title insurance litigation committee newsletter -- winter · pdf filestewart title guaranty...
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Uniting Plaintiff, Defense, Insurance, and Corporate Counsel to Advance the Civil Justice System
Winter 2014
Carbon nanotubes (CNTs) holdpromise for many beneficialapplications. However, there havebeen concerns and calls for amoratorium raised over “mountingevidence” that CNT may be the“new asbestos,”1 or at leastdeserving of “special toxicologicalattention” due to prior experienceswith asbestos.2 The shape and sizeof some agglomerated CNTs aresimilar to asbestos—the most“desirable.” And because CNTs forstructural utility are long andthin—characteristics thought toimpart increased potency to
asbestos fibers—discussions ofparallels between these twosubstances are natural. Thus, giventhe legacy of asbestos-relatedinjury and the thousands of caseslitigated each year, consideration ofpossible implications of the use ofCNTs in research and in consumerproducts is prudent.
First reported in 19913, CNTsepitomize the emerging field ofnanotechnology, defined by someas the “ability to measure, see,manipulate, and manufacturethings usually between 1 and100 nanometers.”4 CNTs are a typeof carbon-based engineerednanoparticle generally formed by
Uniting Plaintiff, Defense, Insurance, and Corporate Counsel toAdvance the Civil Justice System
Fall 2009
Toxic Torts and EnvironmentalLaw Committee
IN THIS ISSUECarbon Nanotubes: The Next Asbestos . . . . . . . . . . . . . . . . . . . . . . . 1
Editor’s Message . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Tatera v. FMC Corporation: When Is A Product No A Product? . . . 3
Mexico’s National Wastes Management Program. . . . . . . . . . . . . . . 4
Environmental Risk During Restructuring And Bankruptcy . . . . . 5
Upcoming TTEL Programs And Meetings . . . . . . . . . . . . . . . . . . . . 6
Limitations Of Toxicogenomic Studies To Assess Toxic ExposuresAnd Injury From Benzene . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Burlington Northern: The Requisite Intent For Arranger LiabilityUnder Cercla . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2009-2010 TIPS Calendar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Continued on page 18
CommitteeNewsCommitteeNews
CARBON NANOTUBES: THE NEXT ASBESTOS?Fionna Mowat, Exponent, [email protected] Tsuji, Exponent, [email protected]
1 Miller, G. 2008. Mounting evidence that carbonnanotubes may be the new asbestos. Friends of theEarth Australia. Available at http://nano.foe.org.au.2 The Royal Society and Royal Academy ofEngineering (RS/RAE). 2004. Nanoscience andnanotechnologies. Royal Society and Royal Associationof Engineers. London: The Royal Society. Available athttp://www.royalsoc.ac.uk/.3 Iijima, S. 1991. Helical microtubules of graphiticcarbon. Nature (London) 354:56–58.4 National Science and Technology Council (NSTC).2007. The National Nanotechnology Initiative. StrategicPlan. Washington DC: NSTC, Committee onTechnology, Subcommittee on Nanoscale Science,Engineering, and Technology. December. Available athttp://www.nano.gov/ NNI_Strategic_Plan_2004.pdf.
Stewart Title Guaranty Co. v. Credit Suisse, Case No. 1:11-CV-227, 2013 WL 1385264 (D. Idaho April 3, 2013) (granting motion to compel in part)
The District Court’s recent Order in the matter of Stewart Title Guaranty Co. v. Credit Suisse, contains a detailed analysis of the attorney client privilege and the work product doctrine in the context of a title insurance claim. It provides cautionary insight for title insurers and outside counsel who would seek to protect documents, communications, and other information by virtue of this privilege and doctrine.
In Credit Suisse, Stewart Title issued a title insurance policy in favor Credit Suisse that contained coverage for mechanic’s liens in connection with Credit Suisse’s loan of $250 million secured by two mortgages on a ski resort property being developed in Idaho.
When Credit Suisse sued to foreclose, numerous claimants also sued to foreclose liens for unpaid labor and materials asserting priority over Credit Suisse’s mortgages. The foreclosure and mechanic lien claim suits were consolidated and Credit Suisse made a claim on the policy. In response, Stewart Title retained Fabian
Clendenin as counsel to represent Credit Suisse (“Defense Counsel”). Stewart Title also undertook an internal investigation of the lien claims including an investigation of whether there was coverage for Credit Suisse’s claim. Ultimately, Stewart Title retained Faegre Benson as counsel to represent it, to investigate the mechanic’s lien
Title Insurance LitigationCommittee*
ATTORNEY-CLIENT PRIVILEGE AND WORK PRODUCT DOCTRINE IN THE CONTEXT OF A TITLE INSURANCE CLAIM: A CASE STUDYBy: Christopher Smart
IN THIS ISSUE:Attorney-Client Privilege And Work Product Doctrine In the Context Of A Title Insurance Claim: A Case Study . . . . . . . . . . . . . . . . . . 1Letter From The Chair . . . . . . . . . . . . . . . . 3Insured Cannot Ignore Facts To Create Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Obtaining A Deficiency Judgment In Georgia: An Overview Of Procedures . . . 5Massachusetts Rejects “In For One, In for All” In Title Insurance Claims . . . . . . . . . . 7Recoupment Of Policy Losses In California By Subrogation - Superior Equities . . . . . . 82014 TIPS Calendar . . . . . . . . . . . . . . . . . . 12
Continued on page 10
*Before citing any case or legislative enactment mentioned or discussed in this News-letter, be sure that the decision has not been overruled or modified, or that the statute has not been amended, subsequent to the time these summaries were prepared.
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ChairWilliam Jacob Long IV
217 Dexter AveBirmingham, AL 35213-3721
(205) 251-3000Fax: (205) 244-5730
Chair-ElectRyan C Squire
Garrett & Tully225 S Lake Ave, Ste 1400Pasadena, CA 91101-4893
(626) [email protected]
Council RepresentativeEugene G BeckhamBeckham & Beckham PA
1550 NE Miami Gardens Dr, Suite 504Miami, FL 33179-4836
(305) 957-3900Fax: (305) 940-8706
Last Retiring ChairRonald A Damashek
Stahl Cowen Crowley Addis LLC55 W Monroe St, Ste 1200Chicago, IL 60603-5127
(312) 377-7858Fax: (312) 423-8160
Newsletter Vice-ChairKevin M Razban
Fidelity National Title Group601 Riverside Avenue
Building 5, Fourth FloorJacksonville, FL 32204
(904) 854-8784Fax: (904) 633-3060
Scope LiaisonPatricia G Hughes
Allstate Insurance Company27555 Executive Dr, Ste 270
Farmington Hills, MI 48331-3570(248) 324-1063
Fax: (248) [email protected]
Vice-ChairsRaighne Coleman Delaney
Bean Kinney & Korman PC2300 Wilson Blvd, Ste 700Arlington, VA 22201-5435
(703) 525-4000Fax: (703) 525-2207
William A Doiron507 NW 39 Road, 223Gainesville, FL [email protected]
Jennifer Stephens GaytanFidelity National Title Group601 Riverside Ave, Bldg 5
Jacksonville, FL 32204-2901(904) 854-8936
Jessica Kui Len HewBurr & Forman LLP
200 S Orange Ave, Ste 800Orlando, FL 32801-6404
(407) 540-6600Fax: (407) 540-6601
Jerel Johnston HillLaw Office of Jerel J Hill
1420 Stonehollow Dr, Ste BKingwood, TX 77339-2494
(281) 358-3560Fax: (281) 358-0030
Ryan P HoffmanJohnston Allison & Hord PA1065 East Morehead Street
Charlotte, NC 28204(704) 332-1181
Fax: (704) [email protected]
Steven Ray Parker4221 Appleton Ave
Jacksonville, FL 32210-3320(205) 226-8701
Dainen N PentaLeahy McLean Fjelstad
25 Central Way, Suite 310Kirkland, WA 98033
(425) [email protected]
Julia A PhillipsPite Duncan LLP
9311 SE 36th St, Ste 100Mercer Island, WA 98040-3700
(206) 232-2752Fax: (206) 232-2655
Amelia K SteindorffBalch & Bingham LLP
1710 6th Ave NBirmingham, AL 35203-2015
(205) 226-3421Fax: (205) 488-5682
Richard VandersliceRichard L Vanderslice PC
1445 Snyder AvePhiladelphia, PA 19145-2317
(215) 667-8070Fax: (215) 279-9229
James WalsonLowndes Drosdick Doster et al
PO Box 2809Orlando, FL 32802-2809
(407) 418-6403Fax: (407) 843-4444
VISIT US ON THE WEB AT:
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It’s amazing how fast this year has gone by so far. As the current Chair of the ABA - TIPS Title Insurance Litigation Committee, I wanted to first thank Ryan Squire and Steven Parker for all of their hard work in setting our spring 2014 Committee Meeting in Las Vegas. Our CLE in Las Vegas had over seventy-five (75) participants, and we are looking forward to increasing that number at our CLE during the ABA Annual meeting in Boston on August 8, 2014.
We are also hard at work to increase our Committee’s membership and exposure. Through the hard work of Amy Stiendorff, the Committee has its own LinkedIn site as well as a Facebook directory. Jamie Walson has also started our membership drive by targeting different land title associations. Kevin Razban has done an excellent job in taking over the newsletter, and both Jessica Hew and Marc Brown have worked very hard
in preparing our Committee’s membership brochure. So far this year has been a true team effort in facilitating our Committee’s activities/events, and we are all very fortunate for the many hours donated by our membership.
Ryan Squire is set to take over as the Committee’s chairperson after our August meeting, so please reach out to him if you are interested in serving as a vice chair or if you are simply interested in becoming more involved with the Committee.
Finally, please make your plans to join us in Boston, if you can, and bring your colleagues and significant others. Information can be found on our website, http:// apps.americanbar.org/dch/committee.cfm?com=IL226600, where you can review current information about the Committee and its members, and access prior newsletters.
Should you have any suggestions about additional content that you would like to see on the website or improving the website experience, please share your thoughts with our website editor, Amy Steindorff ([email protected]). You may also contact her if you are interested in joining the LinkedIn site. I look forward to a productive leadership year and wish you the best in the holiday season and the year to follow.
William J. Long, Chair Title Insurance Litigation Committee
LETTER FROM THE CHAIR
©2014 American Bar Association, Tort Trial & Insurance Practice Section, 321 North Clark Street, Chicago, Illinois 60654; (312) 988-5607. All rights reserved.
The opinions herein are the authors’ and do not necessarily represent the views or policies of the ABA, TIPS or the Title Insurance Litigation Committee. Articles should not be reproduced without written permission from the Copyrights & Contracts office ([email protected]).
Editorial Policy: This Newsletter publishes information of interest to members of theTitle Insurance Litigation Committee of the Tort Trial & Insurance Practice Section of the American Bar Association — including reports, personal opinions, practice news, develop-ing law and practice tips by the membership, as well as contributions of interest by nonmembers. Neither the ABA, the Section, the Committee, nor the Editors endorse the content or accuracy of any specific legal, personal, or other opinion, proposal or authority.
Copies may be requested by contacting the ABA at the address and telephone number listed above.
Hypertext citation linking was created by application of West BriefTools software. BriefTools, a citation-checking and file-retrieving soft-ware, is an integral part of the Westlaw Drafting Assistant Platform. West, a Thomson Reuters business is a Premier Section Sponsor of the ABA Tort Trial & Insurance Practice Section, and this software usage is implemented in connection with the Section’s spon sorship and mar-keting agreements with West. Neither the ABA nor ABA Sections endorse non-ABA products or services. Check if you have access to West BriefTools software by contacting your Westlaw representative.
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INSURED CANNOT IGNORE FACTS TO CREATE COVERAGEBy: Alexander Levy, Garrett & Tully, PC, Pasadena, CA
What is the effect on the coverage determination under California law where (1) the matter which gave rise to the claim was expressly referred to in bold type on the front page a document that the insured solicited and reviewed in connection with the insured’s acquisition of the insured interest, (2) the insured did not read the front page, but only a subsequent page, and (3) the insured was not otherwise aware of the matter underlying the claim?
In the title insurance context, the question is whether this fact pattern implicates a policy exclusion that withholds coverage where the matter giving rise to the claim is “known to the insured” on the effective date of the policy; “knowledge” being defined by the policy as “not constructive knowledge.”
In this example, the insured solicited the document in question in order to identify risks. The insured had actual knowledge that not looking at any part of the document would subject the insured to risks identified there of which the insured was not aware. Arguably, actual knowledge of the risk of not reading the complete document afforded inquiry notice of the ignored risk which is deemed by law actual knowledge of the ignored risk. (Lady Washington Consolidated Co. v. Wood (1896) 113 Cal. 482, 487).
And, an insured cannot intentionally avoid actual knowledge. There is a difference between negligent failure to investigate and avoidance of actual knowledge (Imbler v. Craven (1969) 298 F.Supp. 795, 807 (D.C. Cal.) [“This is not mere negligence in failing to ascertain the facts. It is, at best, a deliberate failure to take full notice of their significance. . . .”]). A person cannot therefore avoid actual knowledge of a risk by choosing not to read part of a document (Stuart v. Smith (1927) 87 Cal.App. 552, 557-558 [“This is so because one is bound to read the entire publication and may not stop with reading only a portion. . .”)]; Triple A Management Co., Inc. v. Frisone (1999) 69 Cal.App.4th 520, 531 [collateral assignment and escrow instruction]; Alfaro v. Community Housing Imp. System & Planning Ass’n, Inc. (2009) 171 Cal.App.4th 1356, 1390 [preliminary report]; 612 South LLC v. Laconic Ltd. Partnership (2010) 184 Cal.App.4th 1270, 1280 [preliminary report].
Mr. Levy is an attorney practicing in Garrett & Tully’s Pasadena, CA office. He possesses a thirty-year specialty in the areas of real property titles, title insurance, and escrow, and extensive experience in title insurance coverage issues. Mr. Levy can be reached at (626) 577-9500; E-mail: [email protected].
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This article discusses the steps that a Florida bank doing business in Georgia, or with clients owning property in Georgia, must take to obtain a deficiency judgment against the debtor.
A power-of-sale foreclosure is truly non-judicial; the procedure does not contemplate any involvement of a judge or clerk, to “approve” the sale or otherwise. That is, unless the bank wishes to pursue a deficiency judgment. A deficiency action in Georgia is not non-judicial and actually comprises two court proceedings.
The first of these is to obtain an order confirming the sale.
To do so, the bank must file a “Report of Sale and Petition for Confirmation” within 30 days of the sale. The Report and Petition must be filed with a judge of the superior court of the county in which the sale took place. It is important to note that the Report and Petition should be submitted to the judge personally, rather than simply filed with the clerk. Courts have found that submitting to the judge’s secretary in chambers is sufficient, but it is a good idea to call chambers well ahead of the 30-day deadline in order to determine the judge’s availability and preferred method of submission.
The Report and Petition should address the particulars of notice, publishing, and the sale itself. It should aver that the Notice of Sale was provided to the debtor and published in accordance with applicable statutes, that the sale was conducted in accordance with applicable statutes, and that the sale brought the fair market value of the property.
The Report and Petition does not need to be served on the debtor.
Concurrently with the Report and Petition, the bank should also submit a proposed order setting a hearing on the Report and Petition. The subsequent order must be personally served on the debtor, together with any other party that may be liable for the debt, at least 5 days before the scheduled hearing. Note that the order setting
a hearing must emanate from the judge, rather than the bank or its counsel.
The hearing is evidentiary in nature, and the bank should arrange for its appraiser to testify. The debtor does not have the right to a jury trial. At the hearing, the judge must determine and make findings of fact that the property was sold for its fair market value and that the notice, advertisement, and sale were “regular.” The primary issue is valuation of the property, and many courts are concerned with the notice, advertisement, and sale only to the extent that any irregularity “chilled” bidding.
If the judge finds that the sale should not be confirmed, he may order resale, but is not required to do so.
The second step in the deficiency action process is to file a complaint for breach of note. The complaint should reference the judge’s order confirming sale.
Of note, a bank wishing to shorten its litigation timeline should consider filing suit on the note at the same time that it commences power-of-sale foreclosure proceedings (and amending its complaint once the confirmation proceedings are complete). Under Georgia law, foreclosure and suit on the note are not mutually exclusive and may be pursued in any order or concurrently. Likewise, a bank wishing to avoid confirmation proceedings altogether may consider filing suit and obtaining a judgment on the note first and only then beginning power-of-sale foreclosure proceedings. The statute that applies to deficiency actions has been interpreted to require confirmation as a condition precedent for future deficiency actions only.
E. Carson Lange is a member of the law firm of Rogers Towers in Jacksonville, FL and concentrates her practice in the areas of commercial litigation, torts, and civil trial practice. In 2006, she graduated cum laude from the Florida Levin College of Law. She has also served at the Eleventh Circuit Court of Appeals, first as a staff attorney and then as law clerk to U.S. Circuit Judge Peter T. Fay. Ms. Lange’s article was originally published by Rogers Towers for its Florida Banking Law Blog on January 21, 2014 (www.floridabankinglaw.com).
OBTAINING A DEFICIENCY JUDGMENT IN GEORGIA: AN OVERVIEW OF PROCEDURESBy: E. Carson Lange
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GMAC Mortgage, LLC v. First American Title Ins. Co., 464 Mass. 733; 2013 Mass. LEXIS 60 (2013).
In response to questions certified by the United States District Court for the District of Massachusetts, the Massachusetts Supreme Judicial Court (“SJC”) limited a title insurer’s duty to defend and ruled that:
1. A title insurer does not have a duty to defend the insured in the entire lawsuit where one claim is within the scope of the title insurance coverage and the other claims are not. The title insurer is only obliged to defend the insured on the covered claims.
2. With the possible exception of compulsory counterclaims, a title insurer that initiates litigation similarly does not have a duty to defend the insured against all reasonably foreseeable counterclaims.
The underlying litigation arose out of a mortgage which was recorded out of order. Elizabeth Moore and her husband, Thomas Moore, lived in a home in Billerica, Massachusetts, title to which stood in Mr. Moore’s name. As part of a refinance, Mr. Moore executed a note, a mortgage to GMAC Mortgage, LLC’s (“GMAC”) predecessor and a deed conveying the property to himself and his wife as tenants by the entirety. First American Title Insurance Company (“First American”) issued a loan policy. The mortgage was supposed to be recorded before the deed creating the tenancy by the entirety, but it was mistakenly recorded after the deed. Mr. Moore subsequently died leaving title to the property resting solely in Mrs. Moore, free of the mortgage.
The underlying litigation wound its way through two state trial courts, the federal district court and the state supreme court. Following a claim by GMAC, First American brought an action in the Massachusetts Land Court on behalf of GMAC to reform the deed to Mrs. Moore and equitably subrogate her interests to the GMAC mortgage. In response to the curative action and, in light of the Land Court’s jurisdictional restrictions, Mrs. Moore filed suit in the Superior Court against
GMAC for emotional distress, unfair and deceptive business practices in pursuing foreclosure and “money had and received” for mortgage payments allegedly made to GMAC in error. Before the two cases could be consolidated administratively, GMAC removed Mrs. Moore’s lawsuit to the United States District Court for the District of Massachusetts. GMAC filed counterclaims for reformation and equitable subrogation in the federal action, duplicating the claims asserted in the Land Court. An attorney retained by First American appeared on behalf of GMAC in the federal court to prosecute the title-related counterclaims and GMAC retained its own attorney to defend against Mrs. Moore’s claims. The case settled on the first day of trial.
GMAC then sued First American in the federal court to recover the fees and costs which GMAC incurred in defending against Mrs. Moore’s claims. Following a prompt bench trial, the United States District Court held that First American was not obligated to pay for the defense of the related claims which were not covered by the title insurance policy, but, recognizing that the case
presented an issue of first impression, certified the questions to the SJC and stayed the federal court proceedings. In answering the questions, the SJC did not review the United States District Court
judge’s decision, assumed that Mrs. Moore’s causes of actions were not covered by the title insurance policy and only considered whether First American was obligated to defend GMAC against the entire action as a matter of law.
Although Massachusetts follows the prevailing rule that a general liability insurer must defend the entire lawsuit if it has a duty to defend any of the underlying counts, the SJC reasoned that title insurance is “fundamentally different” from general liability insurance in that it eliminates or reduces existing risks rather than assumes future risks. That fundamental difference is reflected in differing premium payments and length of coverage in title insurance and general liability insurance. Footnote 8 of the SJC decision also compared the duty-to-defend language of the standard
MASSACHUSETTS REJECTS “IN FOR ONE, IN FOR ALL” IN TITLE INSURANCE CLAIMSBy: Lawrence P. Heffernan
The SJC reasoned that title insurance is “fundamentally different” from general liability
insurance in that it eliminates or reduces existing risks rather than assumes future risks.
Continued on page 11
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An issue sometimes arises in California policy recoupment actions as to whether a title insurer is entitled to be subrogated to the rights of its insured against a defendant whose liability to the insured arises solely from an innocent breach of contract. The issue is whether in that case the title insurer has “superior equities” to the defendant. While the resolution of that question will always depend on the application of equitable principles to the facts presented, there is California precedent holding an insurer who performs its obligations under the insurance policy has superior equities to a defendant who fails to perform his contract with the insured through no fault of his own.
The issue is relevant whenever a title insurer seeks recoupment from the seller to the insured of the insured interest for the seller’s breach of contract.
A. Superior Equities Requirement.
To establish a right to subrogation to the rights of its insured, an insurer must – among other things – prove superior equities to the party from whom recoupment is being sought. State Farm General Ins. Co. v. Wells Fargo Bank, N.A. 143 Cal.App.4th 1098, 1111-1112 (2006) (“State Farm”) [subrogation in tort against those whose conduct made it possible for negligently set fire to take hold] 1
That is so: (1) whether an insurer is asserting a right to subrogation based on the terms of the insurance policy (conventional subrogation) or based on principals of law and/or equity (State Farm, p. 1109); and (2) whether the liability of the defendant to the insured arises from tort or contract (State Farm, pp. 1109-1111).
The element of “superior equities” was first adopted in California by the California Supreme Court in 1938 in the case of Meyers v. Bank of America etc. Assn. 11 Cal. 2d 92, 102 (1938) [“As stated hereinbefore, the right to maintain an action of this kind and to a recovery thereunder involves a consideration of, and must
necessarily depend upon the respective equities of the parties.”]. That is the last time the California Supreme Court addressed the issue. Recently, the court in State Farm invited the California Supreme Court to reconsider whether superior equities ought to continue to be an element of the insurer’s cause of action for subrogation.
B. Factors to be Considered to Determine Parties’ Relative Equities.
“. . . there is no facile formula for determining superiority of equities, for there is no formula by which to determine the existence or nonexistence of an equity except to the extent that certain familiar fact combinations have been repeatedly adjudged to create an equity in the surety or the third party. The cases in other jurisdiction refer to various factors which spell fault in the . . . third party, but whatever the criteria mentioned each case comes down to the question of fault of some kind . . . [citations]” State Farm, p. 1112 (see the extensive discussion contained there).
California courts have used various factors to determine whether the insurer or the defendant has the better equities: (1) whether the defendant caused all or any part of the loss sought to be recouped (Truck Insurance Exchange v. County of Los Angeles 95 Cal.App.4th 13, 27 (2002); Interstate Fire an Casualty Insurance Company v. Cleveland Wrecking Company 182 Cal.App.4th 23, 37-49 (2010); (2) whether the defendant would be unjustly enriched unless subrogation is permitted, because without subrogation, the defendant avoids paying what the defendant would have had to pay the insured (State Farm, p. 1110); (3) the nature of the cause of action and contract being asserted against the defendant (State Farm, p. 1109, footnote 8); (4) whether the “compensated surety defense,” said to be part of and a justification for, the superior equities doctrine, should be applied to bar application of the doctrine (the defense is based on the fact that insurer has been paid a premium and is in the business of taking risks
RECOUPMENT OF POLICY LOSSES IN CALIFORNIA BY SUBROGATION - SUPERIOR EQUITIESBy: Alexander Levy, Garrett & Tully, PC, Pasadena, CA
1 Elements to Establish Insurer’s Right to Subrogation. “The essential elements of an insurer’s cause of action for subrogation are as follows: “(a) the insured suffered a loss for which the defendant is liable, either as the wrongdoer whose act or omission caused the loss or because the defendant is legally responsible to the insured for the loss caused by the wrongdoer; (b) the claimed loss was one for which the insurer was not primarily liable; (c) the insurer has compensated the insured in whole or in part for the same loss for which the defendant is primarily liable; (d) the insurer has paid the claim of its insured to protect its own interest and not as a volunteer; (e) the insured has an existing, assignable cause of action against the defendant which the insured could have asserted for its own benefit had it not been compensated for its loss by the insurer; (f) the insurer has suffered damages caused by the act or omission upon which the liability of the defendant depends; (g) justice requires that the loss be entirely shifted from the insurer to the defendant, whose equitable position is inferior to that of the insurer; and (h) the insurer’s damages are in a liquidated sum, generally the amount paid to the insured.” [citation omitted]” State Farm, pp. 1111-1112.
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for profit; the defense’s viability, however, decreases as the egregiousness of defendant’s wrongdoing increases) (State Farm, pp.1010- 1111); (5) whether the defendant was the primary cause of the insured’s loss, or only a secondary cause (State Farm, p. 1113); (6) whether the defendant, the insured, or the insurer were in a better position to avoid the loss (Fireman’s Fund Insurance Company v. Sonitrol Management Corporation 298 Fed.Appx. 668, 2008 WL 4817095 (C.A.9 (Cal.)) and (7) whether public policy supports or argues against the applicability of the doctrine (Interstate Fire & Cas. Ins. Co. v. Cleveland Wrecking Company 182 Cal.App.4th 23 (2010); Patent Scaffolding Co. v. William Simpson Constr. Co. 256 Cal.App.2d 506, 515-516) (1967).
C. Title Insurers’ Superior Equities – Where Defendant’s Conduct Wrongful. With respect to title insurers, where the defendant’s liability to the title insured is the result of defendant’s intentional tort, it should not be difficult to establish a title insurer’s superior equities. In American Title Co. v. Anderson 52 Cal.App.3d 255, 260 (1975), the defendant sellers concealed from the insured buyers a pending action and lis pendens. In Chicago Title Ins. Co. AMZ Ins. Services 93 Cal.App.4th 1142, 1152 (2010), a title insurer was held to have superior equities to its insured’s property insurer; the latter having committed bad faith in handling the title insured’s property insurance claim. See also Kenny v. Safeco Title Ins. Co. 113 Cal. App. 3d 557 (1980), not strictly speaking a subrogation case, where it was held that it was no defense to the title insurer’s recoupment action against the seller, that the title insurer was “negligent” in not finding and reporting the tax lien concealed by the defendant seller. 2
D. Subrogation – Other Insurers - Innocent Breach of Contract.
It has been observed that there is a split of authority with respect to whether an insurer can prove superior equities where the defendant has been guilty of no more than an innocent breach of contract. State Farm, p. 1119, footnote 12. However, the court in the Fireman’s Fund case discussed below in effect held that there is only one line of cases, with differing results based on the facts presented.
One line of cases holds that the fact that the defendant was in breach of a contract with the insured does not without more establish the insurer’s superior equities.
Meyers v. Bank of America etc. Assn. 11 Cal. 2d 92 (1938) [no subrogation against innocent bank which breached its contract with the insured not to honor forged checks, where the bank had no reason to know that it had paid forged checks]; Patent Scaffolding Co. v. William Simpson Constr. Co. 256 Cal.App.2d 506 (1967) [no subrogation against general contractor who promised to provide insurance, because there are no superior equities where the defendant and the insurer are bound to indemnify the insured for the same loss under two independent contracts].
A second line of cases holds that an insurer has superior equities to the defendant where the insurer has duly performed its duty under the insurance policy and the defendant has breached a contact with the insured, though the breach was innocent. (Fireman’s Fund Ins. Co. v. Wilshire Film Ventures, Inc. 52 Cal.App.4th 553, 559-560 (1997) (“Fireman’s Fund”)[defendant lessee of equipment refused to pay for theft of same as required by the equipment lease (alleged breach of contract duty); defendant lessee was innocent of negligence or wrongdoing; insured equipment lessor tendered a claim to the plaintiff insurer for loss of the equipment; the insurer paid its insured lessor for the loss; the insurer as the subrogee of the lessor’s rights sued the defendant lessee for breach of contract by subrogation; held: lessee had a duty to return the equipment or pay for it which duties were independent of and different from the insurer’s contract of insurance; right to subrogation affirmed]; Meyer Koulish Co., Inc. v. Cannon 213 Cal.App.2d 419 (1963) [consignee of jewelry refused to pay for theft of same per contract duty; consignee innocent of negligence or wrongdoing; insurer paid the consignor and sued the consignee by way of subrogation to the contract rights of the consignor; right to subrogation affirmed]). See also Interstate Fire & Cas. Ins. Co. v. Cleveland Wrecking Company 182 Cal.App.4th 23 (2010) (applying Fireman’s Fund).
“If permitting subrogation to the insurer in any way results in a windfall (because the insurer that accepted premiums to insure against the loss may now shift the loss to the other indemnitor), it would be better for the windfall to go to the one that undisputedly fulfilled its contractual obligations, than to the one that allegedly breached them.” (Interstate Fire & Cas. Ins. Co., supra. p. 47) Patent Scaffolding contains a public policy
2 California Unreported Decisions. See also the unreported decisions: (1) California Land Title Company v. Emslie, a decertified opinion, 175 Cal.App.3d 1001 (224 Cal.Rptr. 100) (1985) [title insurer had alleged superior equities over forgery victims whose negligence facilitated the forgery loss]; (2) Dennis v. Stanhope 2008 WL 4560100 [seller concealed the title problem]; (3) Estate of Rachford, an unreporeted decision (2004 WL 36263) [seller did not disclose pending action which ultimately divested seller of title].
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analysis which reaches the opposite conclusion. Patent Scaffolding, pp. 515-516)
E. Title Insurer – Defendant Innocent Breach of Contract.
Under the holding in Fireman’s Fund, the title insurer’s equities will be greater than the innocent breaching seller, because the contract between the insured and the seller, and the contract between the insured and the title insurer, are independent contracts creating different duties to be performed by the seller (to convey title or good title) and the title insurer (to indemnify for loss in accordance with the terms of the policy).
In Fidelity National Title Insurance Company v. Miller 215 Cal.App.3d 1163, 1168 (1989), a title insurer as subrogee of its insured buyer sued the insured’s seller. Unbeknownst to the insured buyer, the seller had burdened the property with a view easement under a recorded restrictive covenant. The title insurer paid the insured the diminution in value attributable to the effect of the easement. The title insurer then sued the
seller for breach of deed covenant (that the seller has not encumbered the property) and for common counts.
The trial court granted summary judgment in favor of the seller. The District Court of Appeal reversed: (1) because there were questions of fact as to the parties’ intentions with respect to the covenant, the seller’s liability, and the amount of damages; and (2) because there were questions of fact bearing on the title insurer’s claim of superior equities (the trier of fact might conclude that the seller having encumbered the property was guilty of an act of commission, while the title insurer having missed the covenant was only guilty of an act of omission or that the seller would be unjustly enriched if allowed to keep all of the consideration for the deed). Fidelity National, supra. p. 1174.
Mr. Levy is an attorney practicing in Garrett & Tully’s Pasadena CA office. He possesses a thirty-year specialty in the areas of real property titles, title insurance, and escrow, and extensive experience in title insurance coverage issues. Mr. Levy can be reached at (626) 577-9500; E-mail: [email protected].
claims, and to help determine whether there was coverage for Credit Suisse’s claim (“Coverage Counsel”).
Defense Counsel was conducting its own investigation and analysis of the mechanic’s lien claims and providing information that to Coverage Counsel who provided it to Stewart Title who, in turn, would then make decisions as to whether a particular lien claim should be settled or challenged. These decisions were then conveyed to Coverage Counsel who would convey them to Defense Counsel. Coverage Counsel was also assisting Defense Counsel with strategy in defending Credit Suisse against the mechanic’s lien claims. Significantly, Coverage Counsel was also determining whether there was coverage for the claims.
The trial court determined that most of the mechanic’s lien claims had priority over Credit Suisse’s mortgages. Coverage Counsel then issued a letter on behalf of Stewart Title denying coverage and withdrawing the defense of the
foreclosure action. Stewart Title then filed a declaratory judgment action to determine whether it had a duty to defend Credit Suisse. Credit Suisse counterclaimed for bad faith on the allegation that, although Stewart Title had made a coverage determination, it continued to direct the defense of the foreclosure through Defense Counsel and failed to timely notify Credit Suisse of its decision. Credit Suisse then propounded discovery seeking documents relating to Stewart Title’s
investigation of its claim and moved compel the production of those documents. Stewart Title objected to the requests on the basis that the documents were protected by the attorney client privilege and the
work product doctrine and refused to produce documents identified on its privilege log. The documents fell into two categories, internal documents prepared by Stewart Title and documents prepared by Coverage Counsel, including communications with Stewart Title.
Citing to a recent decision by the Washington Supreme Court, Cedell v. Farmers Ins. Co. of Washington, 295 P.3d 239 (Wash. Sup. Ct. 2013),
The District Court also noted that, where an insured brings a bad faith action, courts have
typically rejected claims of privilege with respect to communications between an insurer and counsel
retained to represent the insured
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the District Court noted that the attorney retained by Farmers in that case was providing the same mix of services as Coverage Counsel in this case. That is, Coverage Counsel was both assisting Defense Counsel in its defense of the underlying mechanic’s lien claims and also simultaneously providing coverage advice to Stewart Title. The District Court noted that Stewart had apparently not set up separate files for coverage and defense claims because the “coverage communications [appeared to be] mixed together with unprivileged claim investigation communications.” The District Court also noted that, where an insured brings a bad faith action, courts have typically rejected claims of privilege with respect to communications between an insurer and counsel retained to represent the insured.
The District Court held that Credit Suisse was presumptively entitled to Stewart Title’s entire
claim file but that Stewart Title could overcome the presumption by identifying in camera the documents or communications where Coverage Counsel was not engaged in the “quasi-fiduciary tasks” of investigating and evaluating the mechanic’s lien claims. It also provided guidance suggesting that it anticipated that the majority of the internal documents and many of the external documents would be produced to Credit Suisse and only a small number of documents where coverage was discussed would be the provided to the District Court for inspection.
Mr. Smart is a shareholder at Carlton Fields Jordan Burt’s Tampa, FL office. His title insurance practice involves title insurance coverage determinations, title insurance disputes and litigation, closing protection letter claims,title agent defalcations, and insurance bad faith claims. He can be reached at (813) 229-4142; E-mail: [email protected].
ALTA title insurance policy to that of general liability policies which describes defense obligations more broadly. Thus, the “in for one, in for all” rule that a general liability insurer must defend an entire action where the policy potentially covers any one claim does not apply in the “unique title insurance context.”
Turning to counterclaims, the SJC ruled that a title insurer is not obligated to defend the insured against all reasonably foreseeable counterclaims, and again contrasted the broad coverage of general liability insurance with the narrow, “relatively discrete” coverage of title insurance. The high court was also reluctant to penalize First American for meeting its policy obligations by bringing an action to cure the title defect and noted that Mrs. Moore might have sued GMAC for unfair business practices in pursuing the foreclosure regardless of the method utilized for curing the defect.
The SJC left the door slightly ajar, however, and stated that a title insurer may have a duty to defend an insured against compulsory counterclaims. According to the SJC, compulsory counterclaims will arise infrequently because actions to cure title defects are often brought in the Massachusetts Land Court which has limited
jurisdiction and counterclaims are only compulsory when they are within the subject matter jurisdiction of the court where suit is initiated. Mrs. Moore’s claims against the lender, which were, in effect, counterclaims, were brought in the Superior Court because the Land Court did not have jurisdiction over those claims. By filing the curative action in the Land Court, as opposed to the Superior Court which had concurrent jurisdiction over those claims, First American bifurcated the claims that it had to defend from the other claims that it did not. This view raises tactical considerations in choice of forum and provides an incentive for Massachusetts practitioners to file curative actions in the Land Court. The issue of whether counterclaims brought against insureds are compulsory – the question of whether they arise out of the same transaction or occurrence – may be the subject of future claims and litigation.
Reprinted with permission from The Title Insurance Law Newsletter May, 2013
Mr. Heffernan is a partner at Robinson & Cole, LLP in Boston, MA. He chairs his firm’s Real Estate Litigation and Title Insurance Group, and focuses on litigation in the real estate, title insurance, commercial, and banking arenas. He has extensive trial and appel-late experience in cases involving complex real estate issues, devel-opment, fraud, insurance coverage, and corporate disputes. He can be reached at (617) 557-5906; E-mail: [email protected].
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2014 TIPS CALENDARMarch 201420-22 Ethics CLE Program & Golf Tournament Loews Ventana Contact: Donald Quarles – 312/988-5708 Canyon Resort Tucson, AZApril 20143-4 Emerging Issues in Motor Vehicle Product Arizona Biltmore Liability Litigation National Program Resort & Spa Contact: Donald Quarles- 312/988-5708 Phoenix, AZ
4-5 Toxic Torts & Environmental Law Committee Arizona Biltmore Midyear Meeting Resort & Spa Contact: Felisha A. Stewart – 312/988-5672 Phoenix, AZ
12-16 TIPS/ABOTA National Trial Academy National Judicial College Contact: Donald Quarles – 312/988-5708 Reno, NV
Property Insurance Law Spring CLE Meeting TBD Contact: Ninah F. Moore – 312/988-5498
May 2014 7-9 Fidelity & Surety Committee Spring Meeting The Brown Hotel Contact: Donald Quarles – 312/988-5708 Louisville, KY
14-18 TIPS Section Spring Leadership Meeting Boca Raton Resort & Club Contact: Felisha A. Stewart – 312/988-5672 Boca Raton, FL Speaker Contact: Donald Quarles – 312/988-5708
August 20147-12 ABA Annual Meeting Sheraton Hotel Contact: Felisha A. Stewart – 312/988-5672 Boston, MA Speaker Contact: Donald Quarles – 312/988-5708October 201415-19 TIPS Section Fall Leadership Meeting The Meritage Resort and Contact: Felisha A. Stewart – 312/988-5672 Spa in Napa Valley Speaker Contact: Donald Quarles – 312/988-5708 Napa, CA