Gravison v. First American Title Ins. Co.

• Court: Superior Court of Maine
• Decided: September 15, 2014
• Docket: CUMbcd-cv-14-04
• Status: Unpublished

Opinion

STATE OF MAINE BUSINESS AND CONSUMER COURT -/

Cumberland, ss.

DAVID B. GRAVISON and BEVERLY A. GRAVISON

Plaintiffs

v. Docket No. BCD-CV-14-04

FIRST AMERICAN TITLE INSURANCE COMPANY

Defendant

ORDER ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

The Motion for Summary Judgment filed in this case by Defendant First American

Title Insurance Company ["First American"] carne before the court for oral argument August

7, 2014, with attorney Dinan representing First American and attorney Joyce representing

Plaintiffs David and Beverly Gravison ["the Gravisons"].

Background

The Gravisons purchased oceanside property located at 15 Osprey Lane, Owls Head, in

December 2006, and at the time of the purchase were issued an owner's title insurance policy

with First American, Policy No. S7000288S-MEOe ["the Policy"], a copy of which policy was

attached to the complaint as Exhibit A.

The land insured by the Policy is described in Exhibit A to Schedule A of the policy as

including certain "rights of way over lands formerly ofSpaulding and Perry; and also to the

roads and paths as laid out in prior plans of that property conveyed by John C. Farber to Alice

S. Farber dated September 12, 19S6 ... and ... specifically those plans prepared by Blackinton

(1882), Tripp Engineering Co. (19S4), and Frederick E. Beal (1992), SUBJECT to the rights of others to use those roadways and paths." Defendant's Statement of Material Facts (Defs

SOMF) ~ 8.)

Schedule B of the Policy enumerates several pertinent areas for which there is no

coverage under the Policy, as follows:

"This policy does not insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of the following:

1. Any facts, rights, interest, or claims which are not shown by the public records, but which could be ascertained by an inspection of said land or by making inquiry of persons in possession thereof

2. Discrepancies, conflicts and boundary lines, shortages in area, encroachments, or any other facts which a correct survey would disclose, and which are not shown by the public records.

8. Subject to the rights of others to use the beach for recreational purposes and to use the roadways and paths as laid out on plans of the property described in warranty deed from John C. Farber to Alice S. Farber dated September 12, 1936 and recorded in the Knox County Registry of Deeds in Box 287, Page 308; specifically those plans prepared by Blackinton (1882), Tripp Engineering Co. (1934), and Frederick E. Beal (1992).

9. Subject to the right to use the beach abutting the subject premises for boating and bathing purposes for the benefit of property described as Lot No. S on Plan of Cooper's Beach as laid out on June, 1882 and as described in Deed of Distribution from Robert Morrell Coon, Jr. and Alfred T. Matthews, Personal Representatives of the Estate of Charles W. Farber, to Nancy Ellen WolffBolan dated March 18, 1998 and recorded in Knox County Registry ofDeeds in Book 2212, Page 191.

11. Rights ofthe United States of America, the State of Maine, and the public generally in and to that portion of the property line below the mean high water mark of West Penobscot Bay.

12. Title to that portion of the premises lying below the mean high water mark ofWest Penobscot Bay."

Defs SOMF ~ 9.

2 The Policy's Conditions and Stipulations include, at Section 4 under the heading

DEFENSE AND PROSECUTION OF ACTIONS, the following provisions:

(a) Upon written request by the insured ... , the Company, at its own cost and without unreasonable delay, shall provide for the defense of an insured in litigation in which any third party asserts a claim adverse to the title or interest as insured, but only as to those stated causes of action alleging a defect, lien or encumbrance or other matter insured against by this policy ... The Company will not pay any fees, costs or expenses incurred by the insured in the defense of those causes of action which allege matters not insured against by this policy."

Complaint Exhibit A, page 2 of 4.

In December 2011, the Gravisons filed suit against the record owners of several

neighboring or abutting properties ["the Neighbors"] in the Knox County Superior Court. See

Complaint, Gravison v. Fisher, Super. Ct., Kno. Cty. Docket No. ROCSC-RE-11-51 [Def Ex.

11]. The Gravisons' Knox County suit seeks a declaratory judgment to the effect that the

Neighbors "have no right to use or go onto any portion of the Gravisons' property or beach.

See Gravison v. Fisher Complaint at IS.

In response, the Neighbors filed a seven-count counterclaim, asserting rights of use and

passage over the Gravison property, by virtue of deeds and by virtue of prescriptive rights,

public and private, as well as rights of ownership and use in the intertidal zone adjacent to the

upland portions of the Gravison property. See Gravison v. Fisher Counterclaim (AprilS, 2012).

The Gravisons requested First American to defend or at least pay to defend against the

Neighbors' counterclaim, and First American has declined to do either. The Gravisons

commenced this action with an eight-count complaint, seeking in Count I a declaratory

judgment that First American is required to defend and indemnify them against the Neighbors'

counterclaim, and seeking in the remaining counts other forms oflegal and equitable relief in

response to First American's refusal to take up the defense.

3 Analysis

First American's motion seeks summary judgment on the first five counts of the

Complaint-those relating to First American's alleged duty to defend the Gravisons against

the Neighbors' counterclaims-on the following grounds:

• the Policy at Section 4 of the Conditions and Stipulations does not require First American to defend or indemnify the Gravisons against "matters not insured against by this policy."

• the Neighbors' counterclaims, whether or not valid, all relate to "matters not insured against," given that the Policy excludes claims under the deeds that the Neighbors' deeded easement claims rest on; excludes the Neighbors' claims for prescriptive easement by virtue of the "persons in possession" exclusion at Schedule B, paragraph 1, and excludes any claims relating to the intertidal zone.

As the party seeking summary judgment, First American has to show that there are no

genuine issues of material fact, and that it is entitled to judgment as a matter oflaw. See M.R.

Civ. P. 56.

At oral argument, the Gravisons conceded-as they had to do, in the court's view-that

certain of the counts of the Neighbors' counterclaim fall within the Policy exclusions regarding

deeded rights and the intertidal zone, and thus that First American has no duty to defend

against the claims asserted in those counts. However, the Gravisons maintain, and for the

reasons set forth below, the court agrees, that under Maine law, First American does have a

duty to defend against the Neighbors' counterclaims that are based on prescriptive or implied

easement theories.

The counts of the Neighbors' counterclaims as to which First American has no duty to

defend are Count I, in which the Neighbors claim deeded appurtenant rights under plans and

deeds that are excluded in Schedule B, and Counts V and VII, which claim rights in the

intertidal zone-likewise excluded in Schedule B.

4 Thus, the focus of the remainder of this Order will be on the remaining counts of the

Neighbors' counterclaim: Count II, for prescriptive easement appurtenant; Count III, alleging

public prescriptive rights; Count IV, alleging prescriptive easement in gross; and Count VI,

alleging that Nancy Bolan has an implied easement appurtenant to her quasi-easement in the

intertidal zone to cross the upland portion of the Gravison property.

First American's argument is that it has no duty to defend because all of the claims

reflected in these four counts arise under plans and deeds excluded in Schedule B and/ or

"could be ascertained by an inspection of said land or by making inquiring of persons in

possession thereof' for purposes of paragraph 1 of Schedule B. Paragraph 1 also referred to as

the "persons in possession" exclusion.

However, First American forthrightly acknowledges that Law Court precedent cuts

against its position. Specifically, it notes that the Law Court has indicated that a title insurer's

duty to defend is to be determined in the same way as a general liability insurer's duty to

defend. Defendant's Motion for Summary Judgment with Incorporated Memorandum at .3-4.

In N.E. Properties, Inc. v. Chicago Title Ins. Co., the Law Court indicated that Chicago

Title's "duty to defend is determined by comparing the allegations in the underlying complaint

with the provisions of the insurance policy. The insured is entitled to a defense if there exists

any legal or factual basis which could be developed at trial which would obligate the insurerO

to pay under the policy." 660 A.2d 926, 927 (Me. 1995) (internal citations and quotation marks

omitted), citing Baywood Corp. v. Maine Bonding & Casualty, 628 A.2d 1029 (Me. 199S).

With supporting authority from other jurisdictions, First American says that the N.E.

Properties decision is wrong in conflating the scope of a liability insurer's duty to defend with

that of a title insurer. Indeed, there is a fundamental difference between title insurance and

liability insurance:

5 'A title insurance policy is not an agreement to guarantee or a warranty of the state of the title .... It is, rather, an agreement to indemnify the policyholder ... against loss through defects in title.' Before issuing a policy, a title insurer searches real property records for title defects and, if any are discovered, excludes such known defects from the policy coverage. In so doing, the title insurer discloses such defects to the potential purchaser of the policy, thus affording an opportunity to cure any title defects before the real estate transaction closes.

[T]itle insurance is fundamentally different from general liability insurance. 'Unlike other forms of insurance, title insurance is not directed at future risks. It is directed at risks that are already in existence on the date the policy is issued.' Because title insurance narrowly covers defects in, or encumbrances on, titles that are in existence when the policy issues, title insurers attempt to eliminate or reduce risks prior to the issuance of a title insurance policy. Such differences are reflected in the differing payment schemes and length of coverage as between title and general liability insurance: title insurance typically requires a single premium payment (often a percentage ofproperty value) for indefinite coverage, whereas general liability insurance requires continuation premiums (based on the likelihood a future event will occur) for coverage during a set term.

GMAC Mortgage, LLC v. First American Title Insurance Co., 464 Mass. 7SS, 739-740, 985 N.E.2d

82S, 828-29 (201S) (internal citations omitted). See also Carstensen v. Chrisland Corp., 247 Va.

4SS, 442, 442 S.E.2d 660, 665 (1994).

On the strength of the distinction between liability insurance and title insurance, the

Supreme Judicial Court of Massachusetts has gone on to conclude that a title insurer's duty to

defend is much narrower than a liability insurer's duty to defend:

"[T]he broadly applied standard for determining whether a general liability insurer has a duty to defend is inapplicable in the context of title insurance. More precisely, a title insurer does not have a duty to defend simply because the allegations in the underlying complaint are "reasonably susceptible' of an interpretation that they state or adumbrate a claim covered by the policy terms.' Application of this standard threatens to sweep a whole host of uncontemplated risks into the ambit of title insurance. To avoid such an aberration, we conclude that a title insurer's duty to defend is triggered only where the policy specifically envisions the type ofloss alleged." Deutsche Bank National Association v. First American Title Insurance Co., 465 Mass. 741, 746-747, 991 N.E. 2d 6S8, 64S (201S) (internal citations omitted).

Implicit in this standard is the premise that a title insurer's risk is limited to

actual defects in title, meaning that the duty to defend is limited to claims arising out of

an actual defect in title-valid claims only. Based on that premise, First American

6 argues that it matters not whether the Neighbors' prescriptive easement claims are

valid or not-either way there is no duty to defend.

If the Neighbors' prescriptive easement claims are valid, according to First

American, it can only be because they are based on "facts, rights, interest, or claims

which could be ascertained by an inspection of said land or by making inquiry of persons

in possession thereof," all of which fall within the "persons in possession" exclusion. On

the other hand, if the Neighbors' prescriptive easement claims are not valid, then there

is no covered defect in title and, again, no duty to defend, according to First American.

For two reasons, this court denies First American's motion for summary

judgment with respect to its duty to defend the Gravisons against the Neighbors'

counterclaims.

The first and more obvious reason is that it is this court's duty to follow Law

Court precedent, unless there has been such passage of time and such change of

circumstances as to inspire confidence that the Law Court would not follow its own

precedent. This court is not confident that such is the case, and therefore will follow

N.E. Properties, Inc.

The second reason relates to a practical problem with First American's

argument and the Deutsche Bank standard on which it relies. Under Deutsche Bank, First

American's duty to defend is limited to risks specifically envision[ed]", i.e. actually

insured, by the Policy, meaning that First American's duty to defend prescriptive

easement claims is limited to valid claims that in fact could not have been discovered

through inspection or inquiry under the "persons in possession" exclusion.

As applied to the "persons in possession" exclusion, the essential difference

between the N.E. Properties, Inc. standard and the Deutsche Bank standard is that the

7 N.E. Properties, Inc. test imposes a duty to defend if there is any set offacts upon which

the Neighbors might prevail and trigger First American's duty to pay, whereas the

Deutsche Bank test imposes a duty to defend if the set of facts upon which the Neighbors

do in fact base their claims is sufficient to establish a valid claim.

This means that, under the Deutsche Bank standard, to determine whether First

American has a duty to defend against the Neighbors' prescriptive and implied easement

claims, it would be necessary to determine whether the Neighbors' evidence is sufficient

to prove their claim. That determination would call, at a minimum, for a "case within a

case" trial of the merits ofthe Neighbors' claims. But even a "case within a case" trial

likely would not be adequate, because it is the Neighbors' own evidence-not the

evidence that the Gravisons and First American would present in the "case within a

case"-that would determine whether the Neighbors' claim is valid and therefore within

First American's duty to defend.

Thu!), under the Deutsche Bank test, it is only after the Neighbors have prevailed

on their counterclaims that it can be determined whether First American has a duty to

defend those counterclaims-an absurd result. Whatever its merits in theory, the

Deutsche Bank standard for determining the duty to defend fails the test of practicality.

Under the N.E. Properties, Inc. standard, First American has a duty to defend if

there is a "legal or factual basis which could be developed at trial which would obligate

[First American] to pay under the policy." This court can readily envision scenarios

under which the Neighbors could prove their prescriptive easement claims (and Nancy

Bolan's implied easement claim) on a factual basis that might not have been discoverable

through inspection of the property or through inquiry ofpersons in possession. Not

every valid prescriptive easement claim leaves visible traces on the property over which

8 the claim is made. Not every property owner is necessarily aware of the uses that

neighbors make of the property-actual knowledge of use is not required; imputed

knowledge of a use may be sufficient in some instances. In other words, First

American's premise that each and every valid prescriptive easement claim can be

discovered through inspection and/ or through inquiry of "persons in possession" is not

necessarily true universally.

In this case, the Gravisons say they did inspect the property and saw nothing to

indicate the Neighbors' claims. What the Gravison's predecessors might have told them

if the Gravisons had made specific inquiry is not clear. Therefore, under the N.E.

Properties, Inc. test, there are scenarios under which First American would have a duty

to pay, and First American has a duty to defend against the Neighbors' claims.

For that reason, this Order will grant partial summary judgment to the Gravisons on

Count I of their complaint in this case, to the extent of a declaratory judgment that First

American has a duty to defend the Neighbors' counterclaim as to Count II, for prescriptive

easement appurtenant; Count III, alleging public prescriptive rights; Count IV, alleging

prescriptive easement in gross; and Count VI, alleging that Nancy Bolan has an implied

easement on the upland portion of the Gravison property based on a quasi-easement. See M.R.

Civ. P. 56(c) (where appropriate, summary judgment may be rendered against the moving

party).

First American's motion will be granted and First American will be granted partial

summary judgment on Count I of the Gravisons' complaint as to the remaining counts of the

Neighbors' counterclaim.

Because First American's motion for summary judgment was granted in part and denied

in part, this Order addresses only the Gravisons' declaratory judgment claim in Count I and

9 leaves the remaining counts covered by First American's motion-Counts II through V of the

Gravisons' complaint-unresolved. First American's motion for summary judgment did not

extend to Counts VI through VIII ofthe Gravisons' complaint.

First American has requested, in the event its motion were not granted, the opportunity

to take discovery regarding the Gravisons' defense and costs of defense against the

counterclaim, and this seems appropriate. First American has no duty to prosecute or

contribute to the cost of prosecuting the Gravisons' action against the Neighbors, at least to

the extent that it relates to the use of the beach. As to the upland portion of the Gravison

property-the area over which the Neighbors claim prescriptive rights-the distinction

between the cost of maintaining the action and the cost of defending against the counterclaims

may be more elusive, as may be separating the costs of defending certain counts of the

counterclaim from the costs of defending other counts.

Discovery and other matters relating to the future phases of this case can be discussed

at the next conference of counsel.

Conclusion

IT IS HEREBY ORDERED AS FOLLOWS:

1. Defendant First American Title Insurance Company's Motion for Summary

Judgment is hereby granted in part, as follows: First American is hereby awarded partial

summary judgment on Count I of the complaint. It is hereby declared and adjudged that

First American has no duty under Policy No. S7000288S-MEOe to defend Plaintiffs David and

Beverly Gravison against the claims asserted in Counts I, V and VII of the Defendants'

counterclaim dated April S, 2012 m Gravison v. Fisher, Super. Ct., Kno. Cty. Docket No.

ROCSC-RE-11-51 [Def Ex. 11].

10 2. Defendant First American Title Insurance Company's Motion for Summary

Judgment is otherwise denied.

5. Pursuant to M.R. Civ. P. 56(c), Plaintiffs David and Beverly Gravison are hereby

awarded partial summary judgment on Count I of the complaint, as follows: It is hereby

declared and adjudged that First American has a duty under Policy No. 570002885-MEOe to

defend Plaintiffs David and Beverly Gravison against the claims asserted in Counts II, III, IV

and VI of the Defendants' counterclaim dated April 5, 2012 in Gravison v. Fisher, Super. Ct.,

Kno. Cty. Docket No. ROCSC-RE-11-51 [Def Ex. 11].

4. The clerk will schedule a conference of counsel to discuss further proceedings in this

case.

Pursuant to M.R. Civ. P. 79(a), the Clerk is hereby directed to incorporate this Order by

reference in the docket.

Dated September 15, 2014 a#~&ttt;~ A.M. Horton Justice, Business and Consumer Court

Entered on the Docket: q' f ') -{Y/ Copies sent via Mail_ Electronically U:

11 David B. Gravison and Beverly A. Gravison v. First American Title Insurance Company BCD-CV-14-04

David B. Gravison and Beverly A. Gravison Petitioner I Plaintiff

Counsel: Sean Joyce, Esq. 75 Pearl St., Suite 204 Portland, Me 04112-0048

First American Title Insurance Company Respondent I Defendant

Counsel: Christopher Dinan, Esq. 9 5 Exchange St PO Box 7046 Portland, ME 04112-7046