In Mattson Ridge v. Clear Rock Title, the Minnesota Supreme Court declined to hold a title insurer liable for damages in excess of policy limits when it wrongfully denied coverage. The Court did, however, stick the title insurer with a whopping bill: One over 100 times greater than it would have been if the title insurer had simply honored its policy.
Mattson Ridge, a developer, bought vacant land in Chisago City for $1,286,000. Mattson bought title insurance from Ticor Title, LLP in that amount. The legal description of the property included a reference to “the intersection of road leading from the county road at or near Charles Magnuson’s place in Sunrise City.” Despite the ambiguous description (Which county road? Which Charles Magnuson?), Ticor insured against loss or damage due to unmarketability of title.
In 2006, at the market’s peak, Mattson tried to sell the property. The buyer couldn’t get title insurance because of the ambiguous legal description. Mattson tendered a title insurance claim to Ticor. Ticor denied the claim, contending that the ambiguity concerned roadways, which were excluded from coverage. While Ticor denied coverage, the real estate bubble burst and the property value tumbled from the agreed upon peak-of-market sale price of $2.9 Million to $1.3 Million.
Mattson went ahead and hired a lawyer to cure the title defect at a what all agreed was a very reasonable cost ($11,169). Mattson then brought suit against Ticor, seeking not only a refund of the attorneys’ fees and costs, but also the lost profit resulting from Mattson’s inability to sell the property at its market-peak price.
After a trial, the district court awarded Mattson the policy limit of $1,286,000 for its consequential damages, plus Mattson’s legal fees and costs incurred to complete the reformation action. The Minnesota Court of Appeals disagreed with the trial court’s decision to limit Mattson to policy limits, and bumped up the damages award to $1.9 M. That’s when Ticor appealed to the Minnesota Supremes.
Justice Stras, writing for the Minnesota Supremes, reversed the court of appeals and reinstated the district court’s judgment. As Justice Stras points out, upon tender of a title insurance claim, a title insurer has two principal choices:
- Take appropriate action to cure the title defect (in which case it is only responsible for the attorneys’ fees and costs related to curing the defect); or,
- Refuse the claim (in which case it can be held liable for consequential damages arising out of the unmarketable title).
The court held that, because Ticor selected Option 2, it could be held liable for up to the policy limits.
The Court held that Ticor could not be held liable for amounts in excess of the policy limit because Ticor’s breach of contract did not cause the title to be unmarketable. In fact, the parties had stipulated at trial that Ticor could not have completed the title registration any sooner than Mattson had. Justice Stras reasoned:
Because of that stipulation, Ticor’s failure to defend and indemnify Mattson Ridge by timely prosecuting an action to cure the defects in the legal description of the Property was not, and could not have been, the cause of Mattson Ridge’s lost profits.
Mattson would have lost its buyer and been unable to cure before the market crash, regardless of whether Ticor had performed or not.
Justice Stras agreed with the district court that, even though Ticor isn’t liable for damages caused by its own breach (except for the $11,169 of attorneys’ fees), it is responsible for all damages, up to the policy limit, caused by the unmarketability of title.
In this fight, it would seem Ticor has won the battle, but lost the war. Yes, it prevailed before the MN Supreme Court, resulting in an approximately $600,000 reduction in damages. But, it is still stuck having to pay Mattson $1.2 M when, had it honored its policy, it would have paid legal fees of $11,169, and nothing more.
Rob Shainess represents property owners in Minnesota title defect and title insurance claims. Rob also blogs about the topic (here and here) for MN Litigator.