The Reasonable Expectations Doctrine Finds a New Ground in the Realm of Title Insurance
The “reasonable expectations of the insured” doctrine continues to weave its way into all types of insurance coverage cases. This time, it thrust itself into a title insurance case. In Karen Lee v. Fidelity National Title Insurance Company,__Cal. App. 4th__ (September 16, 2010), the First Appellate District of the California Court of Appeal found coverage under this doctrine.
Karen and Terry Lee ("Lees") purchased property in Solano County in 1990. The purchased property was covered by a policy issued by Fidelity National Title Insurance Co. ("Fidelity"). Fidelity's preliminary report of the purchased property identified two parcel numbers, APN 09 and APN 22. Although Fidelity’s policy did not incorporate parcel APN 09 and APN 22, it did have attached to it a map indicating parcels APN 09 and APN 22. It was not until 2006 when the Lees were selling their property did they discover they only in fact owned one parcel and not the two parcels as they originally thought they had purchased.
The Lees made a claim under the Fidelity policy, but Fidelity denied coverage based upon the description within the policy. Lee sued Fidelity for breach of contract, bad faith, and declatory relief but the trial court granted a summary judgment in favor of Fidelity because the causes of action were time barred. On appeal the Court reversed. The Court found the "legal description was ambiguous. Further ambiguity was created by the attachment of the assessor's parcel map that, on one hand, was said to be excluded from the policy, but on the other hand had an arrow pointing at APN 22 as a parcel in the policy." The court of appeal then discussed the reasonable expectation of the insured doctrine as follows:
That reasonable expectation informs interpretation of the policy’s coverage. As our Supreme Court stated in White v. Western Title Ins. Co. (1985) 40 Cal.3d 870, 881 (White), “ ’In determining what benefits or duties an insurer owes his insured pursuant to a contract of title insurance, the court may not look to the words of the policy alone, but must also consider the reasonable expectations of the public and the insured as to the type of service which the insurance entity holds itself out as ready to offer. [Citation.] Stated in another fashion, the provisions of the policy must be construed so as to give the insured the protection which he reasonably had a right to expect…. [Italics in original.] [Citation.]’ The White court rejected the insurer’s argument that the plaintiffs in that case could not be deemed to have relied upon the title policies in question when they purchased their lands because the policies “were issued only when the sale was consummated.”
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While an “ordinary reading” of the legal description of the land insured in Havstad precluded any reasonable expectation of coverage in that case, the same cannot be said here. “[T]he words in an insurance policy are to be interpreted according to the plain meaning which a layman, not an attorney or insurance expert, would ordinarily attach to the words’ ”[Citation omitted] and laypersons like plaintiffs would have no way of knowing from the surveyor’s metes and bounds description of the land in their title policy whether APN 22 was covered. In the context of the coverage issue in this case, the legal description was ambiguous. (See Croskey et al., Cal. Practice Guide: Insurance Litigation, supra, [¶] 4:300, p. 4-43 [“an ambiguity may arise where a policy uses terms beyond the working vocabulary of a person of ordinary intelligence”].) Further ambiguity was created by the attachment of the assessor’s parcel map that, on the one hand, was said to be excluded from the policy, but on the other hand had an arrow pointing to APN 22 as a parcel in the policy.
The court found that the Lees had an objectively reasonable expectation of coverage because they purchased both parcels of land in 1990 given the circumstances surrounding the issuance of the title insurance policy. Therefore, the court concluded that Fidelity's denial of coverage was erroneous.