Bad faith, Insurance Fair Conduct Act (IFCA) and Consumer Protection Act (CPA) litigation continues to proliferate in Washington State, including litigation pertaining to title insurance claims. The stakes could not be higher for insurers, including title insurers, in light of the recent Court of Appeals Division Two holding in the partially published opinion in Beasley v. GEICO Gen. Ins. Co., No. 54997-2-II, 2022, 2022 WL 4353226 (Wash. Ct. App. Sept. 20, 2022). The court held that as a matter of first impression, noneconomic damages are available to plaintiffs under IFCA. In other words, insureds can seek emotional distress damages if they are wrongfully denied a defense or indemnification.
One option available to an insurer presented with a title claim is to pursue litigation on behalf of its insured to clear title or otherwise prevent loss. Often, however, the insured would rather the title company just write a check to fix the title defect. This sometimes leads to litigation against the title company for both breach of the policy and extracontractual claims while the underlying lawsuit initiated by the insurer is pending. Such premature attempts at adjudicating coverage issues can force the title company and its insured to resolve their claims without full information – namely damages, which may be determined by the outcome of the underlying litigation.
Fortunately, a typical ALTA Owner’s Policy of Title Insurance accounts for this scenario by broadly limiting a title insurer’s liability in the event of any pending litigation. Paragraph 9(b) of the standard ALTA Owner’s Policy of Title Insurance states:
"In the event of any litigation, including litigation by the Company or with the Company’s consent, the Company shall have no liability for loss or damage until there has been a final determination by a court of competent jurisdiction, and disposition of all appeals, adverse to the Title, as insured."
In practice, it is important for a title insurer that finds itself in this situation to allow the underlying litigation to play out and conclude prior to mounting an effective defense to the insured’s lawsuit. An underlying lawsuit in progress will often complicate the issues, proof, and questions of law. In furtherance of this strategy, we recently obtained a stay of proceedings where the insured chose to file a lawsuit asserting breach of contract, bad faith, IFCA and CPA claims against our title insurance client while an underlying action was still pending. See Sundet v. Chicago Title Ins. Co., No. C22-0341-JCC, 2022 WL 2651614 (W.D. Wash. July 8, 2022). The Hon. Judge John Coughenour of U.S. District Court for the Western District of Washington agreed with the insurer that the lawsuit brought by the insured alleging a number of extracontractual claims amounted to premature adjudication and held that the underlying lawsuit fell within the express language of Condition 9(b).
The import of such limitations of liability should not be overlooked. A title insurer has an array of options for approaching a title claim, and exercising a particular option often means time spent investigating and achieving the desired resolution. Ultimately, achieving the desired resolution by means of litigating the underlying title issue is in the interest of both the insurer and its insured. Title insurers should therefore consider whether a stay is an appropriate remedy to seek during the pendency of such underlying litigation.
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