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Court of Appeal, First District, Division 1, California.

Brian and Helen WHITE, Plaintiffs and Respondents, v. WESTERN TITLE INSURANCE COMPANY, Defendant and Appellant.


Decided: September 05, 1984

Richard J. Henderson, Ukiah, for plaintiffs and respondents. James L. Stoelker, Garrison, Townsend & Orser, San Francisco, for defendant and appellant.

Plaintiffs Brian and Helen White commenced an action against defendant Western Title Insurance Company for damages, for (count 1) breach of two title insurance contracts, (count 2) negligence, and (count 3) breach of the title insurance policies' covenants of good faith and fair dealing.   A jury returned plaintiffs' verdicts on the breach of contract and negligence counts, for $8,400, and for breach of the policies' implied covenants of good faith and fair dealing, $20,000.

Defendant Western Title Insurance Company has appealed from the judgment which was entered upon the jury's verdicts.

The following of the trial's evidence was substantially uncontroverted.

William and Virginia Longhurst had been the owners of about 84 acres of Mendocino County land (hereafter, the land) which had subsurface waters under it.   In 1975, for a consideration, they executed and delivered an “Easement Deed for Waterline and Well Sites [hereafter, water easement],” conveying “to River Estates Mutual Water Corporation an easement for a right of way for the construction and maintenance of a water pipeline and for the drilling of a well or wells within a defined area and an easement to take water, up to 150 [gallons per minute], from any wells within said defined area.”   The water easement was recorded with the Recorder of Mendocino County.

About three years later William and Virginia Longhurst reached an agreement to sell the land to the instant plaintiffs, Brian and Helen White, who were unadvised of the water easement upon it.   Desiring to know the state of the land's title, plaintiffs White opened escrows with defendant Western Title Insurance Company (hereafter, Western), and secured from Western preliminary title reports concerning it.

(Although there was but one contract of sale for the land, for some reason not apparent from the record, two escrows were opened, two preliminary title reports were delivered, and thereafter as we shall see, two title insurance policies were issued.   Save for here irrelevant matters, the preliminary title reports and title insurance policies were standard printed forms, and respectively, for purposes of the appeal, identical.)

Western's preliminary title reports recited that, “This report (and any supplements or amendment thereto) is issued solely for the purpose of facilitating the issuance of a policy of title insurance and no liability is assumed hereby” (emphasis added), while they purported, among other things, to refer to all easements, liens, and encumbrances, of record against the land, the above-mentioned recorded water easement was unmentioned.

The sale transaction was thereafter consummated and the escrows closed.   Contemporaneously with the escrows' closing, Western issued to plaintiffs White its title insurance policies covering the land, for which they were charged, and paid, premiums totalling $1,467.55.

The title insurance policies, as here found relevant, recited:

“SUBJECT TO SCHEDULE B AND THE CONDITIONS AND STIPULATIONS HEREOF, WESTERN TITLE INSURANCE COMPANY ․ insures the insured ․ against loss or damage, ․ and costs, attorneys' fees and expenses ․ incurred by said insured by reason of:

“1. Title to the estate or interest described in Schedule A being vested other than as stated therein;

“2. Any defect in or lien or encumbrance on such title;

“3. Unmarketability of such title;  ․


Name of Insured:

Brian R. White and Helen White

William M. Longhurst and Virginia Longhurst

The estate or interest in the land described in Schedule C and which is covered by this policy is:

Tract 1:  A Fee

Tracts 2 and 3:  Easements, being more particularly defined in Schedule C.

The estate or interest referred to herein is at Date of Policy vested in:

Brian R. White and Helen White,

husband and wife as community property


This policy does not insure against loss or damage, nor against costs, attorneys' fees or expenses, any or all of which arise by reason of the following:


“3. Easements, liens or encumbrances, or claims thereof, which are not shown by the public records․

“5(c) ․ water rights, claims or title to water․”

As in the case of the preliminary title reports, the above-mentioned recorded water easement was unmentioned in the title insurance policies as excluded from its coverage, or otherwise.

About six months after close of the escrows and delivery to plaintiffs White of the title insurance policies, River Estates Mutual Water Corporation gave notice to them of its intention to come upon the land for the purpose of implementing its easement.   It was the first information that plaintiffs White had of the water easement's existence.

Plaintiffs White thereafter made claim upon Western for damages for the “loss or damage” resulting to them, because of the estate or interest in the land being other, and less, than as stated in the title insurance policies.

Western disclaimed any liability under the policies, stating:  “[T]he policies of title insurance specifically except from coverage in Section 5(c) in Part I of Schedule B all water rights, claims or title to water.   Therefore, the availability of water on the White property is not a valid consideration in the assessment of a claim under the policies of title insurance.”  (Emphasis added.)

The instant action followed.

The action was bifurcated.   First tried before the court were the issues of Western's liability for breach of contract and negligence.   Western was found liable, “both contractual and in tort.”   The case was then given a jury on the remaining issue of damages.   They found the land's “fair market value diminished by reason of the existence of the easement,” in the amount of $8,400;  and that plaintiffs White's other damages proximately caused by Western amounted to $20,000.

Western's appeal is from the judgment of $28,400 which was thereafter entered.

For the following reasons no merit is found in the appeal.

We state and consider Western's several appellate contentions of error in the order stated, and as phrased, by it.

I. Contention:  “Error in interpretation of the policy of title insurance.”

Western here insists that this reviewing court may, and should, “interpret the provisions of the policy of title insurance,” and determine whether the “expectations” of plaintiffs White under the policies were “reasonable.”   We shall do so.

We observe first that Western's title insurance policies purported to indemnify the insured against “loss or damage” from any undisclosed “defect in or lien or encumbrance” on the fee title “as stated therein,” subject “to Schedule B” and other stated “conditions and stipulations.”

Adverting to Schedule B's paragraph 3, we observe Western's rejection of liability under it for “easements ․ which are not shown by the public records.”  “ ‘Under the familiar maxim of expressio unius est exclusio alterius it is well settled that, when a statute expresses certain exceptions to a general rule, other exceptions are necessarily excluded.’ ”  (Kiely Corp. v. Gibson, 231 Cal.App.2d 39, 46, 41 Cal.Rptr. 559;  Collins v. City & Co. of S.F., 112 Cal.App.2d 719, 731, 247 P.2d 362.)   Under this principle, exclusion from liability for easements “not shown by the public records,” necessarily includes liability for the policy's undisclosed easements which are shown by public records.

We are, of course, aware of Western's contention that Schedule B's paragraph 5 purports to exclude the company from liability over “water rights, claims or title to water.”   But here, at most, the conflicting paragraphs are ambiguous.   Such an ambiguity must be resolved against the insurer.   (Insurance Co. of North America v. Sam Harris Constr. Co., 22 Cal.3d 409, 412–413, 149 Cal.Rptr. 292, 583 P.2d 1335.)

Moreover:  “Water rights, claims or title to water” often rest upon unrecorded riparian, or prescriptive, or appropriative rights.   A reasonable harmony between the otherwise disparate provisions is achieved by giving to the phrase at issue the obviously intended meaning of “water rights, claims, or title to water” not appearing of record.  “It is fundamental in the interpretation of contracts that the various terms will be harmonized if possible.”  (Retsloff v. Smith, 79 Cal.App. 443, 452, 249 P. 886.)

 And we are further led to the principle that the strict language of a contract of adhesion, such as an insurance policy, must yield to “the reasonable expectations of the weaker or adhering party.”  (Graham v. Scissor-Tail, Inc., 28 Cal.3d 807, 820, 171 Cal.Rptr. 604, 623 P.2d 165;  and see Madden v. Kaiser Foundation Hospitals, 17 Cal.3d 699, 710, 131 Cal.Rptr. 882, 552 P.2d 1178;  Schmidt v. Pacific Mut. Life Ins. Co., 268 Cal.App.2d 735, 74 Cal.Rptr. 367, passim.)   It is concluded that plaintiffs White reasonably expected that Western's policy would disclose, or insure them against loss or damage from, all recorded easements such as the water easement.

II. Contention:  “Error in interpretation of preliminary title report.”

Another of plaintiffs White's theories of action, as noted, was founded on Western's negligence in furnishing inaccurate preliminary title reports.   It will be noted that the claimed damages resulting from such negligence, and that resulting from Western's breach of contract were coextensive;  under either, or both, of those theories, the damages were the same.

On its appeal, Western makes many reasonably debatable arguments purposed to show that it had no negligence liability in the furnishing of its preliminary title reports.   We need not pass upon them.   The trial court, as noted, found both of the claimed liabilities of Western.   And as pointed out in part I above, the jury found plaintiffs White's total “loss or damage” flowing from the insurance policies' undisclosed water easement to be $28,400.

Here the trial court on uncontroverted evidence found a breach by Western of its title insurance policies.   That finding alone fully supports the judgment here under appeal.  “ ‘[H]owever lame, however inconclusive, any number of the findings may be, if in any case there be one clear, sustained and sufficient finding upon which the judgment may rest, every presumption being in favor of the judgment, it will be here concluded that the court did rest its judgment upon that finding, or those findings, and the others may and will be disregarded.’ ”  (Brewer v. Simpson, 53 Cal.2d 567, 584, 2 Cal.Rptr. 609, 349 P.2d 289;  American National Bank v. Donnellan, 170 Cal. 9, 15, 148 P. 188;  and see Boogaert v. Occidental Life Ins. Co., 150 Cal.App.3d 875, 882, 198 Cal.Rptr. 357;  Mayes v. Sturdy Northern Sales, Inc., 91 Cal.App.3d 69, 81, 154 Cal.Rptr. 43.)

III. Contention:  “Plaintiffs failed to prove the elements of a cause of action for negligence.”

For the reasons stated in part II above, the judgment is otherwise supported, and the contention is thus without merit.

IV. Contention:  “Error for failure to allow evidence of contributory negligence.”

Here also, as the judgment is fully supported by the trial court's finding of Western's breach of its insurance contracts the point, even if valid, is of no aid to its appeal.  (See part I above.)

Moreover, we note and approve a judicial view that:  “[I]t would be strange, indeed, if prospective purchasers of real property could not rely upon title reports for which they are required to pay, but must search the records themselves.   If such be the law a large part of the value of title companies would disappear.”  (J.H. Trisdale Inc. v. Shasta, etc. Title Co., 146 Cal.App.2d 831, 839, 304 P.2d 832;  and see 3 Witkin, Summary of Cal.Law (8th ed. 1973) Real Property, § 175, p. 1912.)

V. Contention:  “Error for failure to exclude evidence of relationship of insurer and insured after commencement of litigation.”

 The contention apparently arises out of the following trial proceedings.

“Mr. Stoelker [Western's attorney]:  Yes, your Honor.   Renewing a request I made last evening, I'd ask that the court limit the evidence concerning the negotiations between Western and the plaintiffs to that time period prior to filing the original lawsuit by the Whites against Western Title.

“It's my position that the relationship of good faith and fair dealing exists between the insurer and the insured up to the time they become adverse, and they become adverse at the moment the lawsuit is filed against the title insured by the plaintiffs in this case․

“The Court:  First of all, the court has reviewed the matter and to fully explore the issues raised the court feels that evidence to the time of the interlocutory judgment interpreting the contract will be admitted.  [Our emphasis.]   In other words, the filing of the suit would not be the cutoff point, but would allow it as far as the interlocutory judgment, which was in 1981.”

We observe no error in the trial court's ruling permitting “evidence to the time of the interlocutory judgment interpreting the contract.”   Such evidence, if relevant to the contract's interpretation, would ordinarily be proper.   And the record discloses that such evidence as was thereafter admitted was relevant to the issues of title insurance policies' interpretation, and of Western's good faith and fair dealing.

VI. Contention:  “Error in failure to allow evidence of offer of compromise.”

 The complaint here is of the trial court's ruling “that settlement offers made by appellant between the time of the interlocutory order [finding Western liable to plaintiffs] and the commencement of the jury trial [on damages] were not to be allowed.”   It is argued that if “appellant had been allowed to introduce evidence of its $15,000.00 offer [made after the trial court's determination of liability], the jury could not have found any breach of the duty of good faith.”

We are of the opinion that the settlement offer, withheld until after the determination of Western's liability, had scant, if any, probative value on the issue of its good faith.   No abuse of discretion, or error, is seen.

VII. Contention:  “No substantial evidence of bad faith.”

 We are of the opinion that under the uncontroverted evidence of the case (see pp. 68–70, supra ), substantial evidence of Western's bad faith in not conceding and timely implementing liability under its title insurance policies, was disclosed.

 And contrary to Western's several related arguments, we find substantial evidence of plaintiffs White's emotional distress, that such evidence was properly admitted, and that the jury had been properly instructed on the issue according to BAJI 12.85 (see official comment thereto).

VIII. Contention:  “Error in failure to allow defendant to reopen and present evidence.”

Following close of evidence at the trial its attorney, reviewing his file “came upon” an appraiser's letter, which he believed “should be considered by the jury.”   The appraiser was not in the courtroom or otherwise available for cross-examination.   Rejecting Western's offer, the trial court stated:  “[The appraiser] is well-known in this county and in Lake County.   He is the inheritance tax referee for the county area of Bell Springs, which is a rugged mountainous area on the Mendocino/Humboldt County line.   He was available as far as this court knows at all times and could have been called as a witness.

“I find that the letter is highly prejudicial when it goes in without any right of any cross-examination.   And the tone of it may carry undue weight where there is no right to cross-examine because of the status of [the appraiser] and undoubtedly some of the jurors are acquainted with his training and background.   For that reason the offer will be refused.”

 Such a motion to reopen a trial for further evidence is addressed to the sound discretion of the court.  (Ulwelling v. Crown Coach Corp., 206 Cal.App.2d 96, 127, 23 Cal.Rptr. 631.)   We observe no abuse of discretion here.

IX. Contention:  “Award of damages resulting from bad faith is erroneous.”

Western's title insurance policies, as reasonably interpreted, purported to indemnify the insured plaintiffs White “against loss or damage ․ and costs, attorneys' fees and expenses, sustained or incurred by said insured by reason of:  ․;  (2) any [recorded] lien or encumbrance on [the land's] title” which was not indicated on the policies.

It will be recalled that the trial was bifurcated;  the trial court first determined the issue of Western's liability.   Upon determination of that question in plaintiffs White's favor the issue of damages was given to a jury.   That issue also was bifurcated.   First the jury were instructed to fix the “loss or damage” in the amount that the land's fair market value was diminished by reason of the undisclosed water easement.   They did so, fixing the amount at $8,400.   After further proceedings, the jury were charged with the task of fixing and awarding an amount of the remaining loss or damage “sustained or incurred by said insured.”   They were there instructed that the items of their award “may include damages for emotional distress, the interest on any money that you find should have been awarded earlier in the transaction․  You may also award court costs, including expert witness fees and attorneys' fees reasonably incurred by the plaintiffs in pursuing their claim.”

Some of the confusion attending the instant contention seems to be brought about by the parties misleading characterization of the jury's second damage award as “damages resulting from bad faith.”   The damages for emotional distress may reasonably be so deemed, but the remainder may not.   The remaining damages, i.e., for prejudgment interest, court costs, witness fees, and attorneys' fees, appear more reasonably to be additional “loss or damage ․ sustained or incurred by” plaintiffs White, and expressly subject to indemnification under Western's title insurance policies.

 It appears to us that the confusion engendered by the dual damage verdicts should have been avoided.   But nevertheless we find no overlapping, or duplication.   As to their first verdict, the jury were held strictly to a determination of “how much was the fair market value diminished by reason of the existence of the [water] easement.”   As to the second damage verdict, that issue was properly withheld from them, and they were permitted to determine the remaining damages permitted by law, and by Western's title insurance policies.

Although there may have been procedural error, there was patently no unfair prejudice to Western.  “The burden is on the appellant in every case affirmatively to show error, and to show further that the error is prejudicial.”  (Vaughn v. Jonas, 31 Cal.2d 586, 601, 191 P.2d 432.)

Moreover, it is observed that Western made no objection to the form of the second special verdict, until after it had been completed and returned by the jury.

Nor do we discern merit in the related argument that damages for emotional distress were not permitted because that issue was unraised by the pleadings.   Such an issue is reasonably, perhaps necessarily, raised by the pleaded issue of an insurer's bad faith in rejecting settlement of a meritorious claim.   And here we observe that the issue of damages for emotional distress was fully and fairly tried and presented for adjudication, in the superior court.  “ ‘It is well settled that where the parties and the court proceed during the trial upon a theory that a certain issue is presented for adjudication, the doctrine of estoppel precludes either party from thereafter asserting that no such issue was in controversy, even though it was not actually raised by the pleadings.’ ”  (Meritplan Ins. Co. v. Universal Underwriters Ins. Co., 247 Cal.App.2d 451, 460, 55 Cal.Rptr. 561;  McAllister v. Union Indemnity Co., 2 Cal.2d 457, 460, 42 P.2d 305.)

 Nor did error attend the allowance of prejudgment interest, which was here based on Western's insurance policies, and not on Civil Code section 3287.   The loss of interest on money which should earlier have been paid by Western, was manifestly “loss or damage sustained or incurred by the insured” of this case.   And as noted, allowance of attorney fees were expressly provided for by the policies.

The superior court will modify the judgment by fixing, and awarding to plaintiffs, reasonable attorney's fees for services rendered on this appeal according to Western Title Insurance Company's title insurance policies.   As so modified, the judgment is affirmed.

ELKINGTON, Associate Justice.

RACANELLI, P.J., and NEWSOM, J., concur.

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