Jarchow v. Transamerica Title Ins. Co.

Decision Date05 June 1975
Citation48 Cal.App.3d 917,122 Cal.Rptr. 470
CourtCalifornia Court of Appeals Court of Appeals
PartiesMelvin A. JARCHOW et al., Plaintiffs and Respondents, v. TRANSAMERICA TITLE INSURANCE COMPANY, Defendant and Appellant, and Pete J. Perez and Annie Perez, Defendants. Civ. 13899.
Holzwarth and Unsworth and John A. Bergen, Charles W. Unsworth, Santa Ana, and James A. Kennedy, Oakland, for defendant and appellant, Transamerica Title Ins. Co

KERRIGAN, Associate Justice.

Two married couples were interested in acquiring a parcel of land in the City of Placentia. Prior to opening escrow, they ordered a preliminary title report from a title company in Fullerton. After receiving the report indicating there were no significant clouds on the title, they decided to purchase the land for commercial development and entered into an escrow with the sellers at the same title company. At the close of escrow, they received a title insurance policy. A few days later, an adjacent landowner informed the buyers that he and his wife held a recorded easement for ingress and egress purposes across the northerly 20 feet of the subject property--a strip of land they used regularly as a roadway in going to and from their residence.

The buyers requested the company to eliminate the neighbor's easement inasmuch as neither the preliminary title report nor the title policy referred to the existence of the easement. The title company refused to take any action. After retaining counsel, the buyers sued the neighbor to eliminate the easement and the title company for breach of contract and negligence.

Following a non-jury trial, the court held the buyers were entitled to a quiet title decree against the neighbor and to $7,270 damages against the title company ($7,000 attorney's fees, plus $170 for loss of use of the 20--foot strip).

Shortly before commencement of trial, the buyers were permitted to file a supplemental complaint against the title company for the purpose of recovering general and punitive damages as a result of the latter's tortious conduct in failing to discover, disclose or eliminate the easement. The supplemental complaint was based on several theories: fraud, deceit, malicious breach of contract, bad faith and negligent infliction of emotional distress. In any event, the supplemental complaint was filed with the understanding that adjudication of the issues raised in it would be deferred until the issues tendered in the complaint had been resolved.

Following the court trial and the filing of an amended supplemental complaint, a jury was empaneled for the purpose of resolving the supplemental issues. The jury awarded Each of the four buyers $50,000 in general damages. However, in answer to special interrogatories, the jury found that the title company's conduct was Not fraudulent, outrageous, malicious or oppressive; consequently, no punitive damages were awarded.

The title company appeals from the $200,000 judgment entered on the jury verdicts.

Although stated in varying ways, the title firm contends that the buyers were not entitled to damages as a matter of law for negligent infliction of emotional distress nor for had faith; that the court erred both in rendering certain jury instructions and in refusing to give certain proffered instructions; that the court erred in admitting prejudicial evidence; and that the verdicts were excessive.

We have determined that the buyers pleaded and proved that they were entitled to damages for breach by the insurer of the covenant of good faith and fair dealing and for negligent infliction of emotional distress; that the court properly instructed the jury on all material issues; that there was no serious error in the admission of evidence; and that the damages awarded were fair and reasonable.

In affirming the $200,000 judgment, we hold that when a title company insures a buyer of real property against liens and encumbrances of record and negligently fails to discover or disclose a recorded lien or encumbrance or fails to exclude a known recorded lien or encumbrance from coverage and, upon being notified of the existence of a recorded lien or encumbrance, unjustifiably refuses to take any legal action to clear the title or eliminate the cloud, the insurer may be liable to the insured in compensatory damages for any emotional distress which results.


In early June 1970, real estate broker Melvin A. Jarchow and building contractor William A. Canavier and their wives ('Plaintiffs') became interested in a three-acre parcel of real property located in the city of Placentia owned by Mr. and Mrs. LaBorde. Although the property was improved with a single family residence, plaintiffs felt it could be developed into a boat, trailer, and camper storage facility. They contacted Transamerica Title Insurance Company ('Defendant') and requested the title officer in the Fullerton branch to search the state of the record title and furnish them with a preliminary report. In searching the title, defendant's employees discovered an easement from Frank F. Hill and Kate L. Hill (the LaBordes' predecessors in interest) to Pete J. Perez and Annie Perez ('Perez Easement'), which had been recorded on November 28, 1960. The deed purported to convey to the Perezes a 20-foot easement for ingress and egress purposes across the northern boundary of the subject property. But for some inexplicable reason, reference to the recorded Perez Easement was omitted from the Preliminary Title Report furnished the plaintiffs. However, the report did indicate that in 1958, when the Hills conveyed the subject property to LaBordes, they had reserved a 20 395 foot easement for ingress and egress ('Hill Easement') across the northern boundary of the subject property.

After receiving the preliminary report, there were discussions between plaintiffs and Transamerica as to whether defendant would eliminate the Hill Easement as an exception to coverage and proceed to insure plaintiffs against the Hill Easement in the event the plaintiffs purchased the property. The escrow/title officer consulted with her superiors and obtained authorization to do so.

As a result of the title search and the conversations with the defendant, plaintiffs promptly entered escrow with the LaBordes. Transamerica acted as escrow holder and also acted as title insurer with the understanding it would provide a standard form title insurance policy insuring title in the name of the buyers and insuring the LaBordes' security interests as holders of the first trust deed.

On August 27, 1970, the escrow closed and Transamerica issued the title policy. 1 The policy did Not list the Hill Easement as one of the items excluded from coverage. Nor was the Perez Easement mentioned.

Within a few days after they took possession of the property, plaintiffs were informed that Perez claimed an easement for ingress and egress across their property. The Perezes owned the land immediately to the north of the subject parcel and Perez claimed that he had been using the 20-foot strip for access to his duplex residence since 1954; he also claimed that he had a deed from Hill which he acquired in 1960 which gave him easement rights over the northern strip of plaintiffs' property--a strip 20 feet wide and variously described as being from 132 feet to 263 feet long. 2

Upon being advised of Perez' claims, plaintiffs contacted Transamerica and requested the company to take action to establish plaintiffs' title against the threat presented by the Perez Easement. Transamerica refused to initiate any action upon the plaintiffs' behalf, taking the fatuous position that it had no obligation to plaintiffs under the title policy since the Perez Deed had been excluded from coverage--notwithstanding the fact that the Perez Easement was not even mentioned in the exclusionary provisions of the policy.

After receiving the negative response from Transamerica, plaintiffs filed their initial complaint wherein they sought quiet title and injunctive relief against the Perezes and damages and attorney fees against Transamerica. Transamerica filed a cross-complaint to reform the policy, claiming that a mistake had been committed by the escrow/title officer in preparing the typing instructions in that the Hill Easement should have been excepted from coverage.

Pending the trial of the first action, plaintiffs applied for and obtained approval of their proposed Site Development Plan for the storage facility from the city of Placentia. However, development of the property was conditional; Perez had notified the city that he had a deed which he claimed gave him a right to use the strip; plaintiffs' proposed plan would have blocked the access to the Perez property with a building; one of the conditions imposed by the city because of the Perez Deed was to keep that access open. Although they received approval of their plan, plaintiffs decided not to proceed with it because of the clouds on the title.

While the trial on the complaint and cross-complaint was pending, plaintiffs filed the supplemental complaint seeking general and punitive damages on the basis of the aforesaid tort theories. It was stipulated that the material allegations thereof would be deemed denied without the necessity of Transamerica filing a formal answer thereto. It was also agreed that a bifurcation occur, with the action on the complaint and cross-complaint having priority.


The first trial went on intermittently over a period of three months. At the conclusion thereof, the court handed down a Memorandum Decision and Findings of Fact and Conclusions of Law. Before entering judgment, the...

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