Cale v. Transamerica Title Insurance

George Cale (plaintiff) loaned $8,000 to Stewart, Wolridge, and Smith (debtors). To secure the loan, the debtors executed a second deed of trust in favor of Cale on a townhouse they owned. Cale purchased title insurance from Transamerica Title Insurance (Transamerica) (defendant) to protect his security interest. The insurance policy disclosed and exempted from coverage one lien senior to Cale’s but failed to disclose three other liens senior to Cale’s. The debtors defaulted on the loan, and Cale filed a claim with Transamerica seeking approximately $4,800, the cost to remove the three undisclosed liens. Transamerica told Cale that he had not yet suffered any indemnifiable loss because he had not yet foreclosed on the property and that proceeds from the foreclosure could, in theory, be sufficient to cover the senior liens. Cale initiated a nonjudicial foreclosure sale. At the sale, Cale was the only bidder, and he purchased the townhouse for $1, subject to all senior liens. Cale renewed his insurance claim. Transamerica again refused to pay, arguing that Cale had not suffered any loss because (1) none of the undisclosed lienholders had demanded payment, (2) Cale had not yet spent any of his own money to extinguish those liens, and (3) Transamerica was continuing to cover Cale against any eventual losses attributable to the undisclosed liens. Cale sued Transamerica for breach of contract. The trial court ruled in favor of Transamerica, finding that Cale had suffered no loss, and Cale appealed.