Sometimes, Ransom is Cheaper
In a decision with far-reaching
implications for the title insurance industry, the Missouri Court of Appeals
recently upheld a million-dollar damage award, despite the fact the defect
only affected .24% of the insured parcel! That’s not a typo – 99.76% of the
title was not defective, yet the court awarded the Insured nearly $1.3 million.
Spalding v. Stewart Title Guaranty Company, WD76369 (Missouri Court of Appeals, Western Dist., September 23, 2014, application for transfer to Sup. Ct. denied Oct. 28, 2014).
The Insured had purchased 419 acres and
attempted to develop a waterfront community. The biggest challenge was that
there was no body of water on the parcel. The Insured procured permission to
open the dam of an adjoining lake and flood a portion of the property. The plan
was to then build 300-400 waterfront homes. Just before the flooding was to
commence, a third party asserted title to one acre of the flood plain.
The Insurer determined the third party
indeed owned the one-acre parcel and tendered $10,000 for the diminution in
value. The third party insisted on a payment of $387,000 to relinquish his
claim, but the Insurer didn’t budge.
At trial, the Insured offered an
appraiser’s opinion that the “highest and best use” of the property was a
waterfront residential development. Because that use was now unavailable due to
the title defect, the appraiser calculated damages of $4,000,000.
For reasons not stated in
the opinion, the trial court award came in just under the policy limit of
$1,700,000.
Comment:
The Missouri Supreme Court
established the concept of condemnation-style damages in title insurance cases
in 1975, but there have been no significant cases on the issue since. The
concept that damages are to be computed as of the date of discovery (which is
not accepted everywhere) does not automatically imply that damages be based on a planned, yet unrealized,
use of the property.