Arizona Title Ins. & Trust Co. v. Pace, 2

• Decision Date: 01 October 1968
• Docket Number: No. 2,CA-CIV,2
• Citation: 445 P.2d 471,8 Ariz.App. 269
• Parties: ARIZONA TITLE INSURANCE AND TRUST COMPANY, an Arizona corporation, Appellant, v. H. O. PACE and Laura Pace, husband and wife, Appellees. 492.
• Court: Arizona Court of Appeals

Page 471

445 P.2d 471

8 Ariz.App. 269

ARIZONA TITLE INSURANCE AND TRUST COMPANY, an Arizona corporation, Appellant, v. H. O. PACE and Laura Pace, husband and wife, Appellees.

No. 2 CA-CIV 492.

Court of Appeals of Arizona.

Oct. 1, 1968.

Rehearing Denied Oct. 31, 1968.

McKesson, Renaud, Cook, Miller & Cordova, Phoenix, Carl Moring, Coolidge, for appellant.

Charles W. Stokes, Casa Grande, for appellees.

KRUCKER, Judge.

This appeal deals with an action by the plaintiffs below, appellees herein, to recover under a policy of title insurance issued by the appellant Arizona Title Insurance & Trust Co., which resulted in a judgment in favor of the appellees in the sum of $6,400 plus costs.

The record and the briefs disclose the following facts. In December, 1957, one Mary Roach sold certain real property to a Mr. and Mrs. Bailey, hereinafter called vendees. Appellant acted as escrow agent. In December, 1960, Mrs. Roach sold her vendor's interest to the appellees and appellant issued its title policy No. 7732T insuring good title in the vendors. ¹ In July, 1961, the appellant, as escrow agent, gave the vendees notice of forfeiture and recorded a quit-claim deed executed by the vendees to Mary Roach, which was in escrow.

On August 5, 1961, appellant issued to appellees title policy No. 8333T insuring marketable title. ² On August 13, 1961, a fire took place on the property and an insurance claim in the amount of $4,500 was paid to the Paces.

On March 21, 1962, the Baileys sued the Paces, seeking specific performance of the realty contract, or in the alternative, damages, claiming that the forfeiture was premature. Appellees demanded that appellant defend the action, but this demand was initially refused on the grounds that no title question was involved. Attorney Ellis, however, was subsequently retained by the appellant title insurance company to defend its insured and he actively participated in the trial and negotiations thereafter which resulted in dismissal of the lawsuit by Pace paying $4,750 to the Baileys. Upon dismissal of the lawsuit, the appellees consummated a sale of the real property involved, which sale had been contingent upon resolution of the Pace-Bailey controversy.

This lawsuit was instituted by the Paces to recover the $4,750 plus attorney's fees and costs from the appellant under its title insurance policy. The title company denied a contractual obligation and asserted as a defense the appellees' failure to comply with a policy provision requiring written notice of loss. Appellant contends that appellees are precluded from recovery by reason of their non-compliance with the policy provision requiring notice of any loss to be given to the company within sixty days after its ascertainment. We agree with the appellees that failure to give written notice of the loss within sixty days was not fatal to their claim. Since appellant had actual notice of the loss through Attorney Ellis, who actively participated in the Bailey-Pace litigation and compromise, it cannot be heard to claim that it had no notice and was prejudiced by the lack thereof. See, Fidelity-Phenix Fire Insurance Co. v. Friedman, 117 Ark. 71, 174 S.W. 215 (1915). Actual prejudice must be shown before failure to comply with a notice condition can act as a bar to recovery on the insurance policy. Lindus v. Northern Insurance Co., 103 Ariz. 160, 438 P.2d 311 (1968).

The appellant contends that its contractual liability depends upon the unmarketability of the Paces' title, as provided in the policy (No. 8333--T):

'* * * (Company) does hereby insure the parties named as Insured in Schedule A * * * against direct loss or damage not exceeding the amount stated in Schedule A, together with costs, attorneys' fees and expenses which the Company may be obligated to pay as provided in the Conditions and Stipulation hereof, which the insured shall sustain by reason of:

1. Any defect in or lien or encumbrance on the title to the estate or interest covered hereby in the land described or referred to in Schedule A, existing at the date hereof, not shown or referred to in Schedule B, or excluded from coverage in Schedule B or in the Conditions and Stipulations; or

2. Unmarketability of such title. * * *'

(Emphasis supplied)

We need not consider, however, whether or not the filing of a lis pendens (Bailey-Pace lawsuit) rendered the Paces' title unmarketable within the purview of the foregoing policy provision. When the appellant undertook the appellees' defense in the Bailey lawsuit, with full knowledge of the facts and without disclaimer, it was precluded from subsequently avoiding liability on the grounds of non-coverage. 14 Couch on Insurance 2d (Anderson) § 51:159; 45 C.J.S. Insurance § 714; see also, Annot. 38 A.L.R.2d 1148 et seq.

The policy also provides:

'The Company reserves the option to pay, settle, or compromise for, or in the name of, the insured, any claim insured against or to pay this policy in full at any time. * * *'

The record abounds with testimony as to Attorney Ellis's active participation in and approval of the compromise of the Bailey-Pace lawsuit. In fact, his participation included volunteering to negotiate settlement with Baileys' counsel. At the instant trial, he was quoted as having said:

'I go fishing with those guys. I think I can work this out in a few days.' (The Bailey-Pace settlement)

The question to be resolved, however, is whether Ellis's compromise of the Baileys' claim against the Paces was binding upon his client, the appellant-insurer. Their relationship was that of principal and agent. In re Thrun's Estate, 20 Wis.2d 275, 121 N.W.2d 759 (1963); Monell v. College of Physicians and Surgeons, 198 Cal.App.2d 38, ...