the insured land.
PARTIAL LOSS Owner’s Policy: The difference in the value of the insured land with and without the defect (lien, encumbrance, encroachment); The amount necessary to remove the defect; or Sometimes if the property cannot be used, the measure of loss is the value of the land subject to the defect PLUS the value of the loss of its use.
PARTIAL LOSS Lender’s Policy: The extent by which the mortgage indebtedness is affected by the title defect.
PARTIAL LOSS Lender’s Policy Examples: If the insured mortgagee holds an $80,000 mortgage insured as a first lien on land having a value of $100,000 (without consideration of any defect in the title) and it is discovered that there is a $10,000 lien superior in priority to the insured mortgage, the insured mortgagee has not suffered any loss. If the insured mortgagee holds a $100,000 mortgage insured as a first lien on
land having a value of $80,000 (without consideration of any defect in title) and it is discovered that there is a $10,000 lien superior in priority to the insured mortgage, the insured has suffered only a $10,000 loss.
If the insured mortgagee holds an $80,000 mortgage insured as a first lien on
land having a value of $10,000 (without consideration of any defect in title) and it is discovered that there is a $100,000 lien superior in priority to the insured mortgage, the insured has suffered only a $10,000 loss.
INCIDENTAL & DELAY DAMAGES Whether incidental or delay damages are due may depend on the policy FORM and the actions taken by the insurer in resolving or attempting to resolve the claim.
INCIDENTAL & DELAY DAMAGES ALTA 1970 (Amended 10/17/84) The title insurer could be liable for consequential or delay damages if the title insurer failed to establish the title as insured within a reasonable time after receipt of notice of the defect.
INCIDENTAL & DELAY DAMAGES 1992 Title Policy Forms: Seem to provide that as long as the insurer establishes or cures the insured title or removes the defect resulting in the claim, in a “reasonably diligent manner,” then the insurer is not liable for consequential or delay damages.
INCIDENTAL & DELAY DAMAGES 1992 Title Policy Forms: Limit delay or consequential damages by another means—in Condition 7(a) This policy is a contract of indemnity against actual monetary loss or
damage sustained or incurred by the insured claimant who has suffered loss or damage by reason of matters insured against by this policy and only to the extent herein described. (a) The liability of the Company under this policy shall not exceed the least of: (i) the Amount of Insurance stated in Schedule A; or, (ii) the difference between the value of the insured estate or interest as insured and the value of the insured estate or interest subject to the defect, lien or encumbrance insured against by this policy.
INCIDENTAL & DELAY DAMAGES 2006 Title Policy Forms: The provisions of the 2006 Owner’s and Loan policies are substantially similar to the 1992 provisions.
LIABILITY IS NONCUMULATIVE All of the Title Policy Forms provide that liability to owners and lenders is not cumulative. For example, a title insurer insures both the owner of a piece of property and the lender, who is secured by a mortgage on the owner’s property. An encumbrance (an easement) is discovered that the insurer failed to show as an exception in Schedule B of either policy. The insurer makes good on its policy by obtaining an extinguishment of the easement. The amount paid for extinguishing the easement reduces the remaining amount of insurance under the owner’s policy. Because the lender remains entitled to security for the full amount of the mortgage note, however, the insurance under the loan policy is not reduced. If, on the other hand, the insurer is unable to extinguish the easement and instead makes a cash settlement with the owner and mortgagee, the cash settlement should be paid to the mortgagee to reduce the amount of the secured mortgage. In that way both the owner and the mortgagee obtain the benefit of the payment. Because the amount of the indebtedness secured by the mortgage is reduced, the amount of insurance under the loan policy is reduced pro tanto.
APPORTIONMENT APPLIES ONLY TO Owner’s Policies, and only to the 1970 (Amended 10/17/84) and 1992 Policy Forms If two or more parcels are insured by the same owner’s policy, the amount of insurance is prorated between the parcels according to the values of the parcels on the date of the policy, exclusive of any improvements made later. Does not apply if the parcels are used as a single site, as when a building is constructed partially in one parcel and partially in another. It is also appropriate for the insured and the insurer to agree on a schedule of values for the various parcels rather than to divide the amount of insurance pro rata to initial value.
DATE OF VALUING THE LOSS 1970 (Amended 10/17/84) & 1992 Policy Forms One of the most difficult issues, and courts have found several different possibilities: The date the loss is being valued. The date the policy is issued. The date the defect is discovered. The date of original purchase. The date the lender forecloses on the insured land.
DATE OF VALUING THE LOSS 2006 Title Policy Form: While the ALTA policy forms prior to 2006 have been silent on the issue of the date of valuing the insured’s loss, the 2006 Owner’s and Loan Policies have taken a small step forward.
DATE OF VALUING THE LOSS Both the 2006 Owner’s and Loan Policies provide that if the insurer has undertaken litigation to establish or cure the title or lien of the insured mortgage, and such efforts by the insurer have been unsuccessful, the insured may choose to have its loss or damage determined either: as of the date the claim is made; or as of the date the claim is settled and paid.
INTEREST COMPUTATION While sometimes the issue of whether any interest is due is for the courts, generally interest is payable on an award of damages under a title policy from the date the obligation of the insurer is deemed to accrue.
DAMAGES UNDER A TITLE INSURANCE POLICY
Presented by Homer Duvall Senior Major Claims Counsel Fidelity National Title Group, Inc.
