Adopting what appears to be a minority position, the South Carolina Supreme Court held that “actual loss” under a title insurance policy must be measured by a decrease in property value from the purchase price of the property rather than from the value of the property at the time the title defect is found. Whitlock v. Steward Title Guar. Co., 2012 WL 4013558 (S.C. Sept. 12, 2012).
A property owner brought suit against her title insurer after learning that she could not build a residence on her property due to an easement that was missed in the title search. The property owner argued that her damages should be measured by the diminution in property value from the purchase price of the property, which was $410,000. In contrast, the title company contended that the value of the loss should be measured as of the date of discovery of the title defect, an amount significantly lower than the purchase price given the downturn in the real estate market.
Answering a certified question, the South Carolina Supreme Court held that as a general matter, the method of valuation of a title defect is determined by the language in the title policy. Because the term “actual loss” was not defined in the title policy at issue, the court concluded that the term was ambiguous and must be construed in favor of the insured. As such, the court held that the property owner’s damages should be measured by reference to the purchase price of the property.
Whitlock highlights the importance of clear policy language in this context. Although the Whitlock court noted the inequity of requiring a title insurer, rather than a property owner, to bear the risk of fluctuating property values, the court stated that its ruling was driven by policy language construction, not principles of equity.