Title Ins. Co. of Minnesota v. Costain Arizona, Inc.

• Decision Date: 08 May 1990
• Docket Number: CA-CV,No. 1,1
• Citation: 164 Ariz. 203,791 P.2d 1086
• Parties: TITLE INSURANCE COMPANY OF MINNESOTA, a Minnesota corporation, Plaintiff-Appellant, v. COSTAIN ARIZONA, INC., an Arizona corporation, Defendant-Appellee. 88-534.
• Court: Arizona Court of Appeals

Page 1086

791 P.2d 1086

164 Ariz. 203

TITLE INSURANCE COMPANY OF MINNESOTA, a Minnesota corporation, Plaintiff-Appellant, v. COSTAIN ARIZONA, INC., an Arizona corporation, Defendant-Appellee.

No. 1 CA-CV 88-534.

Court of Appeals of Arizona,

Division 1, Department C.

May 8, 1990.

[164 Ariz. 204] Cruse & Firetag by Daniel A. Bock, Keith B. Forsyth and Jules I. Firetag, Phoenix, for plaintiff-appellant.

Gust, Rosenfeld & Henderson by Richard A. Segal, Phoenix, for defendant-appellee.

OPINION

CONTRERAS, Presiding Judge.

Appellant Title Insurance Company of Minnesota (hereinafter "TICOM") provided title insurance to Talley Realty Development, Inc. (hereinafter "Talley"), in its purchase of a large parcel of real property from Costain Arizona, Inc. (hereinafter "Costain"). Talley subsequently recovered a significant sum of money from TICOM under the title insurance policy because Talley did not receive title to a 15-foot strip of land that was included in the purchase agreement. TICOM, in searching title, had failed to note that Costain no longer owned any interest in the strip of property. After paying Talley's claim, TICOM sought reimbursement from Costain, which, pursuant to the purchase agreement, had received payment for the strip of property. Three theories for recovery were asserted: (1) breach of warranty of title as Talley's subrogee, (2) indemnity, and (3) unjust enrichment. This appeal was brought from entry of the trial court's judgment denying relief under any of TICOM's theories. We reverse the ruling of the trial court and remand the case for entry of judgment for TICOM on its breach of warranty claim.

FACTS ¹

In May of 1984, Costain and Talley executed an agreement for Talley to purchase a large parcel of property through use of a subdivision trust arrangement in which TICOM would serve as trustee (Trust No. 2267). The property Costain agreed to sell to Talley was part of a larger parcel Costain was purchasing from the Church of Jesus Christ of Latter Day Saints pursuant to a previously executed subdivision trust agreement (Trust No. 2136) which also named TICOM as trustee. As trustee under both subdivision trusts, TICOM held title to the property for the use and benefit of the beneficiaries, the seller and buyer, as set forth by the terms of the respective trust agreements.

The senior trust agreement (Trust No. 2136) described the general duties and powers of the trustee, stating that the trustee holds title to the property for the purpose of "deeding, selling, conveying, demising, receiving payment for and otherwise handling the property upon such terms and conditions and for such prices as Trustee may be instructed in writing so to do by [Costain]...." The trust agreement also authorized the trustee to dedicate roads, alleys or easements to public use and to convey the portion so dedicated to the proper county or city upon instruction from Costain.

The senior trust provided that Costain would be allowed to direct the trustee to sell all the property or any subdivided lot or lots through escrow to be established at TICOM. Significantly, it also specified that the trustee would be entitled to rely on information provided by Costain regarding the acreage upon which to determine the purchase price of any portion of the property to be released in a subsequent sale.

Under the terms of the purchase agreement between Costain and Talley, the sales price for Talley's purchase was initially computed on the basis of a specified number of acres, but the price was to be adjusted at the rate of $1.80 per square foot after Costain delivered a survey to Talley showing the exact amount of acreage being conveyed, excluding existing dedicated roadways. The agreement also provided that Costain would warrant title to Talley as follows:

Seller is the owner of and has good and marketable Second Beneficial Interest to the Subject Property, free and clear of any and all claims, taxes, assessments, reservations in patents, easements, right-of-ways, encumbrances, liens, covenants, conditions, restrictions, obligations and liabilities other than those specifically set forth herein or in the Preliminary Title Report approved by Buyer or shown in a supplement or amendment to these Instructions signed by Buyer and Seller.

The agreement further provided that Costain would cause TICOM, in its separate role as escrow agent, to issue and deliver to Talley its standard coverage title insurance policy insuring Talley's interest in the property subject to those exceptions set forth in the preliminary title report which Talley agreed to accept.

TICOM's preliminary title report failed to exclude a 55-foot strip of property on the southern edge of the parcel, which had been dedicated to the City of Chandler, ² although it did uncover the fact that an easement in a 40-foot portion of that same strip of property had previously been granted. As a result, the title policy issued thereafter by TICOM guaranteed that the property being conveyed to Talley included an unencumbered 15-foot strip in which Costain actually held no interest.

The engineering firm hired by Costain to survey the property to determine the exact amount of acreage being sold also improperly included this same 15-foot strip of property in its survey. Hence, when the purchase price was recalculated on the basis of the exact acreage being sold, Talley had paid Costain an additional $62,334 for land to which it did not receive title. ³ Talley presented its claim to TICOM for this amount under the title insurance policy issued by TICOM. Thereafter, TICOM paid the claim and then sought reimbursement from Costain. This appeal followed the trial court's denial of TICOM's claim for recovery from Costain.

DISCUSSION

TICOM argues that after discharging its liability under the title insurance policy by paying Talley for its overpayment for the property it did not receive, it became subrogated to the rights Talley would have had against Costain for breach of warranty of title. TICOM's policy contained a subrogation clause which provided in relevant part:

Whenever the Company [TICOM] shall have settled a claim under this policy, all right of subrogation shall vest in the Company unaffected by any act of the insured claimant. The Company shall be subrogated to and be entitled to all rights and remedies which such insured claimant would have had against any person or property in respect to such claim had this policy not been issued....

It is well settled that where an insured contracts with a third party requiring the latter to pay for loss or damage to insured property, the insurer, upon payment of the loss, is subrogated to the rights of the insured under the contract. Highlands Insurance Company v. Fischer, 122 Ariz. 394, 396, 595 P.2d 186, 188 (App.1979); Couch on Insurance (Second) § 61:144 (1966). Moreover, an insurer may be entitled to subrogation under proper circumstances, not only when its contract with its insured so provides, but also through the equitable doctrine of subrogation, even in the absence of express provision. See Mosher v. Conway, 45 Ariz. 463, 468, 46 P.2d 110, 112 (1935), cert. denied, 305 U.S. 599, 59 S.Ct. 77, 83 L.Ed. 380 (1938); Lawyers Title Insurance Corporation v. Capp, 174 Ind.App. 633, 636, 369 N.E.2d 672, 674 (1977).

We conclude that if Talley had the right to maintain a claim for breach of warranty against Costain, TICOM was subrogated to that right. We note that courts have found title insurers subrogated to the rights their insured may have had against the seller despite the fact that the title insurer was negligent in its examination of title. See, e.g., Transamerica Title Insurance Company v. Johnson, 103 Wash.2d 409, 693 P.2d 697 (1985); American Title Insurance Company v. Coakley, 419 So.2d 816 (Fla.App.1982); Harvey v. J & H Holdings, Inc., 310 So.2d 371 (Fla.App.1975); Douberley v. Angelini, 240 So.2d 98 (Fla.App.1970); Wolff v. Commercial Standard Insurance Company, 345 S.W.2d 565 (Tex.App.1961).

In Transamerica Title Insurance Company v. Johnson, 103 Wash.2d 409, 693 P.2d 697 (1985), a title company failed to discover a sewer assessment lien. The title company paid the assessment lien and sought recovery from the seller who warranted title. The seller argued that since it had paid the premium to provide insurance for the buyer, the insurance company owed duties to it of searching and disclosing title defects in addition to the duties it owed under the policy to the insured buyer. The court noted a split of authority as to whether a title insurer owes duties extending to other than the insured. The court concluded, however, that even if it were to join with the jurisdictions that recognize a duty on the part of the title insurance company extending to persons other than the insured, liability would not be imposed where it cannot be shown that the noninsured relied upon the preliminary commitment or other representation of the title company and that the reliance was foreseeable. In the case before it, the court found no showing of reliance, damage or an expectation of a search and disclosure to the seller. The seller knew of the assessment liens long before the title insurer issued a preliminary commitment.

In Harvey v. J & H Holdings, Inc., 310 So.2d 371 (Fla.App.1975), the title insurer failed to note that the seller had granted an easement over the property being sold to an abutting property owner and that the easement had been properly recorded. The title company paid damages to the buyer and sought recovery from the seller. In Harvey, the title insurer provided insurance both to the buyer and to the seller. Unquestionably, the seller had knowledge of the easement and the seller's policy did not insure against loss by reason of defects created by or known to the seller. Under these circumstances, the court found no reason for the encumbrance to be excluded from the covenant made by the seller to convey clear...