The Hawaii Intermediate Court of Appeals (ICA) vacated the trial court's issuance of summary judgment to the title insurer on a bad faith claim and remanded the case. Anastasi v. Fidelity Nat. Title Ins. Co., 2014 Haw. App. LEXIS 585 (Haw. Ct. App. Dec. 30, 2014).
Fidelity issued a title insurance policy to Anastasi insuring that Alajos Nagy had good title to the property. The policy insured Anastasi against loss in the event a mortgage on the property executed by Nagy was not enforceable. Anastasi had loaned $2.4 million to Nagy and Nagy had executed the mortgage in favor of Anastasi as security for the loan.
Nagy's title later came into dispute. Paul Stickney and Gregory Rand claimed to own the property and brought a quiet title action against Nagy and Anastasi (Stickney Lawsuit). Anastasi tendered the claim to Fidelity. Jade Ching, Esq. was retained by Fidelity to defend Anastasi. Fidelity also issued a reservation of rights.
Summary judgment was eventually granted to the Stickney plaintiffs. After judgment was entered in the Stickney Lawsuit against Anastasi, he filed suit against Fidelity for bad faith. Anastasi claimed that, not long after the Stickney Lawsuit was filed, it became clear that a Warranty Deed purporting to transfer the property to Nagy was forged. Anastasi claimed Fidelity unreasonably delayed in paying him the $2.4 million owed under the title policy. Fidelity paid Anastasi the $2.4 million after he filed suit. Anastasi further claimed that Fidelity improperly controlled Ching's actions in litigating the Stickney Lawsuit.
On appeal, the ICA initially considered whether the trial court had properly determined ten documents not produced by Fidelity were privileged as attorney-client communications and/or work product. Some of the communications were authored by or received by Elizabeth McGinnity, a Senior Vice-President and Major Claims Counsel for Fidelity. Anastasi argued that McGinnity acted as a claims adjuster, not an attorney, so the attorney-client privileged and work product doctrine did not apply.
The ICA first determined that the bad faith claim against Fidelity did not nullify the attorney-client privilege. Next, whether McGinnity's communications were privileged depended on whether the communications involved the rendition of professional legal services. McGinnity had dual roles in the case, acting both as claims adjuster and attorney for Fidelity. It appeared to the ICA that some of the documents were not made to facilitate the rendition of legal services. Therefore, the trial court abused its discretion in allowing Fidelity to withhold all of the documents claimed to be privileged because some related to the general handling of Anastasi's insurance claim. The issue was remanded to the circuit court for further proceedings.
Similarly, it was not clear that Fidelity had carried its burden of establishing that work-product doctrine applied to preclude discovery of all of the documents withheld by Fidelity. This issue was also remanded to the trial court for further proceedings.
Turning to the summary judgment determination that Fidelity had not acted in bad faith, Fidelity was aware of evidence showing that the Warranty Deed purporting to transfer the property to Nagy had been forged. Anastasi argued that Fidelity nonetheless chose to continue litigating in the face of an apparent forgery. The ICA agreed that, for summary judgment purposes, it was not clear that Fidelity had acted reasonably in continuing to litigate the Stickney Lawsuit. The legal and coverage consequences of a finding of fraud by the Stickney plaintiffs was unclear. Therefore, the ICA could not say as a matter of law that where Fidelity apparently believed there was a forgery of the Warranty Deed, its actions thereafter were reasonable and that summary judgment was appropriate. Further, there was at least a genuine issue of material fact on whether Fidelity's actions were motivated more by a desire to obtain recoupment in the Stickney Lawsuit of funds it might have to pay to Anastasi, rather than a concern for providing the protection owed to the insured under the policy. Therefore, summary judgment was not appropriate.
Finally, the ICA determined there was no evidence that Ching had breached her duties owed to Anastasi and devoted her loyalties to Fidelity. Ching testified at her deposition that Fidelity did not direct her in how to defend Anastasi and that she determined the legal strategy used to defend Anastasi. There was correspondence between Ching and McGinnity as to whether to file an appeal from the summary judgment issued in the Stickney Lawsuit. The documents did not show that Ching was precluded from exercising her professional judgment, but that she wanted to preserve her client's appeal rights and that Fidelity agreed with her position. Accordingly, Anastasi failed to show any genuine issue of material fact that Ching breached her ethical duties to him or that Fidelity induces any such breach.
