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Centennial Development Group, LLC v. Lawyer’s Title Insurance Corp. - 9/19/2013

Arizona Court of Appeals Division One Holds Negligence Claims Are Barred When Title Commitment Fails To Disclose Encumbrances

Centennial purchased 75 acres of land and received a title commitment and title insurance policy from Lawyer’s Title.  A year after the sale, Centennial discovered a roadway and utility easement across the property which had not been disclosed in the title commitment.  Rather than face foreclosure on the carry-back loan, Centennial reconveyed 74 of the 75 acres back to seller, retaining one acre which was not subject to the easement.  Lawyer’s Title denied Centennial’s claim under the policy because the “continuation of coverage” clause terminates the policy when the policyholder no longer has an interest in the land.  Centennial then sued for negligence and breach of contract, and the superior court granted summary judgment to Lawyer’s Title on both claims.  Centennial timely appealed.

The Arizona Court of Appeals affirmed the decision on the negligence claim and reversed the superior court’s decision on the breach of contract claim.  The Court held that A.R.S. § 20-1562 makes a clear distinction between “abstract of title,” which is intended to be relied upon, and a “title commitment,” which is merely a description of the conditions under which the title company will issue a title insurance policy.  By statute, the title commitment is not a representation that the title is unencumbered, but rather a promise to issue a policy indemnifying the buyer for any encumbrances the title company failed to discover.

The Court reversed the grant of summary judgment on the breach of contract issue.  Although the title insurance policy was no longer in effect when Centennial made a claim for damages, the encumbrance was discovered and the damages accrued when Centennial still owned the land and the policy was still in force.  The “continuation of coverage” clause did not put a restriction on when Centennial could make its claim, but only on the date when the policy would indemnify for a claimed injury.  Because Centennial owned all 75 acres at the time its claimed injury arose, the case was remanded for further proceedings on damages and other possible defenses.

Judge Johnson authored the opinion; Judges Downie and Gemmill concurred.

Posted by: Shane Ham

Posted On: 9/27/2013