Cale v. Transamerica Title Insurance

225 Cal. App. 3d 422, 275 Cal. Rptr. 107, 90 Cal. Daily Op. Serv. 8418, 1990 Cal. App. LEXIS 1203

• Court: California Court of Appeal
• Decided: November 19, 1990
• Docket: C005350
• Status: Published

Opinions

Opinion

PUGLIA, P. J.

Plaintiff George G. Cale complained against defendant Transamerica Title Insurance (Transamerica) for “tortious breach of insurance contract” in refusing to indemnify him under a policy of title insurance. The trial court granted Transamerica’s motion for summary judgment. We shall affirm.

Cale loaned $8,000 to Stewart, Wolridge and Smith, the owners of a Sacramento townhouse (the property). The borrowers gave Cale their note for $8,000 secured by a second deed of trust on the townhouse which Cale recorded on March 3, 1987. Cale simultaneously purchased from Transamerica a title insurance policy to protect his secured interest in the property. The policy excepted from coverage a first deed of trust securing an indebtedness of $24,700 to Homestead Savings. Transamerica failed to disclose and therefore to except from coverage three other liens senior to Gale’s deed of trust.

The borrowers defaulted on the $8,000 note. Cale first became aware of the three undisclosed senior liens in May 1987 when he received a trustee’s sale guaranty report in anticipation of nonjudicial foreclosure under his trust deed. The liens were: (1) a $1,374 abstract of judgment against Stewart; (2) a $192 lien in favor of the homeowners association and (3) a $1,927 lien against Stewart in favor of the Internal Revenue Service.

In September 1987, Cale advised Transamerica of the three undisclosed senior liens and made claim under the title insurance policy for $4,885-—the cost, including interest and expenses, of removing them. Transamerica conceded its failure to disclose the liens and, in a letter to Gale’s attorney explained: “it is Transamerica’s position that your client’s loss (if any) cannot be determined until he has completed nonjudicial foreclosure proceedings against the subject property. It is possible that sufficient proceeds will be realized from that sale to discharge the liens in question.”

In November 1987, Cale foreclosed under the deed of trust and purchased the property at the trustee’s sale for $1, subject to the senior liens. Transamerica continued to refuse payment of Gale’s claim, maintaining that as the current owner of the property Gale had not yet sustained an indemnifiable loss as a result of the three undisclosed senior liens. Gale thereupon filed the instant complaint for damages.

The complaint alleges that Transamerica promised to indemnify Gale against loss to his insured interest caused by undisclosed senior liens; and that Gale foreclosed on the lien of his deed of trust but the foreclosure sale proceeds were insufficient to discharge any part of his secured $8,000 loan. The answer alleges affirmatively the undisclosed senior liens have not caused any actual loss to Gale and thus no duty to indemnify has arisen under the policy.

Gale’s title insurance policy indemnifies the insured “against loss or damage not exceeding the amount of insurance stated in Schedule A [$8,000] and costs, attorneys’ fees and expenses which the Company may become obligated to pay hereunder, sustained or incurred by reason of: . . . Priority of any lien or encumbrance over the lien of the insured mortgage, said mortgage being shown in Schedule B in the order of its priority . . . .” The policy contains the following exception to coverage: “This policy does not insure against loss or damage, nor against costs, attorneys’ fees or expenses, any or all of which arise by reason of the following: . . . Defects, liens, encumbrances, adverse claims, or other matters . . . (c) resulting in no loss or damage to the insured claimant.”

The policy further states: “(a) The liability of the Company under this policy shall in no case exceed the least of: (i) the actual loss of the insured claimant; or . . . (iii) if this policy insures the owner of the indebtedness secured by the insured mortgage, and provided said owner is the insured claimant, the amount of the unpaid principal of said indebtedness, plus interest thereon, provided such amount shall not include any additional principal indebtedness created subsequent to Date of Policy, except as to amounts advanced to protect the lien of the insured mortgage and secured thereby.”

Finally, the policy states: “If this policy insures the owner of the indebtedness secured by the insured mortgage, this policy shall continue in force as of Date of Policy in favor of such insured who acquires all or any part of the estate or interest in the land described in Schedule A by foreclosure, [or] trustee’s sale . . . .”

“Title insurance is a contract for indemnity under which the insurer is obligated to indemnify the insured against losses sustained in the event that a specific contingency, e.g., the discovery of a lien or encumbrance affecting title, occurs. [Citations.] [¶] Accordingly, when the contingency insured against under the policy occurs, the title insurer is not, by that fact alone, liable to the insured for damages in contract or tort, but rather is obligated to indemnify the insured under the terms of the policy. When the policy insures the lien of a deed of trust and the insured lien is junior to a lien undisclosed but insured against by the policy, the compensable loss is limited by the terms and conditions of the policy.” (Lawrence v. Chicago Title Ins. Co. (1987) 192 Cal.App.3d 70, 74-75 [237 Cal.Rptr. 264]; compare Ins. Code, §§ 12340.1, 12340.2 with §§ 12340.10, 12340.11.)

There is a fundamental distinction between the indemnifiable loss of an insured lender and the indemnifiable loss of an insured owner of property by virtue of title defects or undisclosed liens. In CMEI, Inc. v. American Title Ins. Co. (Fla. Dist. Ct. App. 1984) 447 So.2d 427, an insured mortgagee who had acquired title to the secured property by foreclosure made a title insurance claim regarding an undisclosed defect in title. In granting summary judgment for the insurer, the court stated: “[W]hile a title insurance policy insuring the interest of a real estate owner and a title insurance policy insuring the interest of a mortgagee are both contracts of indemnity, under which the insurer agrees to indemnify the insured up to a specific amount against loss or damage resulting from liens, encumbrances or title defects and claims within its coverage, nevertheless, substantive differences between the insured interest of an owner and that of a mortgagee results [sic] in a significant difference in what constitutes ‘loss or damage’ under each type of title policy. Title defects and liens directly and adversely affect the property owner because the owner is entitled to the full market value of the property and that value is immediately reduced by outstanding title defects and liens. A mortgagee’s loss is measured by the extent to which the insured debt is not repaid because the value of security property is diminished or impaired by outstanding lien encumbrances or title defects covered by the title insurance. Therefore, superior liens or title defects in claims may exist which reduce the market value of the security property (the value to the owner) yet result in no loss or damage to the insured mortgagee because the effect of the title problems does not reduce the value of security property below the amount of an indebtedness secured or because the indebtedness is otherwise secured or paid. [¶] This mortgagee policy provides that if the mortgagee acquires the security property by foreclosure, or in satisfaction of the indebtedness, the policy will continue in force subject to all of its conditions and stipulations. However, contrary to appellant’s contentions, this language is inadequate to convert this mortgagee title policy into a standard owner’s title policy when the insured mortgagee becomes the owner of the land by foreclosure. In substance the policy continues to provide the same coverage as before subject to all policy conditions and stipulations.” (At p. 428, italics added.)

Similarly, Gale’s lender policy continued uninterrupted even after he took title through foreclosure. As pointed out in CMEI Inc. v. American Title Insurance Co., supra, it has not been converted into a standard owner’s policy. “To say that the loss here consisted of the diminution of the security misses the point that the diminished security is now supplied by the title policy, but only to the extent that there has been [an insured] debt loss [by reason of the undisclosed defect] which remained unsatisfied from the proceeds of the mortgaged property.” (Green v. Evesham Corp. (1981) 179 N.J.Super. 105 [430 A.2d 944, 946].) Title insurance indemnifies a lender only against loss with respect to the secured indebtedness, not a diminution of profits potentially obtainable from resale of the property. (Lawrence, supra, 192 Cal.App.3d at p. 74, fn. 3.)

In its motion for summary judgment, Transamerica argued Cale had not suffered an indemnifiable loss under the policy because: (1) the undisclosed senior liens might not be valid and enforceable and (2) Cale might be able to resell the property on the open market for a price sufficient to discharge the senior liens plus Gale’s $8,000 loan. We need not discuss the validity of the senior liens because, assuming arguendo they are valid and enforceable, Cale has suffered no actual loss by reason of Transamerica’s failure to disclose and except those liens from coverage. Cale now owns the property which secured his $8,000 loan and Transamerica under the policy continues to insure against loss or damage by reason of the undisclosed senior liens not excepted from coverage.

As the party moving for summary judgment, Transamerica had the burden of setting forth competent evidence sufficient to negative an essential element of Gale’s cause of action for breach of contract. (Conn v. National Can Corp. (1981) 124 Cal.App.3d 630, 638-640 [177 Cal.Rptr. 445].) Transamerica met its burden by proffering facts establishing prima facie that Cale had suffered no actual loss. Specifically, Transamerica’s moving papers averred the following undisputed facts: (1) Cale obtained title to the property for $ 1 through the trustee’s foreclosure sale when nobody else bid on the property; (2) Cale still owned the property subject to the senior liens; (3) Cale had not expended money to remove the undisclosed senior liens; (4) none of the undisclosed senior lienors had demanded payment; and (5) Transamerica continued to provide coverage for loss on account of the undisclosed senior liens.

The burden having shifted to Cale (AARTS Productions, Inc. v. Crocker National Bank (1986) 179 Cal.App.3d 1061, 1065 [225 Cal.Rptr. 203]), he failed to set forth in his opposition any material facts disputing Transamerica’s showing that he had suffered no actual loss by reason of the undisclosed senior liens. Instead, Gale’s opposing papers focus solely on the issue of the value of the property, asserting that the trustee’s sale at which he bought the property for $1 subject to the outstanding senior liens established the value of the property as a matter of law. (Smith v. Allen (1968) 68 Cal.2d 93, 95-96 [65 Cal.Rptr. 153, 436 P.2d 65]; Cornelison v. Kornbluth (1975) 15 Cal.3d 590, 606-607 [125 Cal.Rptr. 557, 542 P.2d 981].)¹ However, the value of the property in the hands of the foreclosing insured lender is not the measure of loss under the terms of the policy. Although fair market value may provide inadequate security for Cale’s lien, his insured indebtedness continues to be secured against loss by the terms of the title insurance policy. (CMEI v. American Title, supra, 447 So.2d at p. 428; Green v. Evesham, supra, 430 A.2d at p. 946.) If one of the senior lienors were to foreclose, or if Cale were to sell the property on the open market, he might then suffer an indemnifiable loss under the policy, but only to the extent the proceeds of sale otherwise available to discharge Cale’s lien are required instead to discharge any of the undisclosed senior liens. Because Cale did not raise a triable issue of fact regarding loss, summary judgment was properly granted for Transamerica. (Code Civ. Proc., § 437c, subd. (c).)²

The judgment is affirmed.

Carr, J., concurred.

1 Smith and Cornelison, supra, hold a nonjudicial foreclosure sale under the statute is determinative of the value of the property as between the lender and borrower under a deed of trust. (Civ. Code, § 2924 et seq.) This rule, however, has no bearing on the question whether an insured lender has suffered an actual loss under the terms of a contract of title insurance.

2 Cale noticed an appeal from the denial of his motion for summary adjudication of issues. While the order denying a motion for summary adjudication of issues is not appealable, it is reviewable upon appeal of summary judgment. (Camarena v. Sequoia Ins. Co. (1987) 190 Cal.App.3d 1089, 1100, fn. 2. [235 Cal.Rptr. 820].) Since we affirm the summary judgment for Transamerica, we have no occasion to consider the denial of Cale’s motion for summary adjudication. The purported appeal therefrom is dismissed.