C 1031 Properties, Inc. v. First American Title Insurance Company

FILED
MAY 23,2013
In the Office of the Clerk of Court
W A State Court of Appeals, Division III
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION THREE
C 1031 PROPERTIES, INC., a ) No. 30849-9-111
Washington Corporation, )
)
Petitioner, )
)
v. )
) PUBLISHED OPINION
FIRST AMERICAN TITLE INSURANCE )
COMPANY, a Corporation, )
)
Respondent. )
BROWN, J. - Today, we discretionarily review the trial court's summary judgment
ruling denying outright liability and damages to C 1031 Properties Inc. in its suit against
First American Title Insurance Company for a recorded electricity easement First
American concedes it missed. C 1031 contends the trial court erred in failing to
interpret and reject the title insurance contract's "knowledge" exclusion on facts showing
it saw power lines on the property before closing without reporting the lines to First
American. First American agrees the trial court should have summarily resolved the
knowledge exclusion, but contends C 1031 had the requisite knowledge to invoke the
knowledge exclusion. We hold C 1031 did not have the requisite "knowledge" of the
recorded easement and reverse the trial court's ruling that left this issue to the trier of
fact. We affirm the trial court's damages decision because material facts remain
No. 30849-9-111
C 1031 Properties, Inc. v. First American Title Ins. Co.
outstanding. Thus, we do not reach liability related evidentiary issues. We decline in
this interlocutory review to intervene in the trial court's pretrial discovery rulings. Finally,
we leave C 1031 's attorney fee request for fees incurred at trial for the trial court
decision on remand, along with fees as the partly prevailing party here. Accordingly, we
remand for proceedings consistent with this opinion.
FACTS
On August 3, 2007, Harlan Douglass, an agent of C 1031 and experienced
developer, agreed to purchase property in Spokane where an old drive-in theater was
located to construct storage units. The agreement required C 1031 to inspect the
subject property. Mr. Douglass, on behalf of C 1031, initialed page 2 of the purchase
and sale agreement, acknowledging he had sufficient time to inspect the property and
approve the boundary line location and the physical conditions, including "electrical."
Clerk's Papers (CP) at 287.
On August 10, 2007, First American issued a preliminary commitment of title
insurance to C 1031. This document contained a notice provision requiring C 1031 to
notify First American of existing encumbrances that were not shown in Schedule B of
the preliminary commitment but known to C 1031. C 1031 did not notify First American
about the existence of the power line and power poles on the property.
Before entering the purchase agreement, C 1031 hired Whipple Consulting
Engineers Inc. (Whipple Consulting) to prepare a complete set of plans for the property,
including a survey. This survey identified the power lines and power poles. C 1031
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C 1031 Properiies, Inc. v. First American Title Ins. Co.
approved these plans and, in September 2007, submitted them to the City of Spokane
Valley for permits.
In October 2007, the purchase and sale transaction closed and First American
issued a title insurance policy. The policy states "easements of record are covered."
CP at 88. Conversely, the policy specifically excludes from coverage "easements ...
which are not shown by the 'public record." CP at 92.
After closing, C 1031 contacted the power company, Avista,1 to remove the lines.
C 1031 then learned for the first time an easement was recorded with the Spokane
County Auditor in 1949, granting Avista the right to erect and maintain "an electrical
transmission and telephone system attached to the transmission line poles" across the
subject property. CP at 543. Avista indicated it would bury the power lines at a cost of
$5,489.96 each for the three offending poles.
On March 31,2009, C 1031 sued First American for breach of title insurance
-
coverage. On cross motions for summary judgment, the court ruled First American's
conceded omission was covered under the policy, but the court found that material
questions of fact still existed regarding:
• actual monetary loss or damage sustained or
incurred by the plaintiff;
• whether or not plaintiff had, or should have
had, actual knowledge of recorded easements;
• whether or not actual and/or knowledge that
should have been known by the plaintiff would
mitigate and/or bar damages.
1 The easement was. originally granted to Avista's predecessor, Washington
Water Power Company.
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CP at 838. C 1031 submitted an expert's affidavit specifying damages of $60,000
based on a property value measure of damages. C 1031 did not mention Avista's offer
to bury the power lines. First American did not controvert the expert's affidavit.
During trial preparation, C 1031 sought to include the testimony of Irving Paul, an
attorney who frequently litigates title insurance cases, to address whether C 1031's
knowledge of the power lines would mitigate their damages. The court excluded this
evidence. C 1031 asked First American to produce certain documents, including First
American's entire file prepared by underwriting, manuals detailing practices and
procedures, all claims made within the last three years to the Spokane and Seattle
offices, and advertising. The court partly denied C 1031's motion to compel discovery,
ordering First American to solely produce documents relating to its assessment of
damages. After C 1031 requested discretionary review and First American joined in
their request, the trial court certified the matter for this court's discretionary review.
ANALYSIS
A. Knowledge Exception to Liability
The issue is whether'the trial court erred when denying summary judgment in not
interpreting as a matter of law the meaning of the knowledge exception and applying
that interpretation to the agreed material facts, C 1031 contends the issue of
knowledge should not go to a trier of fact but be decided by this court, First American
.
agrees the knowledge issue should be decided by the court, but contends it was not
liable for a known easement under the case facts.
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We review an order granting or denying summary judgment de novo, engaging in
the same inquiry as the body that decided it. Quadrant Corp. v. Am. States Ins. Co.,
154 Wn.2d 165, 171, 110 P.3d 733 (2005). Summary judgment is appropriate when no
genuine issue of material fact remains and the moving party is entitled to judgment as a
matter of law. CR 56(c). The interpretation of insurance policy language is a question
of law, reviewed de novo. Butzberqer v. Foster, 151 Wn.2d 396, 401, 89 P.3d 689(2004).
The role of the title insurer is to insure title. Kim v. Lee, 145 Wn.2d 79, 91, 31
P.3d 665 (2001). "Title insurance is a guaranty of the accuracy of a company search
and record title on a specific property." Kiniski v. Archway Motel, 21 Wn. App. 555, 560,
586 P.2d 502 (1978). By paying consideration to a title insurer for their expert services
in uncovering defects in title, it is reasonable for the insured to believe and rely upon the
fact that the insurer has discovered any encumbrances recorded in the public record.
Kim, 145 Wn.2d at 91-92.
First American admits it missed the easement recorded by Avista's predecessor.
C 1031's policy states that "easements of record are covered." CP at 88. The
remaining dispute, then, is whether an exception or exclusion within the title insurance
policy limits coverage for C 1031. Knowledge is defined in the policy as "[a]ctual
knowledge, not constructive knowledge or notice that may be imputed to an Insured by
reason of the Public Records or any other records that impart constructive notice of
matters affecting Title." CP at 88.
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When First American denied C 1031 ',s claim it stated it was doing so because,
"there ... appears to be no loss of value due to the [Avista] easement, there does not
appear to be a compensable claim under the terms of the policy. The claim tendered is
therefore denied." CP at 135-36. Focusing on the first part of the denial, C 1031
argues we should not reach the knowledge exclusion issue, but we conclude from the
briefing and arguments that the knowledge issue was squarely before the trial court, but
overlooked or misinterpreted. Alternatively, C 1031 argues "knowledge" of a recorded
easement does not include seeing power lines on the property because power lines like
other encroachments can and do often exist without legal justification, thus, it lacked
actual knowledge of Avista's easement.
Like the trial court, in reviewing a summary judgment our duty is to interpret the
policy exclusion language and apply that interpretation to the undisputed case facts.
First American argues "knowledge" means or includes notice of Avista's easement
imputed to C 1031 because C 1031 saw power lines on the property. But the policy
definition unambiguously defines knowledge as "actual knowledge" of an easement, not
"constructive knowledge or notice that may be imputed [to C 1031]" constructively. CP
at 88. When C 1031 saw the power lines on the property, it acquired at best inquiry
notice, not actual knowledge of a recorded easement. Thus, First American's argument
fails. Therefore, the trial court erred in leaving this issue to the trier of fact.
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B. Damages
The issue is whether the trial court erred in not granting damages as requested
by C 1031 at summary judgment based on its expert's uncontroverted affidavit.
C 1031 sued for breach of contract against First American. "A breach of contract
is actionable only if the contract imposes a duty, the duty is breached, and the breach
proximately causes damage to the claimant." Nw. Indep. Forest Mfrs. v. Dep't of Labor
& Indus., 78 Wn. App. 707, 712, 899 P.2d 6 (1995) (citing Larson v. Union Inv. & Loan
Co., 168 Wash. 5,10 P.2d 557 (1932)). A greater degree of certainty is required to
prove the fact of damages than the amount of damages: once it is reasonably certain
that the breach caused damages, the fact finder may determine the amount of the
damage award by drawing reasonable inferences from reasonably convincing evidence.
Gaasland Co., Inc. v. Hyak Lumber & Millwork, Inc., 42 Wn.2d 705, 713-14, 257 P.2d
784 (1953). In other words, damages are questions of fact left for the jury to decide
unless reasonable minds could not differ. Womack v. Von Rardon, 133 Wn. App. 254,
263,135 P.3d 542 (2006).
Based on this record showing widely divergent measures of damage and First
American's lack of opportunity to defend title or reach an accommodation with the
power company to bury the power lines, we leave the fact finding and decisions on the
proper measure of damages to the trial court. We cannot conclude reasonable minds
would not differ regarding the assessment of damages. Given all, we conclude the trial
court did not err in allowing the damages issues to go to trial.
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C. Attorney Fees
C 1031 requests attorney fees on appeal and at the trial level based on the
insurance policy, RCW 4.84.330, CHD, Inc. v. Boyles, 138 Wn. App. 131,157 P.3d 415(2007), Olympic Steamship Co. v. Centennial Ins. Co., 117 Wn.2d 37, 811 P.2d 673(1991), and RAP 18.1. C 1031 partly prevails here on liability, and is entitled to attorney
fees under RAP 18.1. Considering further proceedings are required at the trial court,
we leave to the lower court to decide the appellate fee and whether C 1031 is entitled to
attorney fees under Olympic Steamship Co. It is noted, however, that in Colorado
Structures, Inc. v. Insurance Co. of the West, 161 Wn.2d 577, 606-07,167 P.3d 1125(2007), our Supreme Court held that Olympic Steamship applies when an insurer
contests the meaning of a contract, "but not when it contests other questions as, for
example, its liability in tort or the amount of damages it should pay" (quoting Colorado
Structures, Inc. v. Insurance Co. of the West, 125 Wn. App. 907, 928,106 P.3d 815(2005)).
Affirmed in part. Reversed in part.
Brown, J.
WE CONCUR:
Ii:::2Jo
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