Hovannisian v. First American Title Ins. Co.
F072789
| Cal. Ct. App. | Aug 14, 2017Background
- In 2006 World Savings (later Wells Fargo) took a $120,000 deed of trust on Fresno property; First American issued a lender's title policy effective August 28, 2006, listing Wells Fargo's deed as a “FIRST DEED OF TRUST.”
- Wells Fargo foreclosed and sold the property at a trustee's sale on January 13, 2012; the trustee's sale notice and trustee's deed expressly conveyed the property "without warranty, express or implied."
- After purchase, the Hovannisians learned a previously recorded 2003 deed of trust (the Long DOT) secured a $38,000 senior note; they demanded Wells Fargo pay the Long note to clear title.
- The Hovannisians sued Wells Fargo for negligent and intentional misrepresentation based on Wells Fargo's representation that its DOT was first; Wells Fargo tendered defense/indemnity to First American, which denied coverage and defense.
- Wells Fargo assigned its claims against First American to the Hovannisians; the Hovannisians sued First American for breach of contract and bad faith (failure to defend/indemnify). The trial court granted summary judgment for First American; the Court of Appeal affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the title policy continue to cover Wells Fargo after the foreclosure conveyance? | Hovannisian: Policy language (Section 7 and general indemnity) supports continuation or at least potential coverage for pre-conveyance defects. | First American: Section 2(b) limits continuation to when insured retains interest, mortgage, or gives warranties; foreclosure conveyed title without warranty so coverage ended. | Held: Coverage terminated on conveyance because Hovannisian bought without warranty and Wells Fargo retained no interest or warranty-triggering liability. |
| Do the Hovannisians’ misrepresentation claims allege an insured “loss” under the policy? | Hovannisian: Any loss arising from failure to disclose the preexisting Long DOT is a covered loss occurring during the policy period. | First American: Title loss for lender occurs only if lender fails to recoup debt due to senior lien; here Wells Fargo no longer had an interest and Hovannisian’s claim sought personal damages, not insured lender loss. | Held: The underlying claims did not allege an insured title loss; they sought personal damages for misrepresentation and thus were not covered. |
| Did First American owe a duty to defend Wells Fargo in the underlying suit? | Hovannisian: Even if coverage arguable, material facts given to insurer could trigger duty to defend; insurer failed to prove no potential for coverage. | First American: The complaint and pre-suit communications show no potential for indemnifiable loss under the policy; insurer met burden to negate duty to defend. | Held: No duty to defend. First American met its burden showing no potential for coverage based on complaint and extrinsic facts. |
| Can a bad faith claim proceed when no policy benefits are due? | Hovannisian: Bad faith triable issues exist (e.g., biased investigation); independent bad-faith discovery warranted. | First American: Bad faith requires underlying contractual benefits; no coverage → no bad faith. | Held: Bad faith fails as a matter of law because no benefits were due under the policy. |
Key Cases Cited
- Chicago Title Ins. Co. v. 100 Inv. Ltd. Partnership, 355 F.3d 759 (9th Cir. 2004) (policy does not continue past conveyance unless insured retains interest or gives warranty; analyzed for contrast on loss timing)
- Montrose Chemical Corp. v. Superior Court, 6 Cal.4th 287 (Cal. 1993) (insured need only show potential for coverage; insurer must show absence of any potential)
- Karl v. Commonwealth Land Title Insurance Co., 20 Cal.App.4th 972 (Cal. Ct. App. 1993) (lender suffers indemnifiable loss only if it fails to recoup debt because of a senior lien)
- Ameron Intern. Corp. v. Insurance Co. of State of Pennsylvania, 50 Cal.4th 1370 (Cal. 2010) (contract interpretation principles govern insurance policy construction)
- Waller v. Truck Ins. Exchange, Inc., 11 Cal.4th 1 (Cal. 1995) (bad faith claim requires that benefits be due under the policy)