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CHECK YOUR CALENDAR WHEN CLAIMING
UNDER A TITLE INSURANCE POLICY

 Suppose you have ordered your post-foreclosure-sale policy of title insurance; but, as is usual, you don't receive it until several weeks or months later. Prior to holding the sale, however, you had heard there was a bankruptcy filed by the Trustor of the foreclosing Deed of Trust; but you figured this was just a bad rumor. Once you receive the post-sale policy, though, there is the bankruptcy shown as an exclusion from coverage. Meanwhile, two years later, the Trustor (debtor in the bankruptcy) brings an action against you, the lender, and anyone else associated withholding the foreclosure sale, since the bankruptcy's automatic stay was in effect and was violated when the sale was held. Your lender (now the proud property owner who took back at the sale) makes a claim under the policy, only to be denied by its issuer, asserting the statute of limitations has run on the action. While this may be far-fetched and policies have an exclusion for bankruptcies, it illustrates in the context of our industry how the holding in the recent case of Smeaton v. Fidelity National Title, 72 Cal.App.4th 1000, 85 Cal.Rptr.2d 591 (3d Dist. 1999) may apply.

In Smeaton, the insured plaintiff bought 693 acres in El Dorado County. The escrow and title insurance on the straight sale were handled by Fidelity National Title Company ("Fidelity"). Smeaton was going to develop the property and contended Fidelity orally stated to him that it had confirmed access easements to the property and would issue its Policy covering them. Though escrow closed May 5, 1993, Fidelity did not issue its Policy until August 6, 1993. The trial court found that as of July 17, 1993, Smeaton knew the necessary access easements did not exist.

On August 12, 1993, Smeaton's attorney wrote to Fidelity, asserting a claim under the Policy for lack of road easements which, Smeaton alleged, caused him to lose his investment because the property was not able to be developed as planned.

Fidelity denied his claim on August 26, 1993, stating the Policy did not insure appurtenant easement rights. On August 18, 1995, Smeaton sued Fidelity. The trial court found the action was barred by the two-year statute of limitations. The appellate court reversed and remanded.

The issue addressed by the court was whether the statute of limitations for a claim on a title insurance policy begins to run only when it is issued.

The Court found that Code of Civil Procedure §339(1) applied. This section deals with a two-year statute of limitations for abstracts of title and other matters.

Fidelity argued that discovery of the damage (lack of the access easements), as stated in the statute, was controlling. The statute provides that the limitations period "shall not be deemed to have accrued until the discovery of the loss or damage suffered by the aggrieved party [under the policy]".

The Court said the statute requires an obligation evidenced by a title insurance policy and that, therefore, the policy is a prerequisite to an enforcement action based on it.

Fidelity further argued that the policy provided coverage as of its recording date and any delay in its issuance was immaterial; that the Policy cannot be issued until after the Deed records; and that delay in issuing such policies is customary.

The Court found that any delay in issuance of the policy was within the sole control of the insurer; and that because a claim under the policy relies on the language of the policy, an insured cannot assess any possible claim until they review the policy as issued.

All parties and the Court agreed the limitations period was tolled between August 12, 1993 (the date Smeaton's attorney made the claim under the policy) and August 26, 1993 (the date of Fidelity's denial of the claim). Therefore, the two-year period expired on August 20, 1995, two days after Smeaton filed his Complaint.

If you ever have to bring an action on a claim against a title insurer, it pays to be aware of when the statute of limitations runs on your action. Generally, you are looking at a two-year period from the date of issuance of the policy.