Arizona Court Of Appeals Division One Holds That Title Insurance Policy Specifically Excluded Coverage For Loss Resulting From Purchaser’s Failure To Pay Adequate Value For A Title At A Sheriff’s Sale.

At a sheriff’s sale, two LLCs (“Purchasers”) paid “$3,500 for a home in Gilbert that had been foreclosed upon because of unpaid homeowners’ association assessments totaling $3,000.” The Purchasers then bought title insurance from First American Title Insurance. The former owner of the home eventually moved “to set aside the sheriff’s sale on the ground that the price Purchasers had paid was so inadequate that it shocked the conscience.” The trial court agreed and set aside the sale. Purchasers “then filed a claim under the [title insurance] policy, asserting a loss of $400,000, which they alleged to be the full cash value of the home.” The trial court granted First American’s motion for summary judgment because it concluded that the policy excluded coverage for such loss.

The Arizona Appeals Court affirmed summary judgment in favor of First American. The terms of the policy “excluded loss ‘resulting from . . . failure to pay value for [the] title.’” Reading the word “adequate” into the contract, the court held that the Purchasers had failed to pay “adequate” value for the title at the sheriff’s sale, and therefore, the policy did not cover the resulting loss. According to the Court, neither precedent nor public policy would justify the contrary conclusion, namely, that “a title insurance policy is to protect an insured who purchases at a sheriff’s sale from the possibility that a court will invalidate the purchase for failure to pay adequate value.”

Judge Johnsen authored the opinion; Judges Thompson and Orozco concurred.