Washington Supreme Court Finds No Duty to Defend under Title Insurance Policy

Campbell v. Ticor Title Insurance Co. (Wash. S. Ct. 2009).

In a unanimous decision, the Washington Supreme Court upheld the denial of a defense under a title insurance policy.

The underlying lawsuit arose from a dispute over a pedestrian easement recorded as part of a three-parcel subdivision. Lots A and B were lakefront lots with existing houses, while Lot C was an upland lot. The purpose of the easement was to provide access from Lot C to the lake. It was to burden Lot B and run adjacent to the boundary between lots A and B. The Campbells purchased Lot A. A subsequent purchaser of Lot C discovered that the house on Lot B was built up to the property line, such that the pedestrian easement ran through the house. He sued the Campbells and others seeking reformation of the parties’ deeds so that the easement would cross Lot A.

The Campbells tendered defense of the suit to their title insurer, Ticor Title Insurance Company. Ticor denied coverage and refused to defend, asserting exclusions for title encumbrances (1) not contained in public records or (2) created after issuance of the policy. The Campbells brought a declaratory judgment action against Ticor. The trial court ruled in Ticor’s favor on cross motions for summary judgment, and the supreme court affirmed.

Citing Woo v. Fireman’s Fund Insurance Co., 161 Wn.2d 43 (2007), the supreme court noted that, in Washington, the duty to defend is triggered if the insurance policy “conceivably covers” the allegations in the complaint. If there is uncertainty, the insurer may defend under a reservation of rights while bringing a declaratory judgment action to determine coverage. But in this case, Ticor denied a defense outright.

The court held that the allegations against the Campbells were not conceivably covered under the Ticor policy due to the exclusions relied on by Ticor. As to the first exclusion, the Campbells pointed out that the easement was disclosed by public records. But the court held that the exclusion nonetheless applied because the easement “never affected lot A, nor was it intended to do so.” The court reasoned that it would be “unreasonable to interpret the policy’s language as covering any easement disclosed by public record, even those that do not affect the title at issue.” The court noted that, if the reformation suit were successful, it would be because a court determined that the original intent in granting the easement was best effectuated by burdening the Campbell’s land, not because the original grant of easement disclosed a burden on the Campbells’ land. The court held that the second exclusion applied as well because the easement dispute arose after issuance of the policy.

Refusal to Award Damages for Bad Faith and Consumer Protection Act Violations Upheld on Appeal

Ledcor Industries v. Mutual of Enumclaw Insurance Co. (Wash. Ct. App. Div. 1, May 4, 2009)

Where an insurer failed to investigate a claim, waited 14 months to respond to a tender of defense, and failed to contribute to defense costs, the trial court concluded that the insurer acted in bad faith and violated the Consumer Protection Act, but awarded as damages only the insurer’s share of defenses costs, plus interest. The court of appeals affirmed.

Ledcor Industries, general contractor for a condominium development, subcontracted with Zanetti Custom Exteriors to install siding and required Zanetti to include Ledcor as an additional insured on its commercial general liability (CGL) policy. Zanetti’s CGL carrier was Mutual of Enumclaw (MOE).

The condominium owners association sued Ledcor after “serious problems” arose with many aspects of the project, including Zanetti’s work. After tendering its defense to its own carriers, Ledcor tendered the defense to Zanetti, which forwarded the tender to MOE. MOE immediately requested details about Zanetti’s work but did nothing more to investigate. Fourteen months later, MOE accepted Ledcor’s tender subject to a reservation of rights. MOE stated it would appoint a lawyer or share in the defense costs, but Ledcor did not respond.

Ledcor eventually negotiated a settlement with the homeowners association that was funded by Ledcor and its own insurers. Ledcor sued Zanetti for contribution. MOE defended Zanetti and funded a settlement with Ledcor. Ledcor then sued MOE (as an insured of MOE). The trial court found that MOE acted in bad faith, breached its duty to defend, and violated the Consumer Protection Act, chapter 19.86 RCW. The court awarded Ledcor more than $100,000 plus prejudgment interest to cover MOE’s share of the defense costs. The court awarded no damages for bad faith. The court initially awarded damages under the Consumer Protection Act but vacated that award after concluding that Ledcor suffered no harm as a result of MOE’s actions.

On appeal, Ledcor argued it was entitled to damages for MOE’s bad faith and CPA violations. MOE cross-appealed the finding of bad faith. The court of appeals rejected both parties’ appeals.

The court first addressed MOE’s cross appeal. MOE argued that it met the elements of its enhanced obligation of good faith under Tank v. State Farm Fire & Cas. Co., 105 Wn.2d 381 (1986), “either … directly or in conjunction with Ledcor’s own insurers.” The court rejected this argument, reasoning that “[t]he fact that Ledcor’s other insurers were actively defending Ledcor’s interests does not relieve MOE of its duties, under Tank and its own contract, to investigate and defend.”

Turning to Ledcor’s appeal, the court found that Ledcor suffered no harm. Ledcor contended that bad faith creates a presumption of harm, that MOE was estopped to deny coverage, and that MOE must indemnify Ledcor against all of its liabilities, including the entire settlement of the underlying action and all defense costs. The court rejected this contention, reasoning that bad faith results in a forfeiture of defenses only as to the claim tendered and handled in bad faith, and the claim arising from Zanetti’s work was only one of many in the underlying litigation. The court concluded that Ledcor “received what the policy entitled it to, and therefore suffered no harm due to MOE’s failure to timely accept tender and defend.” The court similarly found no harm to support an award of damages or attorney’s fees under the Consumer Protection Act.

Study Finds Substantial Increase in Homeowners Insurance Claim Costs Due to the Insurance Fair Conduct Act

The Insurance Research Council (IRC), an independent research organization supported by property and casualty insurance companies and associations, released its interim findings earlier this month on the impact of Washington’s Insurance Fair Conduct Act (IFCA) on insurance claim costs.

Focusing on homeowners insurance, the IRC compared Washington claim cost data with data from three states lacking a statutory private cause of action for first-party bad faith (Arizona, Minnesota, and Utah). While stressing the preliminary nature of its findings, the IRC estimated that IFCA resulted in a 12.8 percent increase in average claim cost per insured home—or about $58 million in additional losses—in the first three quarters of 2008 as compared with 2007. Catastrophic losses such as those resulting from the January 2008 winter storm were excluded from the analysis.

Although the main focus of the IRC’s report is homeowners insurance, the IRC believes IFCA has also affected private passenger auto insurance claim severity. The IRC observed that 33 percent of the claim notices filed by individual (non-commercial) claimants involved uninsured or underinsured motorist (UM or UIM) claims, 21 percent involved personal injury protection (PIP) claims, and 2 percent involved both UM/UIM and PIP. Approximately 81 percent of all claim notices were filed by individual (non-commercial) claimants.

Click here to read the IRC report.

Low Settlements Top Insurance Complaint in 2008

The Office of the Insurance Commissioner of the State of Washington issued the following "news release" yesterday:

Olympia, Wash. — The top three reasons consumers filed formal complaints against their insurance companies in 2008 were unsatisfactory settlement offers, claims denials, and delays, according to Insurance Commissioner Mike Kreidler. And auto insurance was the most frequent topic of dissatisfaction.

“People frequently disagree with their insurers about what their car is worth, particularly if it is totaled in an accident,” said Kreidler. “If they can’t reach an agreement, we’ll step in to make sure the consumer is treated fairly.”

The Insurance Commissioner’s Office received 5,341 formal complaints last year. Below is a breakout of the top three by reason and by type of coverage.

Top reasons for complaints in 2008:
Unsatisfactory settlement/offer - 24.5%
Denial of claim - 23.8%
Delays - 22.1%

Top complaints by type of coverage in 2008:
Auto - 42.1%
Accident and health - 30.1%
Homeowners - 13.1%

People who are having problems with their insurance can call the Insurance Consumer Hotline at 1-800-562-6900 for help. They also can file complaints online at http://www.insurance.wa.gov/.

“Consumer protection is my top priority,” said Kreidler. “Whether you need us to investigate a complaint, act as a mediator, explain your rights or just answer a question, my office is here to help.”

The office investigates consumer problems regarding canceled coverage or with claims that have been denied or delayed.

"We also are an excellent resource for information on health insurance options," Kreidler added.

The Insurance Commissioner’s Office recovered more than $10.5 million for consumers in 2008.