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Umpqua Bank, An Oregon Chartered Bank v. First American Title Insurance Company

October 12, 2011



Plaintiff Umpqua Bank ("Umpqua") brought this action against defendant First American Title Insurance Company ("First American") arising out of defendant's allegedly wrongful denial of title insurance coverage for plaintiff's claim. Presently before the court is defendant's motion for summary judgment pursuant to Rule 56.

I. Factual and Procedural Background

Plaintiff alleges that defendant breached two title insurance policies issued to plaintiff in conjunction with a construction project to improve a residential subdivision property known as Alta Vista Meadows in the City of Sacramento. The first title insurance policy was issued to plaintiff in 2004 and insured a deed of trust recorded November 1, 2004, and secured a loan in the amount of $2,995,500 by plaintiff to GSJ Company, LLC ("GSJ") for the acquisition and development of the Property (the "2004 Loan"). (Request for Judicial Notice, Ex.1 ("Compl.) ¶¶ 8, 10.) The second title insurance policy was issued to plaintiff in 2005 and insured a deed of trust recorded on November 2, 2005, and secured a loan in the amount of $5,499,500 by plaintiff to GSJ for construction on the Property (the "2005 Loan"). (Id. ¶¶ 11, 13.)

Both title insurance policies (the "Policies") contained identical provisions that insured plaintiff against any loss or damage by reason of the:

7. Lack of priority of the lien of the insured mortgage over any statutory lien for services, labor or material:

(a) arising from an improvement or work related to the land which is contracted for or commenced prior to Date of Policy; or

(b) arising from an Improvement or work related to the land which is contracted for or commenced subsequent to Date of Policy and which is financed in whole or in part by proceeds of the Indebtedness secured by the Insured mortgage which at Date of Policy the Insured as advanced or is obligated to advance; (Piraino Aff. Ex. 2.) The Policies' coverage was subject to conditions and stipulations, including exclusion based on paragraph 8(c), which stated that "[t]he Company shall not be liable for loss or damage to any insured for liability voluntarily assumed by the insured in settling any claim or suit without the prior written consent of the Company." (Id.) (emphasis added).

On November 22, 2006, A. Teichert & Son, Inc. ("Teichert") filed an action in Sacramento Superior Court against GSJ (the owner of the property), International Fidelity Insurance Company (a bonding company) ("IFIC"), and plaintiff to recover $878,156.23 for labor and materials that Teichert allegedly supplied to the property. (Request for Judicial Notice, Ex. 7.) Plaintiff was named as a defendant in the third cause of action for foreclosure of mechanic's lien and the sixth cause of action for enforcement of bonded stop notice. (Id.) IFIC filed a first amended cross-complaint in the Teichert Action on June 6, 2007, which included claims against plaintiff related to a set aside agreement. (Request for Judicial Notice, Ex. 8.)

Plaintiff did not provide defendant notice of the Teichert action when it was initially filed or request that defendant defend or indemnify it against the foreclosure of the mechanic's lien. On February 13, 2007, plaintiff's in-house counsel filed an answer to Teichert's complaint. (Umpqua's Request for Judicial Notice ¶ 1, Ex. 1.) Plaintiff later hired private counsel Peter Isola at Davis Wright Tremaine, LLP to represent it in the Teichert action. (Lowenthal Aff. ¶ 29, Ex. 15.)

On January 23, 2008, Mr. Isola contacted Alan Brickley, defendant's in-house counsel, and inquired about making a claim regarding its title insurance policy for the Alta Vista Property. (Isola Aff. ¶ 5, Ex. A.) Mr. Brickley advised Mr. Isola to submit plaintiff's claim directly to defendant's claims department. (Id.) That same day, Mr. Isola received an e-mail communication from Robert Hull, Vice President and Senior National Claims counsel for defendant, advising him to send plaintiff's claim directly to defendant's claims department. (Id. ¶ 6, Ex. B.)

On January 24, 2008, Teichert filed a motion for summary adjudication on two causes of action, but did not seek relief with respect to its third cause of action for foreclosure of mechanic's lien against plaintiff. (Lowenthal Aff. ¶ 16(e), Ex. 9.) Plaintiff sent a letter to defendant on January 30, 2008, requesting defense and indemnity in the Teichert action (the "Claim"). (Id. ¶ 29(c), Ex. 15.) The letter included all applicable pleadings made by Teichert against plaintiff and the cross-complaint filed by IFIC. (Id.; Isola Aff. ¶ 7.)

On January 31, 2008, Mr. Isola contacted a First American employee who identified herself as the assistant to Christine Woods (another First American employee in the claims department) to confirm that defendant had received plaintiff's tender and that it had been properly routed to a claims handler. (Isola Aff. ¶ 7.) On February 5, 2008, Mr. Isola e-mailed Mr. Hull advising him that defendant had confirmed receipt of plaintiff's tender letter, but had not yet responded to the claim. (Id. ¶ 8, Ex. C.) Mr. Isola also advised Mr. Hull that plaintiff had the opportunity to possibly settle the litigation, and asked that Mr. Hull direct the claims handler to contact Mr. Isola immediately. (Id.) Defendant acknowledged receipt of the Claim by letter dated February 7, 2008, and advised plaintiff that the Claim had been forwarded to its associate counsel, Catherine Piraino, for investigation. (Piraino Aff. ¶ 7, Ex. 4.)

On February 7, 2008, Mr. Isola telephoned Ms. Piraino and left her a voicemail message inquiring about the status of plaintiff's tender and advising her that plaintiff was actively engaged in settlement discussions regarding the mechanic's lien. (Isola Aff. ¶ 10.) On February 8, 2008, Mr. Isola e-mailed Ms. Piraino confirming that he had left her a voicemail the previous day and advising her that there was a pending sale of the Property that was expected to close on February 13, 2008, pursuant to a possible settlement agreement and inviting her to call to discuss these issues. (Id. ¶ 11, Ex. E.)

Between February 5, 2008, and February 11, 2008, Mr. Isola actively negotiated with Teichert on behalf of plaintiff for the release of the liens on the Property. (Id. ¶ 20.) On February 11, 2008, Teichert offered to release its lien claim and dismiss the lawsuit for payment of $1,125,000. (Id.) On February 13, 2008, plaintiff executed a written settlement agreement in the Teichert action. (Lowenthal Aff. ¶ 16(d), Ex. 8.) The settlement agreement provided, among other things, that the Property would be sold and $1,125,000 of the net proceeds would be distributed to Teichert in exchange for a release by Teichert of all of its claims, including those against GSJ and IGIC. (Id.) Escrow on the Property closed on February 13, 2008, and the net proceeds were distributed in accordance with the terms of the settlement agreement. (Id. ¶ 9, Ex. 2.) Teichert released the mechanic's lien on February 19, 2008, and dismissed the Teichert Action on March 19, 2008. (Request for Judicial Admission Ex. 10.)

Plaintiff did not receive defendant's prior written consent before it executed the settlement agreement, (Piraino Aff. ¶ 16), nor did it forward a copy of the settlement agreement to defendant for its review, (Lowenthal Aff. ¶ 29(f), Ex. 15). On June 19, 2008, plaintiff sent a proof of loss to defendant. (Id. ¶ 9, Ex. 2.)

On February 19, 2008, Ms. Piraino e-mailed Mr. Isola confirming her receipt of Mr. Isola's voicemail and asking him to contact her to discuss the claim. (Isola Aff. ¶ 14, Ex. G.) The next day, Mr. Isola telephoned Ms. Piraino to discuss plaintiff's claim and advise her that the sale of the property had already taken place. (Id. ¶ 15.) Ms. Piraino informed Mr. Isola that defendant had ceased its investigation due to the sale of the property and settlement of the litigation, and considered plaintiff's title claims moot. (Id.) Plaintiff did not receive any further communications from Ms. Piraino advising that plaintiff's claim had been closed, resolved, or otherwise denied. (Id. ¶ 16.) Ms. Piraino states that she did not conduct a substantive analysis of plaintiff's claims at any time. (Martin Aff. ¶ 2, Ex. 1.)

Upon receipt of plaintiff's Proof of Loss, Ms. Piraino retained Jeffrey Lownethal of Steyer Lownethal Boodrookas Alvarez & Smith LLP to conduct a factual investigation, analyze the claim, and provide defendant with a legal opinion regarding coverage. (Piraino Aff. ¶¶ 11-12.) In August 2008, Mr. Lowenthal contacted plaintiff's counsel to notify plaintiff of his role in the investigation and request documents that would enable him to analyze the claim. (Lowenthal Aff. ¶ 14.) Mr. Lowenthal's investigation lasted nine months and found that defendant had no obligation to indemnify plaintiff for any of the alleged losses. (Id. ¶¶ 4-41, 43.) Defendant authorized Mr. Lowenthal to issue a denial of coverage letter, dated May 26, 2009, which cited four independent and overlapping bases for defendant's denial of coverage. (Id. ¶ 43.) The second basis, and grounds for this motion for summary judgment, was that plaintiff's claim was excluded from coverage by paragraph 8(c) of the Policies' Conditions and Stipulations, which excludes settlement claims made without defendant's prior written consent. (Id.)

On November 17, 2009, plaintiff filed this action, which asserts claims for Declaratory Relief, Breach of Insurance Contract, and Bad ...

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