428 F.Supp.3d 516
D. Colo.2019Background
- Cherry Hills Farm Court, LLC purchased property and obtained a First American title insurance policy covering specified risks, including defects/encumbrances disclosed by an accurate survey.
- Neighbors (the Zobolases) had installed a fence, garden, and irrigation system on disputed land before Cherry Hills purchased the property.
- Cherry Hills sued the Zobolases for trespass and quiet title; the Zobolases counterclaimed for (1) adverse possession and (2) monetary set-off for the value of their improvements.
- First American agreed (under reservation) to defend Cherry Hills on the adverse possession counterclaim but denied coverage for the monetary set-off counterclaim as not being an alleged title defect.
- Cherry Hills sued First American for declaratory relief (duty to defend), breach of contract, and bad faith; the district court granted summary judgment for First American and dismissed all claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Zobolas' monetary set-off counterclaim is covered under the policy's Risk 2 ("affecting the Title"). | The set-off seeks compensation for encroaching improvements and thus falls within "encroachments... affecting the Title." | The set-off seeks money for improvements, not an interest in or change to title; it does not determine rights or interests in the land. | Court: The policy unambiguously excludes the set-off; it does not "affect the Title," so no coverage. |
| Whether the "complete defense" ("in for one, in for all") rule requires a title insurer to defend noncovered claims joined with a covered claim. | Even if the set-off is not covered, the complete defense rule obligates the insurer to defend all claims in the same suit. | The rule is rooted in general liability insurance; title insurance differs (retrospective, cause-of-action-based, one-time premium) and policy language here limits coverage to covered causes of action. | Court: The complete defense rule does not apply to title insurance here; insurer may bifurcate and decline to defend the set-off. |
| Whether Cherry Hills' bad faith claim survives where insurer declined to defend the set-off. | Denial to defend constituted continuing bad faith and breach of the implied covenant of good faith and fair dealing. | No duty to defend existed for the set-off; without breach, no bad faith. | Court: Bad faith claim fails as a matter of law because there was no contractual duty to defend the set-off. |
Key Cases Cited
- Hoang v. Assurance Co. of America, 149 P.3d 798 (Colo. 2007) (interpret insurance policy by plain meaning; construe unless ambiguous)
- Union Insurance Co. v. Houtz, 883 P.2d 1057 (Colo. 1994) (ambiguities construed against drafter in favor of insured)
- Celotex Corp. v. Catrett, 477 U.S. 317 (1986) (summary judgment burden-shifting framework)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) (standard for genuine dispute and reasonable jury)
- GMAC Mortgage, LLC v. First American Title Insurance Co., 985 N.E.2d 823 (Mass. 2013) (title insurance differs from general liability; complete-defense rule not applied)
- Philadelphia Indemnity Ins. Co. v. Chicago Title Ins. Co., 771 F.3d 391 (7th Cir. 2014) (title insurance narrower; duty to defend is contractual and tied to causes of action)
- Lupu v. Loan City, LLC, 903 F.3d 382 (3d Cir. 2018) (predicting state high court would decline to apply complete-defense rule to title insurance)
- Kerns v. Kerns, 53 P.3d 1157 (Colo. 2002) (litigation that determines rights incident to ownership can "affect" title for certain statutes)