¶1 This case arises out of a title insurance coverage dispute between
Plaintiff/Appellant OPY I, L.L.C. ("Plaintiff") and Defendant/Appellee First
American Title Insurance Company, Inc. ("Defendant"). Plaintiff, an Oklahoma
limited liability company, appeals from summary judgment granted in Defendant's
favor.
¶2 On August 28, 2003 Plaintiff entered into a contract with Third-Party
Defendant 61 MM, Ltd. ("Seller") for the purchase of a vacant commercial lot
located in Tulsa, Oklahoma ("subject property"). At the time, Seller was being
sued by one of its investors, Third-Party Defendant Orhan Yavuz ("Yavuz") in
federal court.1 Related to this litigation, Yavuz filed two lis
pendens notices against the subject property in Tulsa County. Defendant
issued a title insurance commitment which described the Yavuz litigation and
required the expungement of the lis pendens notices as a condition
precedent to issuing title insurance on the subject property. Prior to the
closing, the lis pendens notices were expunged.
¶3 On December 5, 2003, Defendant closed on a contract to purchase the
subject property. Plaintiff purchased title insurance from Defendant which
provided Defendant "insures ... against loss or damage ... sustained or incurred
by the insured by reason of ... [a]ny defect in or lien or encumbrance on the
title ... [or] [u]nmarketability of the title...." Both Plaintiff and Defendant
knew of the existence of the Yavuz litigation and the expunged lis
pendens notices. Neither the Yavuz litigation nor the lis pendens
notices were ultimately listed as exceptions on the title insurance policy.
¶4 After its purchase of the subject property, Plaintiff sought to secure a
construction loan to build commercial office space. Plaintiff claimed it had
signed a contract with a tenant who agreed to a five (5) year lease at $60,000
per year. However, Plaintiff alleged its chosen lender, Spirit Bank, refused to
fund a construction loan for Plaintiff causing the tenant to withdraw from its
rental agreement. Plaintiff claimed this was due to the uncertainty in its title
generated by the Yavuz litigation and demanded Defendant either intervene in the
suit to assert Plaintiff's title or file a separate quiet title action.
Defendant did not intervene in the Yavuz litigation nor did it file a quiet
title action at that time. The dispute between Plaintiff and Defendant continued
informally for some time, ultimately resulting in Plaintiff filing this case in
October 2007 against Defendant for breach of contract and for breach of the
implied covenant of good faith and fair dealing. Included with its answer to
Plaintiff's Petition, Defendant filed a third-party petition against Yavuz and
61 MM, LTD seeking to quiet title to the subject property in Plaintiff's name.2
¶5 After the trial court denied its initial motion for summary judgment
against Defendant, Plaintiff filed a second motion for partial summary judgment
against Defendant asking the trial court to determine whether, as a matter of
law, a particular provision of the title insurance policy, specifically
paragraph 4(b), imposed an affirmative duty on Defendant to confirm Plaintiff's
title or whether it merely granted Defendant the option to confirm Plaintiff's
title. Defendant had previously filed its own motion for partial summary
judgment against Plaintiff which was still pending at that time. Defendant's
motion argued that Plaintiff did not have a valid claim under the title
insurance policy. Defendant maintained it did not have a duty to defend
Plaintiff in the Yavuz litigation because Defendant was not a party and because
the orders expunging the lis pendens notices eliminated any right, title,
or interest Yavuz may have claimed in the subject property. Defendant also
argued the title insurance policy did not require it to take affirmative action
to confirm Plaintiff's title by intervening in the Yavuz litigation or filing a
separate quiet title action. The trial court denied Plaintiff's motion but
granted Defendant's motion finding Defendant did not breach the title insurance
policy. Specifically, the trial court stated:
The orders expunging and discharging the two lis pendens
terminated any right, title, claim, lien or interest of Mr. Yavuz in the
property made the subject of this action. [Defendant] was not obligated to
take any additional action to quiet the title of the Plaintiff in relation
to the claims of Mr. Yavuz.
On appeal, Plaintiff argues the trial court erred in concluding the title
insurance policy did not impose an affirmative duty on Defendant to confirm
Plaintiff's title. Additionally, Plaintiff challenges the trial court's finding
the expungement of the lis pendens notices eliminated any cloud on
Plaintiff's title considering the continuing nature of the Yavuz litigation
after the closing.
STANDARD OF REVIEW
¶6 Whether the trial court's entry of summary judgment was proper is a
question of law we review de novo. See Manley v. Brown, 1999 OK 79, ¶22, 989 P.2d 448, 455. Summary judgment
is appropriate where the record establishes no genuine issue of material fact
and the prevailing party is entitled to judgment as a matter of law. Brown v.
Alliance Real Estate Group, 1999
OK 7, ¶7, 976 P.2d 1043.
Here, the parties agree on the relevant material facts, and the only question
before us is whether paragraph 4(b) imposes a duty on a title insurer to take
affirmative action to confirm an insured's title.
NATURE OF TITLE INSURANCE
¶7 Title insurance is "ordinarily considered a contract of indemnity." Steven
Plitt et al., 11 Couch on Insurance §159:8 (3d. 2013). "The importance of
the contract not being one of guaranty is primarily that the insurer's liability
to pay monetary compensation under the policy does not arise immediately upon
the existence of a covered defect being proved." Id. at §159:9. Rather,
the insurer has "a range of options by which it may fulfill its obligations
under the policy" including "paying the amount of the insured's loss, paying the
face amount of the policy ..., successfully defending the insured against an
adverse claim, instituting affirmative litigation to clear the title" or
settling with adverse title claimants. Id. The unique nature of title
insurance makes it somewhat different from other breach of contract disputes.3
INSURER'S "RIGHT" TO TAKE AFFIRMATIVE ACTION
¶8 The relevant policy provisions come from a standard American Land Title
Association ("ALTA") policy. Paragraph 4(a) provides in pertinent part:
Upon written request by the insured and subject to the options contained
in Section 6 of these Conditions and Stipulations,4 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.
Paragraph 4(b) states:
The Company shall have the right, at its own cost, to institute and
prosecute any action or proceeding or to do any other act which in its
opinion may be necessary or desirable to establish the title to the estate
or interest, as insured, or to prevent or reduce loss or damage to the
insured. The Company may take any appropriate action under the terms of this
policy, whether or not it shall be liable thereunder, and shall not thereby
concede liability or waive any provision of this policy. If the Company
shall exercise its rights under this paragraph, it shall do so
diligently.
Plaintiff framed the issue on appeal as being whether paragraph 4(b) imposes
a duty on Defendant to take affirmative action to confirm Plaintiff's title.
While many jurisdictions have analyzed the same uniform policy language,
Oklahoma has not. Thus, this is a question of first impression in this
jurisdiction.
¶9 "Oklahoma law governing insurance coverage disputes is well-established.
The foremost principle is that an insurance policy is a contract." Cranfill
v. Aetna Life Ins. Co., 2002 OK
26, ¶5, 49 P.3d 703.
"Parties may contract for risk coverage and will be bound by policy terms. When
policy provisions are unambiguous and clear, the employed language is accorded
its ordinary, plain meaning, and the contract is enforced carrying out the
parties' intentions. The policy is read as a whole, giving the words and terms
their ordinary meaning, enforcing each part thereof. This Court may not rewrite
an insurance contract to benefit either party.... We will not impose coverage
where the policy language clearly does not intend that a particular individual
or risk should be covered." BP America, Inc. v. State Auto Property and
Casualty Ins. Co., 2005 OK
65, ¶6, 148 P.3d 832.
(Footnotes omitted). "The interpretation of an insurance contract and whether it
is ambiguous is a matter of law that will be resolved by the court." Redcorn
v. State Farm Fire & Casualty Co., 2002 OK 34, ¶4, 55 P.3d 1017. (Internal citation
omitted). "An insurance contract is ambiguous only if it is susceptible to two
constructions on its face from the standpoint of a reasonably prudent layperson,
not from that of a lawyer." Haworth v. Jantzen, 2006 OK 35, ¶13, 172 P.3d 193. This Court will not
indulge in strained interpretations to create such an ambiguity. Id.
¶10 Plaintiff has not argued the policy language is ambiguous in any way, and
the plain language of paragraph 4(b) clearly states Defendant shall have the
"right" to take whatever action "in its opinion may be necessary or desirable to
establish the title." The policy language does not impose a duty on the insurer
to take affirmative action to confirm the insured's title. Rather, such
affirmative action is an option the insurer may exercise should it so choose.5 In addition to
the plain language of the policy and decisions from other jurisdictions,6 this conclusion
is supported by numerous commentaries on the subject. E.g. Joyce D.
Palomar, 1 Title Insurance Law §11:11 (2013-2014); Steven Plitt et al.,
11 Couch on Insurance §159:9 (3d. 2013). As summarized in a recent decision from
the U.S. District Court for the District of Colorado analyzing the same policy
language at issue here:
Paragraph 4(b) does not place an independent duty to act on [the
insurer]; rather, the paragraph mentions only [the insurer's] rights under
the policy and [the insurer's] option to take whatever action it deems
necessary. If the provision cited by [the insured] created as broad a duty
as [the insured] argues, Paragraph 4(b) would have been drafted differently
to capture the reasonable expectations of the insured, such as providing
that [the insurer] "shall institute" a defense of the insured ... or that
[the insurer has] "the obligation to institute" action to clear title.
Paragraph 4(b) contains no such mandatory language. Morever, the policy must
be interpreted as a whole. Were [the insurer] under the same obligation to
defend the insured and unilaterally cure title defects, the differences
between the language of paragraph 4(a) and paragraph 4(b) would be left
unexplained. U.S. Bank N.A. v. Stewart Title Guaranty Co., No.
13-CV-00117, 2014 WL 1096961, at *9 (D. Colo. March 20,
2014).
¶11 In support of its argument, Plaintiff cited three cases, Davis v.
Stewart Title Guaranty Co., 726 S.W.2d 839 (Mo. App. 1987); Summonte v.
First American Title Ins. Co., 436 A.2d 110 (N.J. Super. Ct. Ch. Div. 1981);
and Jarchow v. Transamerica Title Ins. Co., 122 Cal.Rptr. 470 (Cal. Ct.
App. 1975) (overruled on other grounds by Soto v. Royal Globe Ins. Corp.,
229 Cal.Rptr. 192 (Cal. Ct. App. 1986)). These cases are distinguishable from
the instant case.7 First, Jarchow interpreted different policy
provisions than those at issue here.8 The provisions at issue in that case provided:
The [Title] Company, at its own cost and without undue delay shall
provide (1) for the defense of the insured in all litigation
consisting of actions ... commenced against the insured ...;
or (2) for such actions as may be appropriate to establish the
title ... as insured, which litigation ... is founded upon an alleged
defect, lien or encumbrance insured against by this
policy...."
Jarchow, 122 Cal.Rptr. 470, 487. (Emphasis added.) The California
appellate court found those provisions established two obligations of the
insurer:
(1) to defend the insured's title if a third party claims, in a judicial
proceeding, an interest insured against by the policy, and (2) in the event
that a third-party claimant chooses not to litigate his claim, to take
affirmative action (by filing an action to quiet title or by offering to
compromise the third party's claim) ... Id.9
We note the Jarchow policy provisions included mandatory "shall"
language before both obligations as the two courses of action were connected
with the disjunctive conjunction "or." Id. While the word "shall" is used
in paragraph 4(b) of the ALTA policy at issue here, the terms "right" and "in
its option" included in that paragraph modify the action into options the
Defendant could take if it so chose. In contrast, paragraph 4(a) of the ALTA
policy indicates Defendant "shall provide" a defense for Plaintiff if a third
party brings a claim adverse to Plaintiff's title. The directive does not
include any qualifying or limiting language. "Were [Defendant] under the same
obligation to defend the insured and unilaterally cure title defects, the
differences between the language in paragraph 4(a) and paragraph 4(b) would be
left unexplained." U.S. Bank N.A. v. Stewart Title Guaranty Co., 2014 WL
1096961, at *9.
¶12 The Summonte court interpreted policy language nearly identical to
the policy language at issue here. Summonte, 436 A.2d 110, 115. The court
noted the policy language in paragraph 4(b) seemed to require the insurer "to
establish title only at its option." Id. However, the court found:
When liberal and obligatory rules of construction are applied, the
reading is different ... and require[s] a construction of the policy in
favor of the insured and one which ... will give the insured the protection
which he reasonably had a right to expect. This requires paragraphs [4(a)
and 4(b)] ... to be read together so that the right to establish the title
is a mandatory alternative to the obligation to defend. Id. (Internal
quotations and citations omitted).
The analysis employed by the Summonte court is contra to Oklahoma
law.10 In
Oklahoma, insurance policies, like all other contracts, are enforced according
to the express agreement of the parties, absent ambiguity." BP America,
Inc., 2005 OK 65, ¶6. See
also Max True Plastering Co. v. U.S. Fidelity and Guaranty Co., 1996 OK 28, 912 P.2d 861.11 Here, the terms of the
policy are not ambiguous and clearly establish Defendant has the right, but not
the duty, to take whatever affirmative action it may deem necessary to establish
Plaintiff's title.
¶13 Plaintiff also relied heavily on Davis v. Stewart Title Guaranty
Co., 726 S.W.2d 839 (Mo. Ct. App. 1987) to support its claim Defendant had a
duty to take affirmative action.12 The Davis court, citing specific policy
provisions at issue there, found the insurer had two alternatives "when
presented with a claim of an adverse interest to an insured property: (1) to
pursue a quiet title action without unreasonable delay; or (2) to pay
damages within thirty days after determination." Davis, 726 S.W.2d at 845
(emphasis original) (footnotes omitted). The court further concluded the claim
was presented to the insurer when the plaintiff first requested the insurer to
take affirmative action to clear its title before plaintiff ever pursued
litigation on its own. Id. at 853. First, we note we do not have all of
the relevant policy language from Davis necessary to compare it to the
ALTA policy language at issue here. The Davis policy language appears to
be substantially similar, see Davis, 726 S.W.2d at 845, n. 2, but without
all the relevant portions available for comparison, we decline to blindly follow
the holding in Davis. Second, we recognize the insurer in Davis
completely denied liability under the policy even after the insured brought its
own unsuccessful unlawful detainer action against the adverse claimant.13 Id.
at 843. The insurer refused to participate in any appeal from the unlawful
detainer suit, refused to tender the policy limits, and only filed a quiet title
action after being sued by its insured.14
¶14 Unlike the insurer in Davis, Defendant here had not refused to
take any action while also denying it was liable under the policy at all.
Rather, Defendant, while recognizing its option to pursue affirmative action,
chose to wait until the conclusion of the Yavuz litigation. This course of
action was permitted by the policy, which stated, in the event of litigation,
Defendant's liability under the policy did not arise until "there ha[d] been a
final determination by a court of competent jurisdiction, and disposition of all
appeals therefrom, adverse to the title as insured."15 This course of action was also
supported by the fact title insurance is a policy of indemnity, not guaranty,
which gives the insurer options other than to pay upon the showing of an adverse
claim insured by the policy. See George K. Baum Properties, Inc. v. Columbian
Nat'l Title Ins. Co., 763 S.W.2d 194, 200-02 (Mo. Ct. App. 1988) (reversing
and remanding suit brought for breach of title insurance policy when jury
instructions indicated the only option insurer had when presented with an
adverse claim was to tender the policy limits).16
¶15 We hold, therefore, under the particular facts and circumstances
presented by this case, the uniform ALTA policy language, specifically paragraph
4(b), does not impose a duty on the insurer to take affirmative action to
confirm the title of an insured. Because we find Defendant did not have a duty
to take such affirmative action, the effect of the expungement of the lis
pendens notices is irrelevant. Even if the expungement failed to eliminate
any cloud on the title created by the Yavuz litigation, the insurer still was
not under a duty to take affirmative action and would not have been required to
perform under the policy, if at all, until the conclusion of the Yavuz
litigation.
¶16 As explained herein, the order granting summary judgment to Defendant is
AFFIRMED.
BELL, P.J., and GOREE, J., concur.