Opinion
2d Civil No. B227762
10-19-2011
KASCO, L.P., Plaintiff and Respondent, v. CHICAGO TITLE INSURANCE COMPANY, Defendant and Appellant.
Hennelly & Grossfeld, LLP, and Susan J. Williams, for Defendant and Appellant. Law Offices of K. M. Neiswender and Kate M. Neiswender; Ferguson Case Orr Paterson, LLP, Wendy C. Lascher and John A. Hribar, for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Super. Ct. No. 56-2008-00331555-CU-OR-SIM) (Ventura County)
Chicago Title Insurance Company (Chicago Title) appeals from the judgment in favor of Kasco, L.P. (Kasco), following a court trial. Chicago Title issued title insurance covering undeveloped property that Kasco acquired to construct a residential development. The title policy failed to disclose the existence of an easement applicable to the entire property. Chicago Title contends that where the easement was removed after its discovery, the trial court erred by measuring damages as of the date that Kasco discovered the easement, pursuant to Overholtzer v. Northern Counties Title Insurance Company (1953) 116 Cal.App.2d 113, 119. We affirm.
BACKGROUND
In 2005, Kasco bought a rectangular strip of undeveloped property, in Moorpark (the subject property) for $750,000, with the intention of constructing an 18-residence subdivision. The subject property is 80 feet wide and approximately 1,433 feet long. Moorpark residents called it "Beltramo Road" in years past.
Southern California Edison (SCE) had owned adjacent parcels south of the subject property for decades. SCE acquired an 80-foot-wide ingress and egress easement across the entire subject property, through a grant deed that was recorded on November 24, 1964.
In March 2005, Chicago Title prepared a preliminary title report for the subject property. It did not list the SCE easement; it did list several other easements. Before purchasing the subject property, Kasco investigated the listed easements. It also confirmed that its development plan would be acceptable to Moorpark.
On April 8, 2005, upon Kasco's purchase of the subject property, Chicago Title issued a $750,000 title insurance policy to Kasco. The policy insured Kasco against "actual monetary loss or damage sustained or incurred." Under the policy, Chicago Title is required to pay Kasco the lesser of (a) the policy limits or (b) 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. The policy did not list the SCE easement as an exception from coverage.
In May 2006, Chicago Title provided Kasco an updated preliminary title report that identified the SCE easement. The 1964 grant deed that created the easement provided that SCE would quitclaim the easement in the event of a bona fide subdivision that would allow SCE to use dedicated streets to access its property. Kasco expected that the quitclaim provision would lead SCE to quitclaim the easement. With that expectation, Kasco continued pursuing the development of the subject property, by working on grading, sewer, water and other systems, and submitting its subdivision application to Moorpark. Kasco communicated with Chicago Title frequently regarding the SCE easement. SCE did not consider itself obligated to quitclaim its interest in the easement until Moorpark approved the subdivision of the subject property. Moorpark would not approve the subdivision until SCE quitclaimed its easement. On December 7, 2006, Kasco tendered a claim regarding the SCE easement to Chicago Title.
On May 6, 2008, in a separate action, Nicholaus Schiele obtained a judgment against Kasco that recognized a 32-foot-wide prescriptive easement across the subject property. The 32-foot-wide Schiele easement extends from the Schiele property line, for approximately 847.60 feet north, to a curb cut where the subject property meets Los Angeles Avenue (State Highway 118). (The judgment recognizing that easement made its length subject to verification by survey.)
On November 14, 2008, Kasco filed this action against SCE, Chicago Title, Joseph Fedele (the seller of the subject property) and other defendants seeking damages and other relief. Pursuant to a settlement with Kasco, on March 10, 2010, SCE executed a partial quitclaim deed (easement). By that deed, SCE released its easement interest in the subject property, with the exception of a 25-foot-wide easement along the east side of the property for ingress and egress. The SCE-Kasco settlement provided that SCE would deed the remaining 25-foot-wide easement to Kasco in the event of a bona fide subdivision of the subject property. Kasco continued to pursue this breach of contract action against Chicago Title, as well as its action against Fedele, who is not a party to this appeal.
Evidence and Argument Concerning Damages
At trial, Kasco called appraiser Kevin McAtkee to testify. McAtkee explained that the SCE easement precluded Kasco from doing anything with the subject property other than allowing SCE to drive upon it. He thus concluded that the SCE easement caused a decline of at least $742,500 in the value of the subject property to Kasco, as of May 2006.
Kasco also called Thomas Lucas, a wholesale nursery owner, as a witness. "[S]ometime in the early part of the 2000's," Lucas offered to buy the subject property for approximately $200,000.
Chicago Title also presented evidence of the May 2006 value of the subject property. Appraiser Kioren Moss testified that the subject property was then worth $256,000, with the SCE easement. He premised that value on his conclusion that Moorpark zoning ordinances would authorize the building of seven residences on a portion of the property. Moss opined that with 18 units, the value of the subject property would be $750,000 as of April 8, 2005, and $600,000 as of May 2006.
According to Moss, even if the SCE easement occupied the entire property and were permanent, the value of the subject property as of May 2006 would be $120,000. That value assumes a use, such as a wholesale nursery, that would not require any building.
Kasco argued that damages should be measured by the diminution in value, as of the date of the discovery of the defect. Chicago Title asserted that the court was required to adjust the damages based upon events following the May 2006 discovery date. It argued that once SCE released its interest in most of the easement on March 10, 2010, the defect ceased to exist. It claimed that SCE's remaining 25-foot-wide easement did not constitute a defect because it was "within a 32 ft. prescriptive easement already held by a neighbor [Schiele]." Chicago Title thus argued that Kasco was not entitled to recover any damages under the policy. It further claimed that if damages were awarded, the court should award consequential damages rather than damages based on a diminution in value.
On May 28, 2010, the trial court issued its statement of decision. It found that Kasco would not have elected to close escrow on the subject property if "it had learned of the SCE easement during that escrow period." It noted that Kasco had investigated the easements that were disclosed in the preliminary title report and determined in some cases that they were no longer in effect. The court also found that the SCE easement encompassed the entirety of the property which "would obviously foreclose any project on the property." It concluded that Chicago Title breached its obligations under the title insurance policy, and that "by filing suit, [Kasco] did what [Chicago Title] should have done long before." It found that Kasco's March 2010 settlement with SCE redefined the easement "to eliminate any conflict with [Kasco's] development project."
The trial court assessed damages based upon the May 2006 discovery date. It found that the value of the property at that time was $120,000, subject to the easement, and that its value, without the easement, was $750,000. It awarded Kasco $630,000, the difference between those values. It denied Kasco any attorney fees or costs. (The policy did not authorize such fees or costs where, as here, the insured filed a lawsuit without the authorization of Chicago Title.)
DISCUSSION
Chicago Title contends that the trial court erred by measuring damages as of the date that Kasco discovered the easement, pursuant to Overholtzer v. Northern Counties Title Insurance Company, supra, 116 Cal.App.2d, page 119. It argues that damages, if any, must be adjusted based upon post-discovery events. Under the circumstances of this case, we disagree. Liability under a title insurance contract "should be measured by diminution in the value of the property caused by the defect in title as of the date of the discovery of the defect, measured by the use to which the property is then being devoted." (Id at p. 130.)
Chicago Title contends that the trial court erred by measuring the damages as of the discovery date because the defect was removed in this case. But the SCE easement was reduced rather than removed, as SCE reserved a 25-foot-wide easement. Chicago Title argued below that the remaining easement was of no significance because it was inside the 32-foot-wide Schiele easement. The Schiele easement is far shorter than the approximately 1,433-foot length of the subject property. (The judgment recognizing the Shiele easement describes its length as being approximately 847.60 feet, subject to verification by survey.) Further, the Schiele easement was not officially recognized until May 2008.
Chicago Title also argues that measuring damages as of the discovery date makes no sense because the reduced 25-foot-wide easement did not impede Kasco's plans. This argument is not persuasive where the SCE easement "barrier" was not reduced until nearly five years after Kasco purchased the subject property to build an eighteen-residence subdivision, and only after Kasco filed a lawsuit against SCE. Before discovering the SCE easement, Kasco expended substantial time and effort to develop the subject property. Moreover, the trial court found that Chicago Title failed to meet its obligation to remove the SCE easement, and that by filing suit to reduce or eliminate that easement, Kasco did what Chicago Title should have done.
In arguing that damages should not be measured as of the discovery date in this case, Chicago Title cites Burlage v. Superior Court (2009) 178 Cal.App.4th 524. Burlage is not controlling. It does not address the date upon which damages should be assessed. After purchasing residential property from sellers named Spencer, the Burlages learned that a swimming pool and a wrought iron fence on their property encroached upon land owned by an adjacent country club. The arbitrator who decided their dispute excluded evidence that a title company paid the country club $10,950 in exchange for a lot line adjustment that gave the Burlages clear title to the encroaching land. The arbitrator awarded the Burlages more than $1 million. The Burlage majority upheld a trial court ruling vacating the arbitrator's award pursuant to Code of Civil Procedure section 1286.2, subdivision (a)(5), because the arbitrator's exclusion of evidence substantially prejudiced the defendant's ability to dispute the amount of damage suffered by the plaintiffs. (Burlage, supra, at p. 529.) Here, in contrast, the trial court admitted evidence of the settlement that, according to Chicago Title, removed the title defect.
Chicago Title concedes that no California cases address the appropriate measure of damages in a case where the title defect has been reduced rather than removed. It therefore cites out-of-state authorities and secondary sources in claiming error. We do not find those authorities persuasive, or even relevant. For example, Linder v. Ticor Title Insurance Company of California, Inc. (Ind.App. 4 Dist., 1995) 647 N.E.2d 37, 39, involved the interpretation of a specific policy provision that released the title company from liability for a defect if the title company removed it. Chicago Title also cites several inapposite California cases concerning a title company's liability to a lender. (See, e.g., Lawrence v. Chicago Title Ins. Co. (1987) 192 Cal.App.3d 70, 74 [title company satisfied its obligation to insured lenders by paying them the balance owed on their secured indebtedness].) In this case, the trial court properly applied the Overholtzer measure of damages.
"In Overholtzer the court held that the insured is entitled to the diminution in value caused by a title defect measured at the time the defect is discovered rather than at the time of purchase. [Citation]. In explaining its holding, the Overholtzer court said: "When a purchaser buys property and buys title insurance, he is buying protection against defects in title to the property. He is trying to protect himself then and for the future against loss if the title is defective. The policy necessarily looks to the future. It speaks of the future. The present policy is against loss the insured 'shall sustain' by reason of a defect in title. The insured, when he purchases the policy, does not then know [that] the title is defective. But later, after he has improved the property, he discovers the defect. Obviously, up to the face amount of the policy, he should be reimbursed for the loss he suffered in reliance on the policy, and that includes the diminution in value of the property as it then exists . . . . Any other rule would not give the insured the protection for which he bargained and for which he paid." (Native Sun Invest. Group v. Ticor Title Ins. Co. of California (1987) 189 Cal.App.3d 1265, 1273, citing Overholtzer v. Northern Counties Title Ins. Co., supra, 116 Cal.App.2d at p. 130.)
Kasco presented evidence that the SCE easement negatively impacted its property value, and that Moorpark would not approve the Kasco subdivision until SCE released its interest in the easement, or gave Moorpark written assurance that it would do so. Stated otherwise, the SCE easement placed a cloud on Kasco's title to the property, or in the trial court's words, "foreclosed development." The damage to Kasco results "from the cloud on the title." (Overholtzer v. Northern Counties Title Ins. Co., supra, 116 Cal.App.2d 113 at p. 124.) "If that cloud impairs the market value of the land, the [insured is] entitled to whatever damages resulted from that cloud." (Ibid.)
In discussing the appropriate measure of damages, the trial court emphasized an important policy consideration: A defendant could delay as long as possible "in the hope that the problem is going to solve itself and "escape liability for its breach of contract." Using the date of discovery to assess damages in this case was reasonable and appropriate here, where Chicago Title failed to perform its obligations under the title policy; SCE failed to release any part of its easement over the entire subject property until Kasco did what Chicago Title "should have done long before" by filing an action against SCE; and where five years passed between Kasco's acquisition of the property and the reduction of the SCE easement.
DISPOSITION
The judgment is affirmed. Costs to respondents.
NOT TO BE PUBLISHED.
COFFEE, J.
We concur:
YEGAN, Acting P.J.
PERREN, J.
David R. Worley, Judge
Superior Court County of Ventura
Hennelly & Grossfeld, LLP, and Susan J. Williams, for Defendant and Appellant.
Law Offices of K. M. Neiswender and Kate M. Neiswender; Ferguson Case Orr Paterson, LLP, Wendy C. Lascher and John A. Hribar, for Plaintiff and Respondent.