The jury handed down a verdict for $1.6 million last spring. The firm brought claims of bad faith and breach of contract against a national title insurance company on behalf of a local developer and won after more than a weeklong trial. The Defendant finally paid the damages for breach of contract, as well as the Plaintiff's attorney's fees.The Plaintiffs were owners of two parcels of commercial property located in North Scottsdale. Plaintiffs acquired the parcels by transfer of deed from the purchaser and therefore asked for and received what Plaintiffs believed were proper endorsements of the purchaser’s title insurance policies from the Defendant title insurer/title company. Plaintiffs had a construction easement that gave them a limited window of opportunity to develop the parcels, but after beginning the process of planning and designing commercial projects for the parcels, Plaintiffs discovered to their shock and dismay that the parcels were subject to a local homeowners association's CC&Rs, including the oversight of an "Architectural Review Committee" made up of residential homeowners. This fact was never revealed in the title search conducted by the Defendant’s agent and Plaintiffs viewed it as a major obstacle to their plans to develop the parcels, since it meant they would now have to go through the homeowners association to obtain approval for anything they wanted to build. Plaintiffs took this issue to the Defendant, whose first reaction was to deny that any problem existed. Once Plaintiffs were able to convince the Defendant that this was, in fact, a big problem, the Defendant hired an attorney ostensibly to see if the parcels could be exempted from the CC&Rs. This effort failed, and the Defendant then sought every means and used every stratagem possible to avoid liability under the title policies. First, the Defendant denied coverage entirely, claiming that the Plaintiffs were not covered parties under the policy issued to the buyer, who then transferred the parcels to the Plaintiffs. This was false, since the Plaintiffs had asked for, paid for and obtained endorsements of the title policy from the Defendant’s agent. The Defendant then argued that the endorsements were not valid because they were “fairway” endorsements which were improper and insufficient to provide coverage. Plaintiffs pointed out that if there was a mistake in the type of endorsements issued, that mistake was made by the Defendant’s agent, and the Defendant could not use its own agent’s mistake as a shield against liability. In response to this, the Defendant then argued that the issuance of the endorsements was fraudulent because one of the principals of the Plaintiff companies was also an owner of the company that acted as agent for the Defendant when it issued the endorsement. When that argument failed, the Defendant alleged that the endorsements were never paid for. When that failed, the Defendant claimed that the endorsements were not valid because the Defendant ’s agent was behind in payments to the Defendant and had been terminated as an authorized agent. This argument also had no merit. Finally, the Defendant was forced to admit that Plaintiffs were covered under the title policies and filed a stipulation to that effect. The Defendant then focused its efforts on arguing that having commercial properties subject to residential CC&Rs was not a problem and would not diminish the market value of the properties at all. Plaintiffs’ expert appraiser offered the opinion that being subject to the CC&Rs would reduce the value of the parcels by 22% - 35%. At trial, Plaintiffs presented evidence showing how their Defendant had fought them at every turn for more than 2 years on their claims. The jury found that the Defendant was liable under the title policies for diminished value of the parcels in the amount of $627,000. The jury also found that the Defendant had acted in bad faith in its handling of Plaintiffs’ claims and awarded Plaintiffs an additional $200,000 in compensatory damages and $750,000 in punitive damages. The Court recently awarded Plaintiffs an additional $217,000 in attorneys’ fees and costs as the prevailing parties. The Defendant has paid the contract damages of $627,000 and the attorneys’ fees and costs, but is appealing the $950,000 in compensatory and punitive damages associated with Plaintiffs’ bad-faith claims.
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