First Am. Title Ins. Co. v. Johnson Bank

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First American Title Insurance Company issued two title insurance policies to Johnson Bank for two properties that secured the Bank’s loans. The policies failed to disclose encumbrances that allegedly affected the value of the property and thwarted its intended use. The property owners defaulted on their loan obligations to the Bank. Based on the undisclosed encumbrances, the owners successfully sued First American to recover damages under their owners’ title insurance policies. Johnson Bank purchased the properties and notified First American of claims under its lender’s title insurance policies. The parties disagreed on the date for calculating the diminution in value of the two properties - whether the date of the loans or the foreclosure date. The superior court granted summary judgment for First American, concluding that the foreclosure date should be used to calculate damages. The Supreme Court reversed, holding (1) when an undisclosed title defect prevents the known, intended use of the property and causes the borrower to default on the loan, the lender’s diminution-in-value loss should be calculated as of the policy-issuance date; and (2) because the record in this case did not establish that the title defect caused the borrowers’ default and the Bank’s subsequent foreclosure, the cause must be remanded for further proceedings on that issue. View "First Am. Title Ins. Co. v. Johnson Bank" on Justia Law