Arizona Supreme Court holds that, if a title insurance policy is ambiguous as to the date from which to measure loss, relevant policy factors may require the property value to be calculated from the date of the insurance policy.

A bank-issued two loans secured by two properties.  The bank obtained title insurance from an insurer, and the title insurance policy failed to list certain covenants, conditions, and restrictions that allegedly prohibited commercial development on either parcel.  Because the property owners had allegedly intended to use the properties for commercial development, the property owners defaulted on the loans.  The bank then purchased the properties at a trustee’s sale.

The bank brought a claim for breach of the title insurance policy against the insurer to recover the diminution in value caused by the insurer’s failure to disclose the title defect.  Although the parties agreed to arbitrate the claim, they could not agree as to whether the date for calculating the alleged diminution in value of the properties should be the date of the insurance policy or the date of the foreclosure.  Both parties, therefore, sought declaratory relief in court.

The Arizona Supreme Court determined that the language in the title insurance policy was ambiguous.  It, therefore, adopted a case-by-case approach through which it held that the appropriate date to determine diminution in value, in this case, was the date of the title insurance policy because, among other reasons, (1) the bank’s actual loss due to the title defect included all losses incurred from the defect, including all losses arising from the declining real estate market, and (2) the insurer was in the best position to prevent such losses.

The dissent agreed that the title insurance policy was facially ambiguous and that the appropriate date for calculating the loss should be the date the loss occurred.  It noted, however, that the insurer was not obligated to conduct a title search or otherwise protect the insured against any defects in the title, and therefore the loss did not occur until the date of the foreclosure.

Vice Chief Justice Pelander authored the opinion of the Court, in which Justices Brutinel and Bolick, and Judge Eckerstrom joined.  Chief Justice Bales dissented.