Edward And Maya Eleazer v. First American Title Ins. Co., 75097-6

Background

In 1993 Mary Nordstrom recorded a Snohomish Health District (SHD) conditional approval letter and a "Declaration of Restrictive Covenants" relating to a commercial on-site septic system (OSS) serving the neighboring Bush House hotel; the declaration treated the lots as one building lot.
In 2007 Edward and Maya Eleazer negotiated to buy the bungalow lot; a Form 34 addendum to the purchase agreement stated the buyers would grant a recorded OSS easement for the Bush House. The Eleazers closed but did not record an easement.
Talon (escrow agent, a division of First American) obtained a preliminary title commitment and First American issued a title policy; the 1993 recorded documents did not appear in the commitment. Escrow instructions authorized Talon to rely on the title commitment and disclaimed liability for encumbrances not disclosed in it.
In 2010–2012 the Eleazers discovered the 1993 documents and sought coverage from First American; First American initially denied indemnity for no present loss, later accepted potential coverage for diminution-in-value but then denied coverage after learning the Eleazers had known about the OSS and agreed pre-closing to grant an easement.
The Eleazers sued Talon (breach of escrow instructions and fiduciary duty) and First American (breach of title policy, bad faith, IFCA). The trial court granted summary judgment for Talon and First American; the Court of Appeals affirmed.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Talon breached escrow instructions or fiduciary duty by not discovering/ disclosing the 1993 recorded documents	Talon had a contractual and fiduciary duty under the escrow instructions to search for and obtain seller statements about encumbrances and therefore should have found/disclosed the 1993 documents	Escrow instructions expressly authorized reliance on the preliminary title commitment and disclaimed responsibility for encumbrances not disclosed in that commitment; the Title Contingency placed the duty to obtain records on Buyer	No breach — escrow instructions unambiguously absolved Talon of liability for defects not shown in the title commitment and did not impose a duty to search for those recorded documents
Whether the Title Policy covers the claimed loss from the 1993 documents	The 1993 documents impaired marketability / limited septic siting and thus triggered covered risks (encumbrance, use limitation, unmarketable title) and First American breached by denying payment	Exclusion 4(a) bars coverage for risks "created, allowed, or agreed to by" the insured; Eleazers knew of the OSS pre-closing and contractually agreed to grant an easement, so the risk was allowed/agreed to	No coverage — exclusion 4(a) applies because Eleazers knew and agreed to the easement pre-closing
Whether First American acted in bad faith in denying coverage	Denial was unreasonable given coverage arguments and communications; IFCA and bad faith claims survive	Denial was based on a reasonable interpretation of the policy and later evidence showing Eleazers knew and agreed to the easement; therefore no bad faith or IFCA violation	No bad faith or IFCA liability — insurer’s denial was reasonable given the policy exclusion and facts
Whether any genuine dispute of material fact precluded summary judgment	There are factual disputes about actual loss, disclosure of Form 17, and what Talon said at closing	Even if some facts are disputed, the policy exclusion and unambiguous escrow instructions resolve coverage and escrow-duty issues as a matter of law	Summary judgment appropriate — legal obligations and policy exclusion dispose of plaintiffs’ claims

Key Cases Cited

Kut Suen Lui v. Essex Ins. Co., 185 Wn.2d 703 (Wash. 2016) (standard of review for summary judgment)
Scrivener v. Clark College, 181 Wn.2d 439 (Wash. 2014) (summary judgment standard)
Quadrant Corp. v. American States Ins. Co., 154 Wn.2d 165 (Wash. 2005) (contract interpretation principles)
Centurion Properties III, LLC v. Chicago Title Ins. Co., 186 Wn.2d 58 (Wash. 2016) (duties of escrow agents and reliance on title commitments)
Denaxas v. Sandstone Court of Bellevue, L.L.C., 148 Wn.2d 654 (Wash. 2003) (escrow agent duties: ordinary skill and diligence)
National Bank of Washington v. Equity Investors, 81 Wn.2d 886 (Wash. 1973) (escrow fiduciary duty standards)
Overton v. Consolidated Ins. Co., 145 Wn.2d 417 (Wash. 2002) (no bad faith when insurer reasonably interprets policy)
Pleasant v. Regence BlueShield, 181 Wn. App. 252 (Wash. Ct. App.) (insurer burden on exclusions and coverage triggers)