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October 2010

Lee v. Fidelity National Title Ins. Co. ? Coverage Found Where Title Insurer's Erroneous Description Of Property Was Ambiguous.

A Title Insurer's Legal Description And Erroneous References Were Resolved In Favor Of The Reasonable Expectations Of Coverage By The Insured.

(September 16, 2010) ___ Cal.App.4th ___, 10 C.D.O.S. 12106

The California Court of Appeal, First Appellate District, reversed an order granting summary judgment to a title insurer arising from a dispute in ownership of a parcel of land, where the title insurer provided a preliminary report that mistakenly referred to Plaintiffs' land as comprising of two parcels, although the metes and bounds legal description of the land was accurately stated.  Years later, it was discovered Plaintiffs only owned one of the two parcels of land and Plaintiffs demanded the title insurer obtain clear title to the disputed parcel.  The insurer declined coverage.  The trial court granted the insurer's summary judgment on the basis the legal description in the insurer's report was accurate, so Plaintiffs could not sue on property they never owned or insured.  The Court of Appeal reversed, holding the description of the property on the insurer's report was ambiguous, and Plaintiffs could have reasonably expected they were buying a title insurance policy that included the disputed parcel.

Plaintiffs are purchasers of land who, at the time of the sale, believed they were buying two parcels of adjoining property, identified as Assessor's Parcel Number ("APN") 042-230-090 ("APN 9") and 042-230-220 ("APN 22").  The purchase contract identified the property Plaintiffs were buying as APN 9 and APN 22.

Plaintiffs sought title insurance and obtained a preliminary report from Fidelity National Title Insurance Company ("Fidelity").  The report identified the "Property Address" as APN 9 and APN 22.  The report also included a metes and bounds legal description of the property, tax information for both APN parcels, and a county assessor's map of the area with arrows pointing to both parcels.

Plaintiffs recorded the deed for the land, which stated that a transfer tax had been paid for APN 9 and APN 22 and incorporated the metes and bounds legal description.  Escrow statements to Plaintiffs on Fidelity's letterhead identified the address of the property conveyed as APN 9 and APN 22.  Plaintiffs paid property taxes on APN 9 and APN 22 from the time of purchase until this litigation.

Years later, when Plaintiffs decided to sell their property, an investigation uncovered that APN 22 actually belonged to a neighboring property owner.  The county assessor advised both Plaintiffs and the neighboring owner that taxes on APN 22 had been erroneously assessed to Plaintiffs, the error dated back to when title to Plaintiffs' land was conveyed to Plaintiffs' sellers, and thus title to APN 22 was held by the neighbor, not Plaintiffs.

Plaintiffs' counsel informed Fidelity of the county assessor's determination and demanded Fidelity "obtain clear title in favor of [Plaintiffs]."  Fidelity's counsel sent Plaintiffs a letter denying coverage of Plaintiffs' dispute over ownership of APN 22 because Plaintiffs held title to the legal description as set forth in their grant deed (echoed in the preliminary report) and were insured to hold title to no more than that which is described there.  Plaintiffs subsequently filed suit against Fidelity for declaratory relief, breach of insurance contract, bad faith, and escrow negligence. 

Fidelity filed a motion for summary judgment and the trial court held for Fidelity, concluding "[p]laintiffs cannot recover for a breach of title insurance policy as to land they never purchased, never owned and never insured."  Plaintiffs appealed.

Fidelity's defense relied on Insurance Code section 12340.11, which states that a preliminary report "shall not be construed as, nor constitute, a representation as to the condition of title to real property."  Fidelity asserted section 123401.11 establishes that a title insurer cannot be held liable in connection with its preliminary report because Plaintiffs cannot rely on it to represent the status of title to the property to be insured.

On de novo review, the Court of Appeal disagreed with Fidelity's assertions.  Instead, the Court of Appeal held that while the preliminary report shall not be construed as a representation as to the condition of title, it "shall constitute a statement of the terms and conditions upon which the issuer is willing to issue its title policy, if such offer is accepted."  The preliminary report, then, is an offer identifying the risk the insurer will agree to assume, which the insured accepts by buying the title policy, and the insured has the right to reasonably expect that the contract thus formed will be consistent with the terms of the offer. 

Fidelity asserted the legal description in the preliminary report accurately described the property to exclude APN 22 so the court could not consider Plaintiff's reasonable expectations of coverage.  The Court of Appeal held if an "ordinary reading" of the legal description of land was unambiguous, then any reasonable expectation of coverage would be precluded from consideration.  However, the Court of Appeal cautioned to determine if there is an ambiguity, it would look to the "ordinary reading" of words in the insurance policy that are to be interpreted according to the plain meaning which a layman (not an attorney or insurance expert) would ordinarily attach to the words.  The Court of Appeal concluded the legal description in Fidelity's preliminary report was ambiguous because laypersons like Plaintiffs would have no way of knowing from the surveyor's metes and bounds description of the land in their title policy whether APN 22 was covered.  In addition, further ambiguity was created in Fidelity's report by the attachment of the assessor's parcel map with an arrow pointing to APN 22 and listing APN 22 in the property's address.  The Court held Fidelity's preliminary report can be reasonably construed as an offer to insure APN 22 and Plaintiffs could have reasonably expected, under the circumstances, that they were buying a title insurance policy on APN 22 that would conform to the preliminary report.

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This opinion is not final. It may be withdrawn from publication, modified on rehearing, or review may be granted by the California Supreme Court.  These events would render the opinion unavailable for use as legal authority.

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