Idaho Real Estate & Development Law Update: Provision in Lender's Title Insurance Policy Reducing Amount of Insurance by "Payments Made" Does Not Include Lender's Full Credit Bid at Foreclosure Sale

In the case of Bank of Idaho v. First American Title released June 17, 2014, the Idaho Supreme Court covered some new ground and revisited some old ground.

New Ground: 

Where a provision in a lender’s policy of title insurance limits the amount of insurance to:

the amount of the principal of the indebtedness secured by the insured mortgage as of Date of Policy, interest thereon, expenses of foreclosure, amounts advanced pursuant to the insured mortgage to assure compliance with laws or to protect the lien of the insured mortgage prior to the time of acquisition of the estate or interest in the land and secured thereby and reasonable amounts expended to prevent deterioration of improvements, but reduced by the amount of all payments made

the words “all payments made” do not include a full credit bid (i.e. a bid by the lender of all amounts secured by the deed of trust) at a trustee’s sale pursuant to the deed of trust.

“In this context, the words 'payments made' would normally be construed by laymen to mean payments made by the obligor on the principal indebtedness secured by the deed of trust, not a credit bid made by a lender at a trustee’s sale.”

Construing “all payments made” to include a full credit bid by the lender would cause the quoted provision to conflict with another provision in the policy that says “[p]ayment in full by any person or the voluntary satisfaction or release of the insured mortgage shall terminate all liability” of the title insurance company except where the insured “acquires all or any part of the estate or interest in the land by foreclosure, trustee’s sale, conveyance in lieu of foreclosure, or other legal manner which discharges the lien of the insured mortgage.”

Old Ground: 

“Unless a contrary intent is shown, common, non-technical words are given the meaning applied by laymen in daily usage—as opposed to the meaning derived from legal usage—in order to effectuate the intent of the parties.” Howard v. Oregon Mut. Ins. Co., 137 Idaho 214, 218, 46 P.3d 510, 514 (2002).

“A provision in an insurance contract must be read within the context in which it occurs.” Dave’s Inc. v. Linford, 153 Idaho 744, 751, 291 P.3d 427, 434 (2012).

“[C]onflicting provisions create an ambiguity, which is to be construed strongly against the insurer.” Farmers Ins. Co. of Idaho v. Talbot, 133 Idaho 428, 435, 987 P.2d 1043, 1050 (1999).

“Any insurer issuing any policy, certificate or contract of insurance, surety, guaranty or indemnity of any kind or nature whatsoever that fails to pay a person entitled thereto within thirty (30) days after proof of loss has been furnished as provided in such policy, certificate or contract, . . . the amount that person is justly due under such policy, certificate or contract shall in any action thereafter commenced against the insurer in any court in this state, or in any arbitration for recovery under the terms of the policy, certificate or contract, pay such further amount as the court shall adjudge reasonable as attorney’s fees in such action or arbitration.” Idaho Code section 41-1839(1).

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