This is a case about title insurance. “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.”

The bank lent money on some properties and bought lender’s policies of title insurance on them. The borrowers defaulted, allegedly because there turned out to be CC&Rs that prevented them from doing with the property what they had intended. The parties agreed that that triggered the policy but disagreed about how to figure damages. As relevant here, title policies say basically that the damages are the difference between the property’s value with and without the encumbrance or defect. The question was, as of what time do you figure that – the time of the foreclosure or the time of the issuance of the policy? The market had fallen substantially in the mean time so the bank argued for time-of-issuance and the bank for time-of-foreclosure. On cross-motions for summary judgment the trial court ruled for the insurer; the Court of Appeals reversed; the Supreme Court vacates that opinion but finds for the bank.

The court first finds that the policy language is ambiguous about the timing. This was the easy way to go since both parties argued that the language unambiguously favored them.

At this point one could normally turn to the objective intent of the parties as shown by their actions and the circumstances of the transaction. The majority opinion skips that. Why? Apparently because it is thinking only of subjective intent; intent is therefore not a factor here because there was no parole evidence (the majority refers specifically to a parole-evidence case) of “the sole relevant issue here”: how the parties intended section 7(a)(iii) of the contract to operate. That approach would of course pretty much write “intent” out of the law of contracts.

The majority decides instead to interpret the policy based on “pertinent legislative goals” and “pertinent social policies.” Which means what such phrases normally mean –  that the remainder of the opinion will be largely a law-free zone, an “opinion” in the non-legal sense.

As to “pertinent legislative goals,” the majority says there are none. It does point out, though, that under the statutes title polices don’t guarantee anything about title.

So the interpretation is based entirely on the majority’s ideas about “pertinent social policies.” Why? Well, a cynic would suggest that the majority wants to do the same thing the Court of Appeals did, and for the same basic reason, but needs a different excuse. The Court of Appeals ruled that the insurer breached the contract at its inception by failing to disclose the CC&Rs. Since that’s a basic misunderstanding of title insurance – the insurer has no duty to do any such thing – a court that wants to keep the insurer on the hook for that must characterize it as other than a breach of duty.

The insurer, the court tells us, is in a better position to avoid the risk by carrying out more thorough title searches. The majority suggests that banks evaluate their risk only as of the time they make the loan; apparently they’ve never worked with or for banks or their actuaries. In any event, why a bank can’t equally well buy its own title search or an abstract of title (which does guarantee title) is unexplained. The “better position” idea might make sense with an owner’s policy (bought by the property owner) rather than a lender’s – but then the court would have to explain why the same contract means different things depending on who buys it.

Because the policy premium is based on the amount originally insured, figuring damages as of the date of foreclosure would allow the insurer to “profit from a depreciating market.” Unfortunately, the majority does not explain how much profit can be had before it changes the meaning of a contract nor how adventitious subsequent events change meanings established, as a matter of law, before their occurrence. But remember: the whole point is that this is “social policy,” not law.

The majority says that using the foreclosure date would “unfairly allow the title company to avoid the insured’s actual . . . damages.” Courts should take “a case-by-case approach to value the insured’s loss“ so that it can determine “the insured’s actual loss under the particular circumstances.” That makes sense in tort law; in contract law its called “social policy.”

But in a few places the majority gives the game away. “In determining damages caused by First American’s incomplete title search . . . social policy does not preclude [measuring the loss as of] the date the policies were issued.” “Damages” in the law are things caused by breaches of duty. The court also repeatedly speaks of “undisclosed” title defects, which clearly suggests that the title company had a duty not only to disclose them but to discover them in the first place. In other words, just as in the Court of Appeals, the title company is to be held responsible for not finding the CC&Rs. That’s not its duty – but its “social policy.”

For reasons unclear the record did not establish that the default and foreclosure resulted from the CC&Rs so the majority remands for further proceedings on that.

The dissent reflects a more traditional – that cynic mentioned above might say more coherent – view of title insurance. That seems to be its main purpose: to explain the duties of a title insurer. It points out that the majority is clearly blaming the insurer for not doing something it had no obligation to do. The majority’s lengthy response to the dissent is shrill, defensive, and at times rather unseemly;  and it ends up underscoring the dissent’s points.

The majority indicates that title companies can change their contracts to avoid this result. That’s what they’ll need to do now that the measure of damages under their contracts is “social policy.”

(Opinion: First American v. Johnson Bank)