James Matison v. Transamerica Title Insurance Company, a California Corporation

James and Nancy Matison (“the Matt-sons”) sued Transamerica Title Insurance Company (“Transamerica”), a California corporation, for breach of a contract to insure title and for tortious breach of good faith in settling a claim against the Matt-sons. Transamerica removed the case to the federal district court. The case turns on Arizona law concerning the insurer’s duty to its insured.

FACTS

In 1981 Transamerica issued a standard title insurance policy to the Mattsons on Lot 1, Miracle Mile Center, Pima County, Arizona in the amount of $152,500. Through an intermediary company owned by them, the Mattsons conveyed the property to John M. Hall and Richard S. Cohen for $277,500. Transamerica insured the title. In November 1981 Hall and Cohen conveyed the property to Fairview Miracle Mile, Ltd. for $370,500. Transamerica insured the title.

On April 5, 1983 Marvin Schwarz and related parties (“Schwarz”) brought suit against the Mattsons, Hall, Cohen, Fair-view, and Transamerica, seeking to quiet title to the same property and charging the Mattsons with fraud, breach of contract and breach of fiduciary duty. In October 1983 Schwarz’ attorneys initiated settlement negotiations with…