Hansen et al v. Fidelity National Title Insurance Company

Filing 36

OPINION & ORDER: Plaintiffs' motion for summary judgment 25 is denied and Defendant's cross-motion for summary judgment 27 is granted. See 11-page opinion & order attached. Signed on 1/31/2013 by Judge Marco A. Hernandez. (mr)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
PORTLAND DIVISION

RICHARD C. HANSEN, an individual,
and JEAN A. HANSEN, an individual,
No. 03:12-cv-00183-HZ
Plaintiffs,
OPINION & ORDER
v.
FIDELITY NATIONAL TITLE
INSURANCE COMPANY, a California
corporation,
Defendant.

Paul B. Barton
James D. Zupancic
Zupancic Rathbone Law Group, PC
4949 Meadows Road, Ste. 600
Lake Oswego, OR 97035
Attorney for Plaintiffs

1 - OPINION & ORDER

Erin M. Stines
Fidelity National Law Group
A Division of Fidelity National Title Group, Inc.
1200 6th Avenue, Suite 620
Seattle, WA 98101
Attorney for Defendant
HERNANDEZ, District Judge:
Plaintiffs Richard and Jean Hansen bring this action to recover costs and attorney fees
from Defendant Fidelity National Title Insurance Company, alleging that Defendant breached its
duty to defend their title when Plaintiffs were sued for adverse possession. Plaintiffs move for
summary judgment and Defendant cross-moves for summary judgment. I deny Plaintiffs’
motion, and I grant Defendant’s motion.
BACKGROUND
In 2004, Plaintiffs Richard and Jean Hansen purchased property located in Wilsonville,
Oregon. Declaration Paul Barton Supp. Pls.’ Mot Summ. J. (“Barton Decl.”) Ex. 1 at 3-4. The
Hansens obtained title insurance from Defendant Fidelity. Id. at 1. On August 19, 2010, the
Hansens were sued by the trustees of the Rogers Family Living Trust (“Rogers trustees”).
Barton Decl. Ex. 2. The trustees alleged that they were fee simple owners of a portion of the
Hansens’ property. Id. at 2. On September 1, 2010, the Hansens notified Fidelity that they had
been sued and attached the complaint for the Rogers case. Barton Decl. Ex. 3. The Hansens also
stated that they had retained counsel and requested Fidelity’s assistance to defend against the
Rogers trustees. Id.

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In a letter dated September 15, 2010, the Hansens again requested that Fidelity tender a
defense in the Rogers case and attached a proposed amended complaint. 1 Barton Decl. Ex. 4.
On October 4, 2010, after reviewing the amended complaint, Fidelity denied coverage under the
title insurance policy, explaining that exceptions to the policy applied. Barton Decl. Ex. 5. The
Hansens responded to Fidelity, arguing that the policy exceptions did not apply. Id. at Ex. 6. On
November 3, 2010, Fidelity again denied coverage and declined to tender a defense. Id. at Ex. 7.
The Hansens wrote once more to convince Fidelity that it was incorrect to deny coverage. Id. at
Ex. 9. On December 7, 2010, for the third time, Fidelity refused to tender a defense. Id. at Ex.
10. The Hansens now seek reimbursement for costs and attorney’s fees incurred in their defense
in the Rogers case. Barton Decl. Exs. 11, 17; Compl. at 7.
STANDARD
Summary judgment is appropriate if there is no genuine dispute as to any material fact
and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). The
moving party bears the initial responsibility of informing the court of the basis of its motion, and
identifying those portions of “‘the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any,’ which it believes demonstrate the
absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)
(quoting Fed. R. Civ. P. 56(c)).
Once the moving party meets its initial burden of demonstrating the absence of a genuine
issue of material fact, the burden then shifts to the nonmoving party to present “specific facts”
showing a “genuine issue for trial.” Fed. Trade Comm’n v. Stefanchik, 559 F.3d 924, 927-28

1

There are no discernible differences between the proposed amended complaint, Barton Decl.
Ex. 4 at 3-7, and the filed amended complaint, Decl. Erin Stines Supp. Def.’s Cross Mot. Summ.
J. (“Stines Decl.”) Ex. C.
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(9th Cir. 2009) (internal quotation omitted). The nonmoving party must go beyond the pleadings
and designate facts showing an issue for trial. Celotex, 477 U.S. at 322-23.
The substantive law governing a claim determines whether a fact is material. Suever v.
Connell, 579 F.3d 1047, 1056 (9th Cir. 2009). The court views inferences drawn from the facts
in the light most favorable to the nonmoving party and draws all reasonable inferences in that
party's favor. Long v. City & County of Honolulu, 511 F.3d 901, 905 (9th Cir. 2007).
If the factual context makes the nonmoving party’s claim as to the existence of a material
issue of fact implausible, that party must come forward with more persuasive evidence to support
his claim than would otherwise be necessary. Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 587 (1986).
DISCUSSION
Plaintiffs allege the following claims against Defendant: (1) breach of contract and (2)
breach of contractual implied duty of good faith and fair dealing, including a violation of ORS §
746.230 for Unfair Claim Settlement Practices. 2 Plaintiffs also request attorney’s fees pursuant
to the title policy and ORS § 742.061. Compl. ¶¶ 16-36.
I.

Breach of Contract
Plaintiffs’ breach of contract claim is based on Defendant’s refusal to tender a defense in

the Rogers case. “Whether an insurer has a duty to defend an action against its insured depends
on two documents: the complaint and the insurance policy. An insurer has a duty to defend an
action against its insured if the claim against the insured stated in the complaint could, without
amendment, impose liability for conduct covered by the policy.” Ledford v. Gutoski, 877 P.2d
80, 82 (Or. 1994) (citations omitted). From the face of the complaint, an insurer should be able
2

Defendant’s motion to dismiss claim three was granted. May 8, 2012 Op. and Order 7-8 (Dkt.
#15).
4 - OPINION & ORDER

to determine whether it has a duty to defend. Id. “The insurer has a duty to defend if the
complaint provides any basis for which the insurer provides coverage.” Id. at 83. However,
“[u]nless the complaint alleges conduct that could be covered by the policy, the duty to defend
does not arise.” Id. at 84. Any ambiguity in the complaint with respect to whether the
allegations could be covered by the policy must be resolved in favor of the insured. Id.
The first issue of contention between the parties is the operative complaint. Plaintiffs
argue that the initial complaint governs while Defendant contends that the amended complaint
should dictate the duty to defend analysis. In support, Plaintiffs argue that Defendant considered
the initial complaint in its decision and that controlling case law prohibits consideration of the
amended complaint. Neither of these arguments is persuasive. First, Plaintiff is incorrect that
Defendant considered the initial complaint in its refusal to defend Plaintiffs. In its first denial
letter to Plaintiffs, Defendant expressly references the amended complaint. Barton Decl. Ex. 5 at
1. Defendant writes, “[a]ccording to the First Amended Complaint filed in the Action, there was
a physical barrier that separated the disputed property from the remaining Insured Property.” Id.
(emphasis added). Plaintiff points out that in the final denial letter, Defendant references
“Complaint” rather than the amended complaint. Yet, the final denial letter mentions allegations
that only appear in the amended complaint. Barton Decl. Ex. 10 at 2 (“In the Complaint, it is
alleged that the use…was actual, open, notorious, exclusive, hostile and continuous”). Even if I
were to draw an inference most favorable to Plaintiff, there is no doubt that Defendant was
referring to the amended complaint.
Second, Plaintiffs argue that the Oregon Supreme Court in Ledford v. Gutoski prohibits
consideration of additional facts in an amended complaint. Pls.’ Reply 5. Plaintiffs quote from
Ledford that “[a]n insurer has a duty to defend an action against its insured if the claim against

5 - OPINION & ORDER

the insured stated in the complaint could, without amendment, impose liability for conduct
covered by the policy.” Ledford, 877 P.2d at 82 (emphasis added). This statement underscores
the rule that the insurer should decide whether to tender a defense based on the allegations in
complaint as stated, without speculation or consideration of outside facts. “The insurer’s
knowledge of facts not alleged in the complaint is irrelevant in determining the existence of the
duty to defend[.]” Oakridge Community Ambulance Service, 563 P.2d 164, 166 (Or. 1977).
Ledford does not prohibit the insurer from considering an amended complaint as the operative
complaint.
Plaintiffs provided the initial complaint to Defendant on September 1, 2010. Barton
Decl. Ex. 3. Two weeks later, Plaintiffs provided a copy of the proposed amended complaint on
September 15, 2010. Barton Decl. Ex. 4. That same day, the amended complaint was filed.
Stine Decl. Ex. C at 5. Thus, on September 15, 2010, the amended complaint superseded the
initial complaint. Based on the amended complaint, Defendant refused to tender defense on
October 4, 2010. Barton Decl. Ex. 5. Plaintiffs argue that based on Ledford, Defendant was
prohibited from considering the amended complaint—which Plaintiffs had provided—in
deciding whether it had a duty to defend. I do not agree that Ledford demands such a result, and
I will use the amended complaint in the duty to defend analysis.
In the amended complaint, the Rogers trustees alleged the following regarding the
disputed property.
Plaintiffs and Plaintiffs’ predecessors in interest have had actual, open, notorious,
exclusive, hostile and continuous possession…for more than ten years[.]
[A]t the time Plaintiffs and Plaintiffs’ predecessor in interest obtained ownership,
the disputed property was surrounded by physical barriers with access only from
Plaintiffs’ property, it was represented to Plaintiffs and their predecessors that
their property line included the disputed property,…and at no time…did

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Defendants or their predecessors in interest assert any ownership interest in the
disputed property[.]
Stines Decl. Ex. C at 2-3 (emphasis added). Notably, the Rogers trustees do not mention a claim
to the disputed property pursuant to a deed.
The title policy listed five general exceptions that would exclude coverage for loss or
damage. Barton Decl. Ex. 1 at 5. Defendant refused to defend based on the second, third, and
fourth exceptions in the title policy:
2. Any facts, rights, interests 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.
3. Easements, or claims of easements or encumbrances, not shown by the public
records…
4. Discrepancies, conflicts in boundary lines, shortage in area, encroachments or
any other facts which a correct survey would disclose.
Barton Decl. Ex. 5 at 1-2. Plaintiffs focus their arguments on the exception number two
(“public records” exception). Pls.’ Mem. Supp. Mot. Summ. J. 9 (“only exception
number 2 has any relevance to the facts of this case”).
The public records exception was interpreted in Cooper v. Commonwealth Land
Title Ins. Co., 73 Ore. App. 539 (Or. Ct. App. 1985). In Cooper, the court dealt with the
same issue—whether the public records exception precluded an insurer’s duty to defend.
The facts of Cooper are very similar to this case. Cooper involved a title insurance
company’s refusal to defend the property owner against a claim over possession of
disputed land. Id. at 541. The Cooper court reversed the granting of the title insurance
company’s motion to dismiss because the complaint included allegations that possession
was based on “claim of right and pursuant to a deed.” Id. at 543. In other words, the
complaint alleged possession under two different theories—“own[ing] the land by
7 - OPINION & ORDER

adverse possession” or holding “the land pursuant to a deed”. Id. Because of the
ambiguity, the court could not determine whether the allegations about the deed or the
allegation of adverse possession was surplusage. Id. Considering the public records
exception, the Cooper court stated that “[i]n the absence of the language about the deed,
there would be no duty to defend, because that duty only arises when there is some claim
shown of record.” Id. (emphasis added). Thus, if the complaint had not alleged
ownership of the land by deed, then the public records exception would have precluded
coverage under the title policy.
In this case, the amended complaint does not include an allegation of ownership
by deed. Instead, the Rogers trustees described their possession of the land as “actual,
open, notorious, exclusive, hostile and continuous” and that the land was “surrounded by
physical barriers with access only from Plaintiffs’ property”. Stines Decl. Ex. C at 2-3.
These allegations support a claim of ownership by adverse possession, not by deed.
Plaintiffs argue that there is an ambiguity in the initial complaint, as in Cooper, and that
the Rogers trustees claim could have been based on a deed. 3 Pls.’ Mem. Supp. Mot.
Summ. J. 10. I have already found that the amended complaint supersedes the initial
complaint. Plaintiffs focus on the initial complaint is misplaced. Plaintiffs do not
address the adverse possession allegations in the amended complaint.
Plaintiffs further argue that Defendant failed to show that the exceptions apply.
Pls.’ Reply 5. Plaintiff is correct that “[t]he insurer has the burden of proof that the loss
is excluded.” Stanford v. American Guaranty Life Ins. Co., 571 P.2d 909, 911 (Or.
1977). But the “burden of proof” referenced in Stanford concerns whether coverage was
3

Plaintiffs also argue that this Court has previously ruled that the initial complaint was
ambiguous. Pls.’ Mem. Supp. Mot. Summ. J. 10. While this is true, at the time of the motion to
dismiss, only the initial complaint was before the Court.
8 - OPINION & ORDER

properly denied on the merits based on evidence, not in the context of whether there was
a duty to defend, which is solely based on the complaint and the policy. Plaintiffs also
fault Defendant for failing to introduce evidence in support of “pleadings filed after the
initial complaint”. Pls.’ Resp. Def.’s Cross-Mot. Summ. J. 6. As stated earlier, the
inquiry is whether a duty to defend arises based on the allegations in the amended
complaint, and whether the policy exceptions preclude coverage in light of the factual
allegations in the amended complaint.
In summary, I find that the Rogers trustees’ amended complaint stated a claim for
adverse possession based on actual, open, notorious, hostile, and actual possession.
Defendant did not have a duty to defend because the public records exception of the title
insurance policy excludes adverse possession claims from coverage.
II.

Breach of Contractual Duty of Good Faith and Fair Dealing
Plaintiffs refer to ORS § 746.230 for Unfair Claim Settlement Practices as examples of

conduct that may give rise to a breach of the duty of good faith and fair dealing by Defendant.
In particular, Plaintiffs allege that Fidelity breached its contractual obligation of good faith and
fair dealing by “ignoring controlling case law, failing to follow its own internal procedures, and
failing to provide an adequate explanation of its denial based on the facts and controlling law.”
Pls.’ Mem. Supp. Mot. Summ. J. 12.
Every contract contains an implied duty of good faith in the performance of the contract.
Uptown Heights Assocs. Ltd. Partnership v. Seafirst Corp., 320 Ore. 638, 645 (Or. 1995). This
duty obliges each party to “perform the contract…in a way that will effectuate the objectively
reasonable contractual expectations of the parties. The focus is on the parties’ agreed common
purpose and justified expectations, both of which are closely related to the express provisions of

9 - OPINION & ORDER

the contract.” Pollock v. D.R. Horton, Inc.-Portland, 190 Ore. App. 1, 11-12 (Or. Ct. App. 2003)
(citations omitted). This duty, however, does not “vary the substantive terms of a contract or
require a party to refrain from doing what the contract expressly permits it to do.” Pollock, 190
Ore. App. at 12.
First, Plaintiffs contend that Defendant ignored controlling case law. This argument is
unsupported by Plaintiffs. Plaintiffs do not state which case law that Defendant ignored.
Plaintiffs also argue that Defendant breached its duty by failing to follow its own internal
procedures. Specifically, Plaintiffs argue that Defendant failed to conduct a reasonable
investigation “when it failed to recognize that the ambiguity of the Rogers’ Complaint raised the
possibility of coverage[.]” Pls.’ Mem. Supp. Mot. Summ. J. 13. This argument fails because
Plaintiffs again incorrectly focus their attention on the initial complaint, rather than the amended
complaint. The Rogers trustees unambiguously alleged an adverse possession claim in the
amended complaint.
Finally, Plaintiffs argue that Defendant “failed to provide a proper explanation of its
denial by not citing the specific exception which would justify its refusal to defend.” Pls.’ Mem.
Supp. Mot. Summ. J. 13. Defendant cited to three specific exceptions in its denial letters.
Barton Decl. Exs. 5, 10. Plaintiffs’ argument is based on their belief that none of the exceptions
applied to the facts alleged in the initial complaint. Plaintiffs again incorrectly rely on the initial
complaint. The initial complaint included an allegation that the Rogers trustees were fee simple
owners. However, this allegation was replaced in the amended complaint with the allegation that
the Rogers trustees had open, notorious, hostile, and continuous possession. As I have found
earlier, based on the allegations in the amended complaint, the public record exception does

10 - OPINION & ORDER

indeed apply to preclude Defendant’s duty to defend. Thus, Defendant properly explained its
refusal to defend.
I find that Defendant did not breach its duty of good faith and fair dealing.
CONCLUSION
Based on the foregoing, Plaintiffs’ motion for summary judgment [#25] is denied and
Defendant’s cross-motion for summary judgment [#27] is granted.
IT IS SO ORDERED.

Dated this

day of _______________, 2013.

MARCO A. HERNANDEZ
United States District Judge

11 - OPINION & ORDER