Opinion ID: 877680
Heading Depth: 1
Heading Rank: 2

Heading: the measure of damages for failure to discover or disclose the defect:

Text: The title companies advance three arguments on the question of damages caused by the existence of the easements. First, they argue that the policy covers only pecuniary loss, that Lipinski suffered only an aesthetic loss, and therefore that Lipinski cannot recover damages. Second, they argue that a provision of the Maris settlement agreement (that agreement between the title companies and Lipinski), expressly precludes any recovery for diminution of value or any other form of recovery of damages. Third, assuming it was proper to apply a diminution of value theory, they argue that the wrong test was used in application of their theory and therefore that the damages should only be $3,557.50 at most. In arguing that Lipinski's land sustained only an aesthetic loss as opposed to a pecuniary loss, the title companies put forth no real argument. While undoubtedly aesthetic loss was suffered, there is no question that the undisclosed ditch rights and the attendant right to enter upon and alter Lipinski's land caused Lipinski to suffer a substantial pecuniary loss. We note, furthermore, that the title companies, in making its aesthetic damages argument, assume that the trial court awarded damages based on a reduction in value. Although there was evidence that the value of the land was reduced by $55,000 because of the existence of the easements, the fact ignored by the title companies is that the trial court awarded damages based not on a reduction of value, but on what it cost Lipinski to remove the title defects. Lipinski paid $46,000 to O'Neil to remove the title defects (he purchased O'Neil's easement rights), and the trial court established $46,000 as the amount of the loss. The title companies next argue that the Maris settlement agreement (the agreement between the title companies and Lipinski) precludes recovery for diminution of value of Lipinski's property caused by the existence of the easements. They rely on paragraph two of the Maris settlement agreement that the title companies ... shall not be liable for any claim or claims brought directly by [Lipinski] as a result of the presence of either of the two ditches on his lands, which ditches were the subject of the ... [Maris] lawsuit. Although the title companies tacitly acknowledge an improper alteration of the agreement by the insertion without the knowledge or consent of Lipinski, that no recovery would be permitted for diminution of value, they argue that this alteration does nothing more than clarify paragraph two of the agreement which precludes any kind of recovery. Lipinski argues, on the other hand, that the title companies cannot rely on paragraph two of the Maris settlement agreement because in altering the agreement without Lipinski's knowledge or consent, the title companies violated section 28-2-1703(1), MCA. That statute provides: The intentional destruction, cancellation, or material alteration of a written contract by a party entitled to any benefit under it or with his consent extinguishes all the executory obligations of the contract in his favor against parties who do not consent to the act. Applied here, this statute makes clear that if the insertion explaining or expanding on paragraph 2 was a material alteration the title companies cannot claim the benefit of the Maris settlement terms in seeking to avoid damages caused by their failure to discover the existence of the easements. The trial court found that in refusing to defend the O'Neil lawsuits the title companies relied in part on the altered language contained in the insertion. The title companies have not appealed from that finding. Lipinski clearly suffered detriment because had the title companies not relied on the altered agreement they may have defended him in the first O'Neil suit. Instead, the title companies refused to defend and Lipinski was forced to hire counsel and to pay the costs of litigation. We therefore hold that the title companies had no right to avail themselves of paragraph two of the Maris settlement agreement in an attempt to avoid paying damages caused by their failure to discover the easements. We further question, although we do not expressly rule, whether the title companies could, after issuing the policy to Lipinski, contract with Lipinski to take away the coverage already bargained for  the $25,000 limits. Settlement of the Maris case, with or without a reservation of rights, should not have affected Lipinski's rights to assert his rights against the title companies for damages sustained because of their failure to discover the easements. In essence, the title companies' agreement with Lipinski was that it would contribute to the Maris settlement only if Lipinski gave up his rights under the policy to recover damages by the title companies' failure to discover the easements. This agreement may well contravene public policy. Third and finally, in an argument which assumes the right to recover for diminution of damages, the title companies devote seven pages of their brief explaining that the trial court found the wrong amount. They contend Lipinski would be permitted to recover $3,577.50 at most. Lipinski, on the other hand, devotes several pages of his brief to explaining why he should be able to recover for diminution of value to his property and why the amount set by the trial court is proper. Neither the title company nor Lipinski cite any authority. However, both parties have missed the basis of the trial court's decision awarding damages caused by nondisclosure of the easement: the trial court ruled that the measure of damages for an undisclosed easement should be  the amount required to remove such defect.  The posture of this case on appeal, therefore, is that the measure of damages formula adopted by the trial court has not been appealed. We further note that the trial court had a legal basis for this decision. In a situation where a partial loss has resulted from an encumbrance or encroachment, courts have adopted three tests for the measure of damages. One of those tests is the amount necessary to remove the existing encumbrance or lien. 44 Am.Jur.2d Insurance § 1566 at 573. Whether it was the proper measure of loss in this case is an issue that has not been appealed and we therefore affirm the measure of damages adopted.