Insurance Law Hawaii

Hawaii Federal District Court Denies Title Insurer's Motion for Summary Judgment

    In a rare title insurance dispute before the federal district court in Hawaii, the court denied the insurer's motion for summary judgment while granting the insured's motion for summary judgment. First  Am. Title Ins. Co. v. GS Industries, LLC, 2021 U.S. Dist. LEXIS 240601 (D. Haw. Dec. 16, 2021).

    GS Industries, LLC took ownership of a parcel of real property located fronting Waipa Lane in Honolulu. The property used four buildings and a parking area for 50 cars. GS obtained a title insurance policy from First American. The policy insured GS' fee simple interest in the property in the amount of $3,500,000. The policy insured GS "against loss or damage, not exceeding $3,500,000, sustained or incurred by GS by reason of . . . not right of access to and from the land,." The policy did not identify any issues with access to the property and did not define "access." 

    A portion of Waipa Lane was owned by the City and County of Honolulu. Parcel 86 and Parcel 91 on Waipa Lane were privately owned. (Private Waipa Lane Parcels). Vehicular access to (ingress) and from (egress) the property was via Waipa Lane. Ingress was made via the publicly owned portion of Waipa Lane. Vehicular egress was made via the Private Waipa Lane Parcels. The City of Honolulu maintained the Private Waipa Lane Parcels and considered them to be pubic. None of the owners of Parcels 86 or 91 notified GS of their intent to block the use of Waipa Lane. 

    GS leased the property to Cedar Assembly of God Church. The Church applied for affordable housing exemptions from the Department of Planning and Permitting (DPP). DPP issued a Notice of Incomplete Application. The Notice stated that a portion of Waipa Lane was privately-owned and the Church had not shown any legal right to use the same. 

    GS tendered a claim to First American, contending that coverage was implicated under the title insurance policy because the Church lacked a right of access from the property. The lack of road access prevented GS from obtaining permits needed to develop the property. The claim requested that First American reimburse GS for the purchase price of an interest of one of the Private Waipa Lane Parcels, which would cost approximately $10,000. 

    First American denied the claim because (1) the policy did not insure vehicular access to and from the property and (2) two exclusions applied. The first exclusion barred coverage for governmental regulations restricting the occupancy, use or enjoyment of land. The second exclusion applied to "any governmental policy power" or "defects, liens, encumbrances, adverse claims, or other matters resulting in no loss or damage to GS."

    First American filed suit seeking a declaratory judgment that: (1) the policy did not cover any loss due to the lack of vehicular access from the property; and (2) any loss was subject to the two exclusions. The parties filed motions for summary judgment. 

    The primary dispute was over the term "access." The policy insured against "No right of access to and from the Land." There was no disputed that GS' vehicular access from the property was compromised because it was dependent on the owners of the Private Waipa Lane Parcels. 

    The court found that the plain and ordinary meaning of access included vehicular access. The policy could not be limited to insuring pedestrian access, as First American argued, because insuring pedestrian access in Honolulu's urban sprawl would be virtually meaningless. It was difficult to conceive of how property would not have pedestrian access and where insurance would therefore be of any value. If insuring "access" was to have any meaning, it must have been meant to insure access beyond that of the pedestrian variety. Therefore, "access" was ambiguous and construed in favor of GS. 

    First American contended that even if lack of vehicular access was insured under the policy, GS did not sustain any loss or damage. GS' access to the Private Waipa Lane Parcels had never been restricted and any suggestion that access might be restricted in the future was speculative. GS, however, contended that it had suffered loss because the property's value was significantly diminished by its lack of legal access. The court agreed.

    Finally, the court determined the exclusions did not apply. First American argued that GS suffered no loss under the Notice. The Notice, however, was not the basis for GS' alleged loss. Instead, it was the alleged diminution in value of the property. Therefore, the governmental regulation and policy power exclusions were not implicated.

    Accordingly, First American's motion for summary judgment was denied, GS' motion was granted to the extent set forth in the opinion.

Title Insurer Breaches Duty to Defend in Bad Faith

    The Washington Supreme Court found that a title insurer breached its duty to defend when it was discovered that a Native American tribe had rights to access the land under a treaty with the State of Washington. Robbins v. Mason County Title Insurance Co., 2020 Wash. LEXIS 288 (Wash. May 7, 2020).

    In 1854, the Washington Territory and the Squaxin Island Tribe entered the Treaty of Medicine Creek. The tribe relinquished its rights to the land but retained "the right of taking fish at all usual and accustomed grounds and stations . . ., in common with all citizens of the Territory."

    In 1978, the Robbins purchased property in Mason County that included tideland with manila clam beds. When purchasing the property, Robbins obtained title insurance from Mason County Title Insurance Company (Mason). Under the policy, Mason agreed to insure Robbins "against loss or damage sustained by reason of: . .  . [a]ny defect in, or lien or encumbrance on, said title existing at the date hereof." Further, Mason agreed to defend the insured against any demands and legal proceedings founded upon a claim of title, encumbrance or defect which existed prior to the date the policy was issued. The policy's exceptions included, "public or private easements not disclosed by the public records." 

    For years Robbins had contracted with commercial shellfish harvesters to enter the property to harvest shellfish from the tidelands. In 2015, the Tribe wrote the Robbins to notify them of the Tribe's plan to enter the property and harvest shellfish in accordance with treaty rights.

    Robbins tendered the claim to Mason. The claim was denied based on Mason's view that the Tribe's asserted right was an "easement" and a treaty was not a record that imparts constructive notice. 

    Robbins sued Mason for breach of its duty to defend. The trial court granted Mason's motion for summary judgment. The Court of Appeals reversed, holding that the Tribe's letter was a "demand" under the policy that triggered the duty to defend, the Tribe's asserted right was a profit, and that a profit was not an easement. The Court of Appeals also found that Mason's denial of a defense was an act of bad faith.

    On appeal, the Washington Supreme Court first found the Tribe's letter as a "demand." The Tribe asserted its legal right to harvest shellfish on Robbins' tidelands by sending Robbins a letter stating that the Tribe was seeking the shellfish it was due. The plain meaning of the policy supported concluding that the letter was a demand. The policy required Mason to defend "demands." Therefore, Mason was required to defend unless an exception applied.

    If the Tribe's asserted right was either not an easement or was disclosed by public records, then the policy exception did not apply and Mason had a duty to defend. The court determined that the Tribe's right was a profit, which was defined as "the right to sever and to remove some substance from the land." Various authorities disagreed on whether a profit was a type of easement. The uncertainty had to be construed in favor of the insured. Mason therefore breached its duty to defend against the Tribe's demand.

    Mason was also in bad faith. The law regarding whether the Tribe's asserted right was an easement or a profit and whether a profit was an easement was unclear under Washington law. 

    Robbins, however, did not seek summary judgment on Mason's affirmative defenses and the trial court had not ruled on any of Mason's defenses. Therefore, the case was remanded to the trial court for consideration of the defenses, consistent with the other holdings in the opinion. 

    

 

Determination That Title Insurer Did Not Act in Bad Faith Vacated and Remanded

   In an important decision regarding bad faith and the application of the work product doctrine to work performed by an insurer's in-house counsel, the Hawaii Supreme Court vacated the Intermediate Court of Appeals's upholding the trial court's award of summary judgment to a title insurer on the issue of bad faith. Anastasi v. Fid. Nat'l Title Ins. Co., 2016 Haw. LEXIS 30 (Feb. 4. 2016).

   Llyod Anastasi loaned Alajos Nagy $2.4 million. The loan was secured by a mortgage on property. After Nagy executed the $2.4 million mortgage, a warranty deed was signed by Paul Stickney and purported to deed the property from Stickney to Nagy in exchange for $10 in consideration. Fidelity issued Anastasi a title insurance policy on the property in the amount of $2.4 million. The policy promised to provide a defense where a third party asserted a claims adverse to the interest of the insured. 

   In November 2005,  Stickney sued to quiet title against Nagy and Anastasi alleging that Stickney's signature had been forged on the warranty deed. Anastasi tendered the suit to Fidelity. In a letter from Elizabeth McGinnity, Senior Vice-President and Major Claims Counsel for Fidelity, Fidelity accepted the defense under a reservation of rights and appointed Jade Lynne Ching as defense counsel. 

   Ching wrote an introductory letter to Anastasi, noting that she anticipated Fidelity would provide recommendations and instructions regarding the steps and procedures to be taken in defending or settling the claim.

    On February 13, 2006, McGinnity and Ching received a letter from Clifford Frieden, an attorney retained by Fidelity to provide coverage advice and investigate the allegations made in the Stickney lawsuit. Frieden compared Stickney's signature to the signature on the warranty deed and thought they were different. Further, the driver's license number and the expiration date of the license recorded by the notary were different from Stickney's actual driver's license number and expiration date. 

   The circuit court granted Stickney's motion for summary judgment. Ching recommended that an appeal not be filed because, although summary judgment should not have been issued, Anastasi would not be able to establish the validity of the Warranty Deed in subsequent proceedings. McGinnity, however, instructed that an appeal be filed. Although an appeal was filed, the parties eventually stipulated to dismiss the appeal. Fidelity paid Anastasi $2.4 million under the policy.

   Anastasi then filed suit against Fidelity for breach of contract and bad faith in delaying payment because the meaningless appeal was pursued. 

   Anastasi moved to compel the production of documents that Fidelity had withheld because of  attorney-client privilege or work product. McGinnity was listed as either the recipient or author on many of the documents listed in the privilege log. After an in camera review, the trail court held that Fidelity's assertion of attorney-client privilege and/or work product was proper. The circuit court then granted Fidelity's motion for summary judgment on the bad faith issue because Fidelity acted reasonably in its interpretation of the policy provisions. 

   The ICA ruled that because McGinnity acted in a dual capacity as in-house counsel and claims adjuster, the circuit court abused its discretion in ruling that all of the McGinnity documents were covered by attorney-client privilege or work product.The ICA's decision is summarized here. Further, the circuit court erred in determining that Fidelity acted reasonably as a matter of law, and vacated the summary judgment award. Finally, the circuit court did not err in determining that Fidelity did not control or direct Ching's representation of Anastasi.

   The Hawaii Supreme Court first determined that the ICA erred in determining that a presumption existed whereby documents prepared before an insurer made a final decision on an insured's claim were prepared in the ordinary and routine course of an insurer's business and were not work product. Such a presumption was not required under Hawaii law. The issued was remanded to allow the circuit court to determine whether the McGinnity documents were prepared because of the prospect of litigation, and therefore considered work product.

   On the bad faith issue, there was evidence that Fidelity knew within four months of receiving the claim that the warranty deed was forged. Yet, Fidelity did not address how proving the fraud or forgery in the Stickney lawsuit would have affected coverage under the policy. Therefore, it was error to determine, as a matter of law, that Fidelity's actions following its knowledge that the deed was forged were reasonable. The issue was remanded. Fidelity would have the opportunity to present evidence as to why its actions were in good faith. Although Fidelity argued a title insurer should be excluded from the enhanced standard of good faith when claims were defended under a reservation of rights, the court determined there was nothing distinctive about title insurance that would eliminate the potential for conflict when a reservation of rights was issued. 

   Finally, viewing the evidence in the light most favorable to Anastasi, the evidence was sufficient to raise a genuine question as to whether Ching allowed Fidelity to direct or regulate her professional judgment. Fidelity's Claims Handbook expressly stated, "If the outcome of a suit is unfavorable to the insured, the insurer may determine, in its sole discretion, whether or not to appeal."Further, Ching's letter to Anastasi stated Fidelity would provide recommendations and instructions on the steps and procedures to be taken in defending or settling the claim. Therefore, there was a question of fact as to whether Ching breached her ethical duties.

Hawaii Court of Appeals Remands Bad Faith Claim Against Title Insurer

    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. 

Hawaii Supreme Court Reaffirms Insurer's Duty to Defend

   Although it did not break new ground, the Hawaii Supreme Court reaffirmed its strong commitment to the insurer's duty to defend in Hart v. Ticor Title Ins. Co., 2012 Haw. LEXIS 83 (Haw. March 27, 2012).

   The Harts owned two lots in Ewa Beach. They purchased a title insurance policy from TICOR which provided, in part, that TICOR would insure title against loss incurred by any defect in or lien or encumbrance on the title. The policy also agreed to pay in the defense of the title.

   In 2005, the Harts filed a Land Court petition to consolidate their two lots into one parcel. The State filed an answer, asserting, among other things, it reserved any interests in the property that may have escheated to the State, and asked the court to so rule.

   In response, the Harts tendered their defense against all the State's claims to TICOR, who refused to defend. TICOR argued that the State merely reserved its right to make that claim at some point in the future. In fact, the State responded to the Harts' motion for summary judgment be stating it was not pursuing any claim of escheat to the State. The Land Court granted, in part, the Harts' motion for summary judgment, determining that there was no basis for the State's claims for escheat.

   The Harts then sued TICOR in state district court for breach of contract and bad faith for its refusal to defend. The court denied the Harts' motion for summary judgment, finding that the State's escheat defense was a routine reservation of a possible defense and did not trigger coverage. The Intermediate Court of Appeals affirmed.

   The Supreme Court reversed, determining the ICA erred in concluding that TICOR did not have a duty to defend the Harts against the State's escheat claim.

   TICOR's argument that the State did not assert a "claim" within the meaning of the policy was unpersuasive. The State asserted that it had an interest in the property, including its reserving any interests in the property that may have escheated to the State. Therefore, the States' pleadings obligated TICOR to defend at the time the State asserted its escheat claim. Once the possibility of coverage triggered the duty to defend, TICOR had the duty to defend, regardless of whether the allegations were "groundless, false or fraudulent." The fact that the State ultimately clarified that it was not pursuing any claim of escheat did not excuse TICOR from its initial duty to defend.

   My Damon Key blogging colleague, Rebecca Copeland, gives her view of the case from the appellate advocate's perspective in her post [here] at www.recordonappeal.com.

Guest Post On Title Insurance

   Today, we link to a guest post from DoorFly.com addressing the need for title insurance.  The link to the full post is http://blog.doorfly.com/articles/2011/what-is-title-insurance-and-why-do-we-need-it/.  [post here].

   By way of introduction, the post explains:

If you’ve ever bought a home or a piece of real estate, you have probably heard the term title insurance used during the process. Often times it is something you were told you needed to have and pay for but you really didn’t understand what it was or why you needed it. If you have never purchased real estate of any kind, then you may not even have heard of title insurance before. The goal of this article is to provide you with some understanding of what title insurance is and why we need to purchase it when we purchase property.

    The post continues by addressing the need for title insurance:

The main reason that title insurance exists and is considered a necessity in the United States, is because of our system of land records. Land title records is one area that the United States government has chosen not to control. You may legally sell and buy property without recording the transaction with the government in the United States. Because of this, the possibility of misrepresentation or unexpected liens showing up after a real estate transaction are quite possible. In spite of this fact, you seldom hear of challenges to ownership or liens being filed on property that has been transferred. The reason for that is title insurance and the title searches that precede it.

   Thanks to DoorFly.com for sharing its informative explanation on title insurance.