FIRST AMERICAN TITLE INSURANCE COMPANY, A CALIFORNIA CORPORATION, Plaintiff/Appellee,
JOHNSON BANK, A WISCONSIN BANK REGISTERED IN ARIZONA, Defendant/Appellant
from the Superior Court in Maricopa County. The Honorable
Robert H. Oberbillig, Judge. No. CV2013-003634. Opinion of
the Court of Appeals, Division One, 237 Ariz. 490, 353 P.3d
370 (App. 2015) .
from the Superior Court in Maricopa County, REVERSED AND
REMANDED. Opinion of the Court of Appeals, Division One,
Nadeau, Courtney G. Saleski, (argued), DLA Piper LLP (U.S.),
Phoenix, Attorneys for First American Title Insurance
G. Ridenour, Timothy Berg (argued), Janice Procter-Murphy,
Fennemore Craig, P.C., Phoenix, Attorneys for Johnson Bank.
I. Wilenchik, Tyler Q. Swensen, Wilenchik & Bartness, P.C.,
Phoenix, Attorneys for Amici Curiae Equity Income Partners LP
and Galileo Capital Partners, Ltd.
Ramras, Ramras Legal, PLC, Phoenix, Attorney for Amicus
Curiae Land Title Association of Arizona.
CHIEF JUSTICE PELANDER authored the opinion of the Court, in
which JUSTICES BRUTINEL and BOLICK, and JUDGE
ECKERSTROM[*] joined, and CHIEF JUSTICE BALES
VICE CHIEF JUSTICE
This case presents the question of how to calculate damages
under a lender's title insurance policy that failed to
disclose encumbrances substantially affecting the value of
the property and thwarting its intended use. Because the
policy itself does not specify a valuation date, we are asked
to determine the appropriate date from which to measure the
insured lender's loss. We hold that when an undisclosed
title defect prevents the known, intended use of the property
and causes the borrower to default on the loan, the
lender's diminution-in-value loss should be calculated as
of the date the title policy was issued rather than as of the
date of foreclosure. Because the record does not establish
that the title defect caused the borrowers' default and
the ensuing foreclosure, we remand for further proceedings on
In 2005 and 2006, First American Title Insurance Company
issued two title insurance policies to Johnson Bank for two
properties that secured the bank's loans in the total
amount of $2,050,000. The policies failed to list certain
covenants, conditions, and restrictions (" CC&
R's" ) that prohibited commercial development on
either parcel. The property owners defaulted on their loan
obligations to Johnson Bank, allegedly because they had
intended to develop the properties and were prevented from
doing so by the CC& R's. Based on the undisclosed CC&
R's, the owners successfully sued First American to
recover damages under their owners' title insurance
In 2010, the properties were sold at a trustee's sale.
Johnson Bank purchased the two parcels with a credit bid of
$102,000. In 2011, Johnson Bank notified First American of
claims under its lender's title insurance policies,
asserting that the CC& R's prevented both properties from
being developed for commercial purposes, and that the CC&
R's were not listed exceptions to coverage under the
The parties agreed to arbitrate the damage claims but could
not agree on the date for calculating the alleged diminution
in value of the subject parcels. Johnson Bank argued that the
date of the loans should be used to calculate damages. First
American argued that damages should be based on the value of
the properties at the time of foreclosure, after the real
estate market had precipitously declined.
Both parties sought declaratory relief in superior court. On
the parties' cross-motions for summary judgment, the
court granted judgment in favor of First American, ruling
that the parcels should be valued as of the foreclosure date.
The court of appeals reversed, holding that " in the
absence of a specified date of comparative valuation
identified in the policies, . . . the date to measure any
diminution in property value is the date of the loan."
First Am. Title Ins. Co. v. Johnson Bank, 237 Ariz.
490, 494 ¶ 18, 353 P.3d 370, 374 (App. 2015). The court
reasoned that because First American failed to discover and
timely disclose the CC& R's, the policy was breached when
the loans were made. Id. at ¶ 17. Accordingly,
the court remanded the case for entry of judgment in favor of
Johnson Bank on the valuation-date issue. Id. at
We granted review because the case presents an issue of first
impression in Arizona and of statewide importance. We have
jurisdiction under article 6, section 5(3) of the Arizona
Constitution and A.R.S. § 12-120.24.
We review a summary judgment de novo, viewing the facts in
the light most favorable to the party against whom judgment
was entered. See Ariz. R. Civ. P. 56(a); BMO
Harris Bank, N.A. v. Wildwood Creek Ranch, LLC, 236
Ariz. 363, 365 ¶ 7, 340 P.3d 1071, 1073 (2015). "
We review de novo the interpretation of insurance
contracts," First Am. Title Ins. Co. v. Action
Acquisitions, LLC, 218 Ariz. 394, 397 ¶ 8, 187 P.3d
1107, 1110 (2008), and construe provisions in such contracts
according to their plain and ordinary meaning. Sparks v.
Republic Nat. Life Ins. Co., 132 Ariz. 529, 534, 647
P.2d 1127, 1132 (1982). We also interpret contracts so as to
fulfill the parties' intent. Taylor v. State Farm
Mut. Auto. Ins. Co., 175 Ariz. 148, 152, 854 P.2d 1134,
The title insurance policies at issue here are standard form
American Land Title Association (" ALTA" ) loan
policies. The amounts insured corresponded to the total
amount of Johnson Bank's loans ($2,050,000). Subject to
various exclusions, exceptions, and conditions, the policies
insure " against loss or damage . . . sustained or
incurred by the Insured by reason of . . . [a]ny defect in or
lien or encumbrance on the title." The policies do not
define the term " loss or damage," but require the
insured claimant to timely notify the insurer and provide
proof of any claimed loss or damage, including the basis of
the claim and the " basis of calculating the amount of
the loss or damage."
The policies do not specify the date to be used in
calculating loss or damage. In pertinent part, the policies
7. DETERMINATION AND EXTENT OF LIABILITY
This policy is a contract of indemnity against actual
monetary loss or damage sustained or incurred by the insured
claimant who has suffered loss or damage by reason of matters
insured against by this policy and only to the extent herein
(a) The liability of the Company under this policy shall not
exceed the least of:
. . .
(iii) the difference between the value of the insured estate
or interest as insured and the value of the insured estate or
interest subject to the defect, lien or encumbrance insured
against this policy.
Both parties argue that this policy language is unambiguous
and supports their respective view. Johnson Bank asserts that
the phrase " as insured" in § 7(a)(iii) refers
to " when the property is to be valued" and means
that, for damage-calculation purposes, " the property
should be valued as of the date that the insurance policy
First American counters that the phrase " as
insured," used throughout the policy, refers only to how
the property interest is insured, i.e., the policy's
conditions and exceptions. The policy is not ambiguous, First
American argues, merely because it does not specify a date
for calculating the loss. SeeFirst Tenn. Bank,
Nat. Ass'n v. Lawyers Title Ins. Corp., 282 F.R.D.
423, 427 (N.D.Ill. 2012) (stating that the absence of
explicit text establishing a valuation date " does not
necessarily mean that the provision is ambiguous" ).
According to First American, the policy implicitly
establishes the date of foreclosure as the applicable
valuation date because the ...