## Facts

- George G. Cale loaned $8,000 to property owners, secured by a second deed of trust recorded March 3, 1987.
- Cale bought a title insurance policy insuring his lender’s interest; the policy disclosed a senior first deed of trust to Homestead Savings but did not disclose three other senior liens (a judgment lien, an HOA lien, and an IRS lien).
- After the borrowers defaulted, Cale learned of the undisclosed liens while preparing for nonjudicial foreclosure.
- Cale demanded $4,885 from the insurer as the cost (with related items) to remove the undisclosed liens; the insurer acknowledged the omission but denied that any payable loss could be determined before foreclosure.
- Cale completed nonjudicial foreclosure and acquired the property at the trustee’s sale for $1, taking subject to the senior liens.
- The insurer continued to deny payment on the ground that Cale had not shown an indemnifiable loss.
- Cale sued for contract damages and tort damages for bad-faith refusal to pay; the trial court granted summary judgment for the insurer.

## Issues

1. When does a compensable “loss” occur under a title insurance policy insuring a lender’s deed of trust where undisclosed senior liens exist?
2. How is a lender-insured’s loss measured after the lender forecloses and acquires the property subject to senior liens?
3. May the lender treat the cost to remove undisclosed liens as the loss, without proof that the liens impaired the value of the security below the debt?

## Decision

- The Court of Appeal affirmed summary judgment for the insurer.
- The existence of undisclosed senior liens and Cale’s $1 foreclosure purchase, by themselves, did not establish actual monetary loss under the policy.
- A lender-insured must show that the undisclosed liens impaired the lender’s security (value of collateral, considering liens) below the amount of the indebtedness (and properly related amounts); Cale produced no evidence creating a triable issue on that point.
- Because no policy benefits were shown to be due, the bad-faith/tort claim failed as a matter of law.

## Legal Principles

- Title insurance is indemnity insurance; liability arises only upon proof of actual, ascertainable monetary loss caused by a covered risk.
- For a policy insuring a lender’s deed of trust, the insured interest is the security for repayment, not the fee title; loss is measured by impairment of the security relative to the debt.
- The cost to remove undisclosed senior encumbrances is not automatically the measure of loss; the insured must prove that the liens caused a net deficiency (or concrete diminution) in what the lender realized from the collateral.
- Absent a showing that benefits are owed under the policy, an insurer’s refusal to pay cannot support a tort/bad-faith recovery.

## Conclusion

The court held that a lender cannot recover under a title policy, or in bad faith, based solely on undisclosed senior liens; recovery requires proof of actual monetary loss measured by whether the liens reduced the lender’s security below the debt after accounting for what was realized from the collateral.


Cale v. Transamerica Title Ins. Co., 225 Cal. App. 3d 422 (Cal. Ct. App. 1990)