L. Smirlock Realty Corp. v. Title Guarantee Company, 63 N.Y.2d 955 (1984)

A title insurance company’s liability for a defect in title accrues, and the insured’s cause of action arises, at the time the insured acquires the defective title and the policy is issued, thus establishing the date from which interest on damages should be calculated.

Summary

L. Smirlock Realty Corp. sued Title Guarantee Company for a defect in title insurance policy. The dispute centered on when interest should begin accruing on the damages awarded for the defect. The Court of Appeals modified the Appellate Division’s order, holding that interest on the damages should run from the date the defective title was acquired and the policy was issued (May 14, 1969), not from a later date as determined by the Appellate Division. The court reasoned that the title company’s liability and the plaintiff’s cause of action arose simultaneously with the acquisition of the defective title.

Facts

On May 14, 1969, L. Smirlock Realty Corp. acquired a property title insured by Title Guarantee Company.
A defect existed in the title related to access rights to the property.
The defect resulted in a diminution of the property’s value.
Litigation ensued to determine the extent of the title company’s liability and the date from which interest on the damages should accrue.

Procedural History

The Supreme Court made initial factual determinations regarding the defect and its impact on the property value.
The Appellate Division affirmed the Supreme Court’s factual findings but differed on the date from which interest should run, setting it as April 14, 1972.
L. Smirlock Realty Corp. appealed the interest accrual date to the Court of Appeals.

Issue(s)

Whether the interest on damages awarded for a defect in a title insurance policy should accrue from the date the defective title was acquired and the policy was issued, or from a later date.

Holding

Yes, because the title insurance company’s liability for a defect in the title against which the policy insured accrued, and the plaintiff’s cause of action existed, at the time the plaintiff acquired the defective title and the policy was issued.

Court’s Reasoning

The Court of Appeals agreed with the Appellate Division’s substantive findings regarding the defect and damages amount, affirming those aspects based on evidence in the record.
However, the court disagreed with the Appellate Division’s determination of the interest accrual date.
The court emphasized that the defendant’s liability and the plaintiff’s cause of action arose when the plaintiff acquired the defective title and the insurance policy was issued on May 14, 1969.
The court cited CPLR 5001(b), stating that the right to interest ran from that date.
The court reasoned that the damages were ascertainable as of the date of the title transfer, and the plaintiff was deprived of the full value of the property from that point forward.
The court explicitly stated: “Defendant’s liability for a defect in the title against which the policy insured accrued, and plaintiff’s cause of action existed, at the time plaintiff acquired the defective title and the policy was issued, May 14, 1969. Its right to interest on the $593,850 accordingly ran from that date (CPLR 5001, subd [b]).”
This case clarifies that the trigger for interest accrual in title insurance disputes is tied to the moment the insured is demonstrably harmed by the title defect, which is the date of title transfer.