Jarchow v. Transamerica Title Insurance

Opinion

Two married couples were interested in acquiring a parcel of land in the City of Placentia. Prior to opening escrow, they ordered a preliminary title report from a title company in Fullerton. After receiving the report indicating there were no significant clouds on the title, they decided to purchase the land for commercial development and entered into an escrow with the sellers at the same title company. At the close of escrow, they received a title insurance policy. A few days later, an adjacent landowner informed the buyers that he and his wife held a recorded easement for ingress and egress purposes across the northerly 20 feet of the subject property—a strip of land they used regularly as a roadway in going to and from their residence.

The buyers requested the company to eliminate the neighbor’s easement inasmuch as neither the preliminary title report nor the title policy referred to the existence of the easement. The title company refused to take any action. After retaining counsel, the buyers sued the *925 neighbor to eliminate the easement and the title company for breach of contract and negligence.

Following a nonjuiy trial, the court held the buyers were entitled to a quiet title decree against the neighbor and to $7,270 damages against the title company ($7,100 attorney’s fees, plus $170 for loss of use of the 20-foot strip).

Shortly before commencement of trial, the buyers were permitted to file a supplemental complaint against the title company for the purpose of recovering general and punitive damages as a result of the latter’s tortious conduct in failing to discover, disclose or eliminate the easement. The supplemental complaint was based on several theories: fraud, deceit, malicious breach of contract, bad faith and negligent infliction of emotional distress. In any event, the supplemental complaint was filed with the understanding that adjudication of the issues raised in it would be deferred until the issues tendered in the complaint had been resolved.

Following the court trial and the filing of an amended supplemental complaint, a jury was empaneled for the purpose of resolving the supplemental issues. The juiy awarded each of the four buyers $50,000 in general damages. However, in answer to special interrogatories, the jury found that the title company’s conduct was not fraudulent, outrageous, malicious or oppressive; consequently, no punitive damages were awarded.

The title company appeals from the $200,000 judgment entered on the jury verdicts.

Although stated in varying ways, the title firm contends that the buyers were not entitled to damages as a matter of law for negligent infliction of emotional distress nor for bad faith; that the court erred both in rendering certain juiy instructions and in refusing to give certain proffered instructions; that the court erred in admitting prejudicial evidence; and that the verdicts were excessive.

We have determined that the buyers pleaded and proved that they were entitled to damages for breach by the insurer of the covenant of good faith and fair dealing and for negligent infliction of emotional distress; that the court properly instructed the jury on all material issues; that there was no serious error in the admission of evidence; and that the damages awarded were fair and reasonable.

*926 In affirming the $200,000 judgment, we hold that when a title company insures a buyer of real property against liens and encumbrances of record and negligently fails to discover or disclose a recorded lien or encumbrance or fails to exclude a known recorded lien or encumbrance from coverage and, upon being notified of the existence of a recorded lien or encumbrance, unjustifiably refuses to take any legal action to clear the title or eliminate the cloud, the insurer may be liable to the insured in compensatory damages for any emotional distress which results.

Facts

In early June 1970, real estate broker Melvin A. Jarchow and building contractor William A. Canavier and their wives (“plaintiffs”) became interested in a three-acre parcel of real property located in the city of Placentia owned by Mr. and Mrs. LaBorde. Although the property was improved with a single family residence, plaintiffs felt it could be developed into a boat, trailer, and camper storage facility. They contacted Transamerica Title Insurance Company (“defendant”) and requested the title officer in the Fullerton branch to search the state of the record title and furnish them with a preliminary report. In searching the title, defendant’s employees discovered an easement from Frank F. Hill and Kate L. Hill (the LaBordes’ predecessors in interest) to Pete J. Perez and Annie Perez (“Perez Easement” or “Deed”), which had been recorded on November 28, 1960. The deed purported to convey to the Perezes a 20-foot easement for ingress and egress purposes across the northern boundary of the subject property. But for some inexplicable reason, reference to the recorded Perez Easement was omitted from the preliminary title report furnished the plaintiffs. However, the report did indicate that in 1958, when the Hills conveyed the subject property to LaBordes, they had reserved a 20- x 395-foot easement for ingress and egress (“Hill Easement”) across the northern boundary of the subject property.

After receiving the preliminary report, there were discussions between plaintiffs and Transamerica as to whether defendant would eliminate the Hill Easement as an exception to coverage and proceed to insure plaintiffs against the Hill Easement in the event the plaintiffs purchased the property. The escrow/title officer consulted with her superiors and obtained authorization to do so.

As a result of the title search and the conversations with the defendant, plaintiffs ■ promptly entered escrow with the LaBordes. Transamerica *927 acted as escrow holder and also acted as title insurer with the understanding it would provide a standard form title insurance policy insuring title in the name of the buyers and insuring the LaBordes’ security interests as holders of the first trust deed.

On August 27, 1970, the escrow closed and Transamerica issued the title policy. 1 The policy did not list the Hill Easement as one of the items excluded from coverage. Nor was the Perez Easement mentioned.

Within a few days after they took possession of the property, plaintiffs were informed that Perez claimed an easement for ingress and egress across their property. The Perezes owned the land immediately to the north of the subject parcel and Perez claimed that he had been using the 20-foot strip for access to his duplex residence since 1954; he also claimed that he had a deed from Hill which he acquired in 1960 which gave him easement rights over the northern strip of plaintiffs’ property—a strip 20 feet wide and variously described as being from 132 feet to 263 feet long. 2

Upon being advised of Perez’ claims, plaintiffs contacted Transamerica and requested the company to take action to establish plaintiffs’ title against the threat presented by the Perez Easement. Transamerica refused to initiate any action upon the plaintiffs’ behalf, taking the fatuous position that it had no obligation to plaintiffs under the title policy since the Perez Deed had been excluded from coverage—notwithstanding the fact that the Perez Easement was not even mentioned in the exclusionary provisions of the policy.

After receiving the negative response from Transamerica, plaintiffs filed their initial complaint wherein they sought quiet title and injunctive relief against the Perezes and damages and attorney fees against *928 Transamerica. Transamerica filed a cross-complaint to reform the policy, claiming that a mistake had been committed by the escrow/title officer in preparing the typing instructions in that the Hill Easement should have been excepted from coverage.

Pending the trial of the first action, plaintiffs applied for and obtained approval of their proposed site development plan for the storage facility from the City of Placentia. However, development of the property was conditional; Perez had notified the city that he had a deed which he claimed gave him a right to use the strip; plaintiffs’ proposed plan would have blocked the access to the Perez property with a building; one of the conditions imposed by the city because of the Perez Deed was to keep that access open. Although they received approval of their plan, plaintiffs decided not to proceed with it because of the clouds on the title.

While the trial on the complaint and cross-complaint was pending, plaintiffs filed the supplemental complaint seeking general and punitive damages on the basis of the aforesaid tort theories. It was stipulated that the material allegations thereof would be deemed denied without the necessity of Transamerica filing a formal answer thereto. It was also agreed that a bifurcation occur, with the action on the complaint and cross-complaint having priority.

The Court Trial

The first trial went on intermittently over a period of three months. At the conclusion thereof, the court handed down a memorandum decision and findings of fact and conclusions of law. Before entering judgment, the court amended the findings on two or three occasions. The material findings follow: The Perezes had no right, title or interest in the subject property by virtue of the deed from Hill or otherwise; in 1958, the Hills conveyed the subject parcel to the LaBordes and reserved the 20-foot strip for purposes of ingress and egress for the benefit of some other land they then owned; the deed containing the reserved easement was recorded; the use of the strip by Perez was with the consent of LaBordes, plaintiffs’ predecessor in interest; said consent was subject to revocation by LaBordes and the plaintiffs; the consent had been revoked by the LaBordes’ sale of the real property to the plaintiffs and by the plaintiffs’ action in serving a notice of revocation upon Perez when they acquired the property; at the time Transamerica conducted its title search preparatory to the issuance of the preliminary report and at the time the plaintiffs’ escrow closed on August 27, 1970, the Perez deed of *929 November 1960 and the Hill Easement of 1958 were both of record; the Perez Deed, being a void conveyancé, was excluded from coverage under the Transamerica policy; however, Transamerica was negligent in preparing the preliminary report; Transamerica knew or should have known that plaintiffs would rely on the title search as evidenced by the preliminary report; the escrow/title officer discovered the existence of the Perez Deed before the preliminary report was prepared; Transamerica negligently failed to disclose the existence of the Perez Easement in the preliminary report; as a result of the negligence of Transamerica, plaintiffs temporarily lost the use of the strip from August 27, 1970, to May 1, 1973, and were entitled to $172 damages as a result thereof; plaintiffs also retained counsel and were entitled to attorney’s fees in the sum of $7,184 to quiet title to the Perez Deed; however, Transamerica was not obligated to take legal action upon the plaintiffs’ behalf to eliminate the Perez Easement; 3 as to the Hill Easement, it constituted a cloud on the title until May 1, 1973 (Transamerica obtained a quitclaim deed from Hills’ successor-in-interest during the course of the first trial) and was insured against under the terms of the title policy; consequently, there was until May 1, 1973, a cloud or defect on the title insured against under the Transamerica policy; the Hill Easement, being a cloud on the title, resulted in substantial damages 4 to plaintiffs until removed in 1973; however, the property sustained no compensable detriment (e.g., from loss of use) despite the cloud created by the Hill Easement for two reasons: (1)-Transamerica removed the cloud by obtaining a quitclaim deed from the Hills’ successor-in-interest during the trial, and (2) plaintiffs failed to mitigate their damages since they did not develop the property pending the trial, although they could have done so; and finally, Transamerica was not entitled to reformation of the policy inasmuch as it had knowledge of the Hill Easement and agreed to insure against it.

The Jury Trial

In October 1973, the jury trial commenced. The testimony on the liability issue was understandably repetitive of that introduced in the first trial. However, extensive testimony was presented on the proximate cause and damage issues, particularly with reference to the distress and anguish experienced by plaintiffs from the time they learned of the *930 clouds on the title until the time the same were extinguished—a period in excess of two and one-half years.

Canavier, age 53, suffered from a prior heart condition; he experienced tension and nervousness in being required to engage in court litigation for a period in excess of two and one-half years; his doctor prescribed Valium; the worry from tension created by the litigation caused him extreme stress; he worried over his wife’s condition and her reaction to the litigation; and Transamerica’s refusal to proceed against Perez caused him great emotional anguish.

Mrs. Canavier testified to the following effect: After discovering the existence of the Perez Deed and after determining that Transamerica intended to do nothing about it, she became extremely nervous; she was unable to sleep and worried constantly over the litigation, the money situation, and what they would do with the property; she was also worried about the effect the litigation would have on her husband’s heart condition; her observations of her husband’s distress posed a worry to her over possible loss of security for herself and her daughter in the event her husband died; she was in constant turmoil over Transamerica’s refusal to clear title to the property; she was worried about the coplaintiffs (the Jarchows) who put most of their savings into the project; she was constantly concerned about the paying of attorney fees and litigation cost's; they had to continue payments on the property although its status and future remained clouded due to the litigation; she was shocked when she learned Transamerica refused to clear title and she was greatly disturbed about the mistake Transamerica made because she felt when you employ an expert in title matters you should receive a clear title; the litigation was long and costly; it took over two and one-half years to clear the title and their financial resources were being depleted in payments; the prospect of going to court disturbed her greatly; she was humiliated and embarrassed by having to discuss in public her private feelings and all the problems encountered with the property during the course of the litigation.

Jarchow, age 61, testified to the following effect: He was unable to sleep during the pendency of the litigation; he and his wife had put all of their reserve savings in the property; his wife was required to return to work after discovery of the Perez Easement; the burden of continuing to make payments on the subject property and the financial hardship imposed by litigation expenses was a constant source of worry; he was constantly concerned about the outcome of the litigation inasmuch as he *931 had invested everything he had in the property and he was not at all certain as to whether the title would ever be straightened out; he was shocked about Transamerica’s failure to honor the title policy and its failure to report the clouds on the title; he was humiliated by his wife having to go back to work and being compelled to go to a psychiatrist; his wife would awake at night and sob and moan and worry over the pending litigation; his emotional distress resulted, at least in part, from Transamerica’s failure to sue Perez or otherwise eliminate the easement.

Mrs. Jarchow testified that since the litigation had commenced she suffered from loss of sleep and had to go back to work; their finances were declining; the worry over the attorney’s fees was constant; she felt their security was gone as a result of the continued litigation; her blood pressure rose and she did not feel well; inasmuch as they had invested most of their savings in the property, she had been required to neglect her teeth; she was worried over her husband’s health and the attorney’s fees and court costs; she was amazed to learn of Transamerica’s mistake and shocked when it refused to correct its error; she could not believe they purchased an insurance policy for the purpose of protecting them and then received no protection from the insurer.

A court-appointed psychiatrist testified to the following effect: While the plaintiffs were deeply concerned about their investment being impaired and their supposed inability to develop the property because of the litigation, he was of the opinion that the litigation aggravated the symptoms, as did Transamerica’s failure to honor its contractual commitments; in short, many of the plaintiffs’ symptoms were directly attributable to the litigation and Transamerica’s blatant refusal to clear the title.

After both sides rested, the court read its findings of fact and conclusions of law (as amended) to the jury and the jury was instructed it was bound thereby.

Special interrogatories were propounded to the jury. The jury answered that Transamerica did not act maliciously towards plaintiffs, did not defraud plaintiffs, and did not act outrageously towards the plaintiffs. Consequently, no punitive damages were awarded. However, the jury did expressly find, in answering the special interrogatories, that the plaintiffs’ emotional distress was legally caused by defendant’s negligence in failing to disclose the Perez Deed in the preliminary report and by defendant’s conduct with regard to the cloud created by the Hill *932 Easement. The jury also found that not all of the emotional distress suffered by the plaintiffs was caused by failure to proceed with the planned development of the real property; in other words, the jury impliedly found that the emotional distress suffered by the plaintiffs was caused by the defendant’s negligence and bad faith and the resultant worry and anguish flowing from Transamerica’s utter failure to provide a good title or to do anything to correct its errors in connection with the search it made, the preliminary report it prepared, and the policy it issued.

Emotional Distress

Transamerica contends that plaintiffs’ supplemental complaint failed to state legally sufficient facts to set forth a cause of action for the negligent infliction of mental distress; consequently, the trial court’s refusal to grant its motion for judgment on the pleadings constitutes reversible error. 5

Transamerica asserts that California law tracks the majority common law rule: Damages for emotional distress will not be awarded in an action for negligence unless that distress resulted directly from, or manifested itself in, physical injury. The rule requires physical “impact or injury,” thus limiting the number of situations in which mental distress damages, occasioned by “merely negligent” behavior, may be recovered. (2 Harper & James, The Law of Torts (1956) § 18.4, pp. 1031-1032; 4 Witkin, Summary of Cal. Law (8th ed. 1974) § 548, pp. 2815-2816.) But American jurisdictions have been far from uniform in their application of the foregoing rule.

Those courts which have strictly applied the “impact or injury” standard have offered a variety of reasons for doing so. Four have received particular attention: (1) Emotional distress not so severe as to result in physical injury is too trivial a harm to merit recognition and remedy. (2) Mental distress is an injury which may easily be feigned and, without the impact or injury requisite, courts would be inundated with fraudulent claims. (3) Such injuries are too difficult to measure in dollar amounts, and courts should refrain from imposing speculative judgments *933 on defendants. (4) In most cases where physical impact and injury are absent, the causal link between a defendant’s negligent act and a plaintiff’s distress is sufficiently attenuated so that courts should refuse to adjudicate negligence actions alleging only mental distress damages; in other words, the proximate cause problem makes it nearly impossible for courts to place articulable limits on defendants’ liability. (Rest. 2d Torts, § 436A, com.; 2 Harper & James, The Law of Torts (1956) § 18.4, pp. 1032-1034; Prosser, Law of Torts (4th ed. 1971) § 54, pp. 327-328.)

But application of the “impact or injury” rule—which denies court access to arguably injured parties—has resulted in a jurisprudential conflict of no small proportions. A fundamental principle of our system of justice is that for every wrong there is a remedy (e.g., an injured party should be compensated for all damage proximately caused by a wrongdoer); and departure from this principle may be justified only by the most compelling considerations. (Cristi v. Security Ins. Co., 66 Cal.2d 425, 433 [58 Cal.Rptr. 13, 426 P.2d 173].) Since application of the “impact or injury” requirement constitutes a significant departure from the aforestated maxim, it has been the object of much criticism by both jurists and scholars.

The argument that emotional distress is a trivial injury is an antiquated concept which the advance of modern psychology has repudiated; research has shown that mental trauma can be just as debilitating as physical paralysis. (Pound, Interpretations of Legal History (1923) p. 120.) Fraudulent claims are not likely to be eliminated by application of the rule, since the slightest impact, 6 or the most attenuated of physical injuries 7 have been found sufficient to satisfy the rule’s requirement. (Battalla v. State, 10 N.Y.2d 237 [219 N.Y.S.2d 34, 176 N.E.2d 729].) Further, the California Supreme Court has observed that “the possibility that fraudulent assertions may prompt recovery in isolated cases does not justify a wholesale rejection of the entire class of claims in which that potentiality arises.” (Dillon v. Legg, 68 Cal.2d 728, 736 [69 Cal.Rptr. 72, 441 P.2d 912, 29 A.L.R.3d 1316].) Nor does the problem of speculative damages (given the current sophistication of the medical profession) present any greater problem in mental distress cases than it does, for example, in personal injury cases involving pain and *934 suffering. (See Battalla v. State, supra, 10 N.Y.2d 237 [176 N.E.2d 729]; 59 Geo.L.J. 1237.) And, finally, the proximate cause problems raised by mental distress cases are really no greater than those which arise in many negligence actions involving physical injury. (See Prosser, Law of Torts (4th ed. 1971) § 54, pp. 327-32S.) 8 But the fact that this causation problem has so often been used as a justification for the “impact or injury” requirement merely serves to point up the fundamental concern which underlies the reluctance of many courts to recognize a cause of action in negligence for emotional distress.

It has often been noted that proximate cause analysis is a mechanism by which courts implement public policy judgments: the wrongfulness of a defendant’s conduct is balanced against the severity of a plaintiff’s harm, and the court determines whether the situation is one in which society should provide judicial redress. (Cf. Rowland v. Christian, 69 Cal.2d 108 [70 Cal.Rptr. 97, 443 P.2d 561, 32 A.L.R.3d 496].) With this function of proximate cause analysis in mind, two conclusions appear inevitable: (1) “[T]he motivation underlying denial of recovery [for emotional distress in negligence actions unaccompanied by physical impact or injury] has been one of public policy, with the courts continuing to express fears that unlimited and undeserved liability will result from the extension of independent protection to mental equilibrium,” (59 Geo.L.J. 1237, 1244-1245) and (2) the justifications advanced for use of the “impact or injury” requirement focus upon the problem of adequate proof: underlying each of the justifications is the assumption that no guarantee of genuineness may be had in negligence actions for mental distress. (Battalla v. State, supra, 10 N.Y.2d 237 [176 N.E.2d 729]; Ferrara v. Galluchio, 5 N.Y.2d 16 [176 N.Y.S.2d 996, 152 N.E.2d 249, 71 A.L.R.2d 331]; 2 Harper & James, The Law of Torts (1956) § 18.4, pp. 1036-1038.) Thus, the use of the “impact or injury” requirement has been a response to public policy concerns raised by the problems of proof inherent in mental distress cases. From the preceding discussion, it necessarily follows that the only valid objection against recovery for mental distress is the danger of fraudulent claims. This problem should be confronted and resolved by rules of proof rather than by imposition of limits on the negligence action itself. (See Prosser, Law of Torts (4th ed. 1971) § 54, p. 328.) 9

*935 California courts have attempted to resolve the public policy problems inherent in mental distress cases in a variety of ways.

Several recent decisions have adhered to a strict “impact or injury” standard. In both Gautier v. General Telephone Co., 234 Cal.App.2d 302 [44 Cal.Rptr. 404] and Espinosa v. Beverly Hospital, 114 Cal.App.2d 232 [249 P.2d 843], it was held that negligently caused emotional distress is not compensable unless accompanied by physical injury. In a third opinion, Vanoni v. Western Airlines, 247 Cal.App.2d 793 [56 Cal.Rptr. 115], the court appeared to endorse the physical injury portion of the common law requirement, but noted that California was not an “impact jurisdiction.” However, the Vanoni court circumvented the common law requirement by expanding the definition of “physical injury” to include “shocks to the nervous system.”

While the holdings of the foregoing cases might lead one to conclude that the “impact or injury” rule has vitality in this state, a review of California Supreme Court decisions of the past several years militates against such a conclusion.

Since 1952 the high court has evidenced a desire to abandon the “impact or injury” barrier in cases involving the intentional infliction of emotional distress. In State Rubbish etc. Assn. v. Siliznoff, 38 Cal.2d 330 [240 P.2d 282], the court recognized that (1) the fear of fraudulent claims was not sufficient justification to impose an “impact or injury” barrier to all mental distress claims (“The jury is ordinarily in a better position . . . to determine whether outrageous conduct results in mental distress than whether that distress in turn results in physical injury.”); and (2) administrative difficulties cannot justify denial of relief for serious invasions of emotional tranquility. (P. 338.)

In Acadia, California, Ltd. v. Herbert, 54 Cal.2d 328 [5 Cal.Rptr. 686, 353 P.2d 294], the court held that when a plaintiff suffers emotional upset as a result of an invasion of his property interests (a trespass or nuisance), he is entitled to recover damages for mental distress, regardless of whether physical injury has been sustained. Later, the court again expressed a certain dissatisfaction with the “impact or injury” rule, when it held that mental shock may be a disturbance of the nervous system which must be classified as physical injury. (Di Mare v. Cresci, 58 Cal.2d 292, 300 [23 Cal.Rptr. 772, 373 P.2d 860].)

*936 In 1967, in Crisci v. Security Ins. Co., supra, 66 Cal.2d 425, the court expressly rejected strict application of the common law “impact or injury” requirement and suggested a new standard when it stated: “[I]t is settled in this state that mental suffering [including nervousness, grief, anxiety and worry] constitutes an aggravation of damages when it naturally ensues from the act complained of’ and that “[s]uch awards are not confined to cases when the mental suffering award was in addition to an award for personal injuries,” but may be recovered in cases where tortious conduct constituted an interference with property interests alone. In so holding, the court reasoned that where an actionable claim has resulted in substantial damages, apart from emotional distress, the danger of fictitious claims is greatly reduced: “other damages,” be they to the plaintiff’s person or to his property, provide the court with a sufficient guarantee of genuineness of the claim to accord redress for the emotional injury. (P. 433.) 10

The substantial damage requirement set forth by the Crisci court is, however, somewhat difficult of precise definition. The court suggested that such damages constituted “actionable claims,” as well as “substantial invasions of protected property interests.” Does this language mean that substantial damage must be adjudicated compensable before damages for emotional distress may be recovered? We think not.

In articulating th& substantial damage standard, the court was attempting to resolve the fundamental jurisprudential conflict engendered by the “impact or injuiy” rule. To ascertain the genuineness of a claim the court decided to look to the facts of the case to determine whether plaintiff had suffered an empirically verifiable injuiy: a detriment whose impact was readily observable and identifiable; an injury which could not be as easily fabricated as mental distress, since proof of it could, and should, be drawn from sources other than the plaintiff’s own mouth. Thus, if a complaint indicates (for example) that a plaintiff was deprived of the use of his real property or his financial resources; or suffered physical injuiy; or was deprived of the possession of a piece of personalty, he may reasonably have been said to have suffered substantial damages. Sufferance of injuries such as these permit the reasonable inference that plaintiff’s claim of mental distress is genuine.

*937 Thus, substantial damage need not be compensable (since imposition of a requirement of compensability would add little to the guarantee of genuineness); interference with one’s legally protected interests is sufficient damage to satisfy the test set forth in Crisci, and to guard against potentially fraudulent emotional distress claims.

While Crisci was a tort action for breach of the implied covenant of good faith in an insurance contract, the court made no attempt to limit its comments on the “impact or injury” standard to that particular cause of action. Rather, the court addressed the problem of fraudulent claims by looking for the sufferance of some substantial damage (in lieu of physical impact or injury) which might impart authenticity to plaintiff’s mental distress claim; the defendant’s behavior, be it negligent or intentional, is of no consequence in applying this standard; and no perceivable reason exists why the substantial damage rule should not apply to the negligence action before us.

We conclude that the “impact or injury” rule is no longer strictly applied in California, and that courts may adjudicate negligence claims for mental distress when sufficient guarantees of genuineness are found in the facts of the case—e.g., when the plaintiff has suffered substantial damage apart from the alleged emotional injury. 11

In two recent decisions, the Supreme Court has evidenced both a desire to adhere to the rule set forth in Crisci and a further disavowal of the “impact or injury” standard.

In Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566 [108 Cal.Rptr. 480, 510 P.2d 1032], in upholding an emotional distress damage award, the court reaffirmed the Crisci rule and concluded that mental distress damages were properly awarded when they resulted from tortious conduct which resulted in a substantial invasion of property interests of the plaintiff.

In Dillon v. Legg, supra, 68 Cal.2d 728, the court again stated that it has consistently rejected rules of law which would deny recovery of legitimate claims because fraudulent ones might be urged in similar contexts; it noted that juries were perfectly capable of assessing and *938 weighing medical and psychiatric testimony regarding emotional injuries for the purposes of both measuring damages and rejecting fraudulent claims; in actions for the negligent infliction of emotional distress, the courts could utilize the foreseeability standard of proximate cause analysis to limit the number of plaintiffs to whom, a negligent defendant could conceivably be held liable: “Defendant owes a duty, in the sense of a potential liability for damages, only with respect to those risks or hazards whose likelihood made the conduct . . . negligent in the first instance.” (P. 739.)

Thus, the Dillon court utilized traditional negligence analysis in placing reasonable limits on defendants’ liability for negligent acts which result in mental distress.

Applying the aforestated standard, we have concluded that Transamerica’s negligent act—its failure to list the Perez Deed on plaintiffs’ preliminary title report—substantially damaged plaintiffs’ financial and property interests in the amount of $7,270 ($170 for loss of use and $7,100 in attorney’s fees). Such damages provide sufficient guarantees of the genuineness of plaintiffs’ emotional distress claim to satisfy the Crisci standard. Having determined that plaintiffs’ cause of action is not deficient for its failure to meet the common law “impact or injury” test, we next must measure plaintiffs’ case against traditional negligence analysis to insure that a cause of action in negligence was adequately set forth. 12

Actionable negligence involves three elements: (1) a legal duty to use due care; (2) breach of that duty; and (3) the breach as proximate (legal) cause of the resulting injury. (4 Witkin, Summary of Cal. Law (8th ed. 1974) § 488, p. 2749.)

When a title insurer presents a buyer with both a preliminary title report and a policy of title insurance, two distinct responsibilities are assumed. In rendering the first service, the insurer serves as an abstractor of title—and must list all matters of public record regarding the subject property in its preliminary report. (Hardy v. Admiral Oil Co., 56 Cal.2d 836, 841 [16 Cal.Rptr. 894, 366 P.2d 310]; 2 Miller & Starr, Current Law of Cal. Real Estate (1968) § 226, pp. 284-285.) The duty imposed *939 upon an abstractor of title is a rigorous one: “An abstractor of title is hired because of his professional skill, and when searching the public records on behálf of a client he must use the degree of care commensurate with that professional skill. . .. the abstractor must report all matters which could affect his client’s interests and which are readily discoverable from those public records ordinarily examined when a reasonably diligent title search is made.” (Contini v. Western Title Ins. Co., 40 Cal.App.3d 536, 545-546 [115 Cal.Rptr. 257]; see also Viottiv. Giomi, 230 Cal.App.2d 730, 739 [41 Cal.Rptr. 345]; Hawkins v. Oakland Title Ins. & Guar. Co., 165 Cal.App.2d 116, 126 [331 P.2d 742].) Similarly, a title insurer is liable for his negligent failure to list recorded encumbrances in preliminary title reports. (Bamille v. Schmidt, 37 Cal.App.3d 92 [112 Cal.Rptr. 126]; Moev