From the April, 2002 issue of The Title Insurance Law Newsletter
An exception for a ditch did not remove coverage for the lack of title to the swath of land on which the ditch was dug. Also, the insureds' claim was not nullified for failure to give a proof of loss, even though their claimed damages were not an accurate measure of loss. However, the decision contains the very useful ruling that there was no pre-judgment interest payable because the amount of diminution was not determined until trial.
Facts
In 1993, Neil and Karen Boel bought a lot in a subdivision in Ada County, Idaho. Stewart Title Company of Idaho issued a policy. It excepted "an underground ditch, which does no[t] appear to affect improvements situated on the land," as disclosed by an "on site inspection."
In 1997, the United States Bureau of Reclamation surveyed the subdivision and sent a letter to the Boels and their neighbors announcing that, before the land was platted, the government had bought a 30-foot strip of land running through their properties and some of the streets in the subdivision. The government also said that the developer had relocated the ditch built by the U.S., so that some of it now lay outside the land owned by the government.
The Boels submitted a claim to Stewart Title, which hired an appraiser who found no loss in value due to the United States' title. The court did not refer to any actions taken to contest the ownership claim. The insurer sent a "no loss" letter, to which the Boels immediately replied, saying they never would have bought the property had they known, etc., and demanding that the insurer pay off their mortgage.
Stewart Title's response was that coverage for the government's claim was negated by the ditch exception, but it was willing to pay $2,500 in exchange for a release. The Boels brought suit, claiming diminution in value and lack of access, because the government's ribbon of land also cut across the subdivision streets.
At trial, the Boels called real estate agents, who valued the loss at $70,000. The jury awarded that amount as diminution. The court heaped on attorney fees of almost $90,000, and more than $10,000 in costs. Stewart Title appealed.
Exception Not Broad Enough
The trial court found coverage based on the conclusion that the ditch exception was ambiguous, and thus construed narrowly. The Supreme Court said the exception was "arguably ambiguous," because it "attempts, in broad-sweeping language, to except coverage for any class of problems that may arise from the existence of the ditch." However, it ruled that the exception did not apply, even worded in such a broad way:
"[T]he Boels' claim does not arise from the existence of the ditch, but the existence of the deed to the fee strip that Stewart Title missed when searching the recordings. The United States, as the fee holder of the strip, could have utilized the fee strip for any purpose for which any other landholder might have used it. The fact that the federal government coincidentally utilized its fee strip for the construction and maintenance of the ditch does not mean that the Boels' damages, related to the existence of the deed, in any way "arise" or "result" from the existence of the ditch."
Proof of Loss
The insurer also said that the Boels lost their policy rights because they never submitted a proof of loss based on covered damages, but rather demanded the payoff of their mortgage. Paragraph 5 of the 1992 policy says the proof of loss shall "state, to the extent possible, the basis of calculating the amount of the loss or damage." The Supreme Court seized on a little opening in that sentence:
"[T]he Boels plainly provided Stewart Title with the basis for their claimed loss the existence of the deed in favor of the federal government. Additionally, the letter provided, to the extent possible, the basis for calculating the amount of the claimed loss or damage the Boels indicated a belief that the intrinsic value of the property to them, as well as their ability to sell the property, had been almost completely destroyed. … This information was sufficient to give Stewart Title "an opportunity to investigate and determine its liability" relative to the Boels' claimed damages. … Consequently, the Boels' letter provided the basis for calculating the amount of the claimed damages, and it was an adequate proof of loss under the policy."
Attorney Fees
The insurer also argued that the attorney fee award was excessive. The court found notable the fact that the attorney fee award was greater than the jury verdict. It admitted that proportionality is a factor, but not determinative, under Idaho law.
Pre-Judgment Interest
The Boels cross-appealed for pre-judgment interest, which the trial court had denied. The Supreme Court affirmed. Its decision acknowledges that pre-judgment interest is not compatible with title insurance claims based on diminution in value to real estate.
"'It is settled law in Idaho that pre judgment interest is available only when damages are liquidated or are ascertainable by mere mathematical process.' [citation omitted] The title insurance policy did not specify a liquidated amount or a mechanism for mathematically determining the amount of damages the Boels would suffer as the result of any particular title defect. Contrary to Stewart Title's argument, the Boels clearly suffered some amount of damages prior to the time they brought suit; however, the actual amount of damage was not ascertainable until the jury returned its verdict. Consequently, the district court's decision to deny the Boels' claim for pre judgment interest is affirmed."
Boel v. Stewart Title Guar. Co. , ___ P.3d ___, 2002 WL 276776 (Idaho).
