## Facts

- The Longhursts owned two lots of riverfront property in Mendocino County, California.
- In 1975, they granted and recorded an “Easement Deed for Waterline and Well Sites” to a mutual water corporation, allowing a pipeline, well sites, and withdrawal of water up to a stated rate.
- In 1978, Brian and Helen White agreed to buy the property and opened two escrows with Western Title Insurance Company, requesting preliminary title reports for each lot.
- Western issued standard-form preliminary reports stating they were for facilitating issuance of title insurance and that “no liability is assumed,” while purporting to list recorded easements, liens, and encumbrances.
- Neither preliminary report disclosed the recorded water easement.
- Western issued two CLTA title insurance policies that insured against defects, liens, or encumbrances on title, subject to exclusions including certain water-rights-related matters.
- About six months after closing, the water corporation asserted its intent to use the easement; after dispute and litigation, it later dismissed its enforcement action and chose not to proceed.
- The Whites obtained an appraisal estimating a substantial diminution in value attributable to the recorded easement and potential groundwater impacts.
- Western acknowledged some responsibility for loss in value but refused to pay the claimed amount, contending the claim fell within the policy’s water-rights exclusion.
- The Whites sued for breach of contract, negligence in preparing the preliminary reports, and breach of the implied covenant of good faith and fair dealing.

## Issues

1. Whether a title insurer may be liable in negligence for failing to disclose a recorded easement in a preliminary title report, despite disclaimer language stating no liability is assumed.
2. Whether a title policy’s water-rights exclusion bars recovery for diminution in value caused by an undisclosed recorded water easement that burdens title.
3. Whether evidence supported liability for breach of the implied covenant of good faith and fair dealing based on the insurer’s handling of the insureds’ claim.

## Decision

- The Supreme Court of California affirmed judgment for the Whites.
- The court held Western owed a duty of reasonable care in preparing preliminary title reports that purport to list recorded encumbrances and could be liable for negligent omission of a recorded easement despite boilerplate disclaimers.
- The court held the policies covered loss caused by the recorded easement as an encumbrance on title; the water-rights exclusion did not negate coverage for that recorded title burden.
- The court upheld the bad-faith verdict, finding sufficient evidence that Western unreasonably evaluated and negotiated the claim and relied on strained exclusion arguments.
- The affirmed awards included $8,400 on contract/negligence and $20,000 for breach of the implied covenant.

## Legal Principles

- A title insurer that issues a preliminary title report intended and foreseeably relied upon to disclose recorded matters owes a duty of reasonable care and may be liable in negligence for failing to list recorded encumbrances, notwithstanding disclaimers that attempt to negate responsibility.
- A recorded easement affecting title is an encumbrance within typical title insurance coverage for defects, liens, or encumbrances on title.
- Policy exclusions are construed narrowly; ambiguous or unreasonable exclusion readings are resolved against the insurer and in favor of coverage consistent with the insured’s reasonable expectations.
- An insurer breaches the implied covenant of good faith and fair dealing by unreasonably refusing or delaying benefits, failing to conduct a fair evaluation, or not giving equal consideration to the insured’s interests in claim handling and settlement.

## Conclusion

The court held that a title insurer may be liable for negligent omission of recorded encumbrances in preliminary title reports, that a recorded water easement constituted a covered encumbrance despite a water-rights exclusion, and that evidence supported bad-faith liability for the insurer’s unreasonable claim evaluation and settlement conduct.


White v. W. Title Ins. Co., 40 Cal. 3d 870, 710 P.2d 309 (Cal. 1985)