OPY I, L.L.C. v. FIRST AMERICAN TITLE INSURANCE CO., INC.

1 1 This case arises out of a title insurance coverage dispute between Plaintiff/Appellant OPY I, LL.C. ("Plaintiff") and Defendant/Appellee First American Title Insurance Company, Inc. ("Defendant"). Plaintiff, an Oklahoma limited liability company, appeals from summary judgment granted in Defendant's favor. |

12 On August 28, 2008 Plaintiff entered into a contract with Third-Party Defendant 61 MM, Ltd. ("Seller") for the purchase of a vacant commercial lot located in Tulsa, Oklahoma ("subject property"). At the time, Seller was being sued by one of its investors, Third-Party Defendant Orhan Yavuz ("Ya-vuz") in federal court. 1 Related to this litigation, Yavuz filed two lis perdens notices against the subject property in Tulsa County. Defendant issued a title insurance commit *164 ment which described the Yavuz litigation and required the expungement of the ks pendens notices as a condition precedent to issuing title insurance on the subject property. Prior to the closing, the lis pendens notices were expunged.

T3 On December 5, 2003, Defendant closed on a contract to purchase the subject property. Plaintiff purchased title insurance from Defendant which provided Defendant "insures ... against loss or damage ... sustained or incurred by the insured by reason of ... [alny defect in or lien or encumbrance on the title ... [or] [uJnmarketability of the title...." Both Plaintiff and Defendant knew of the existence of the Yavuz litigation and the expunged lis perdens notices. Neither the Yavuz litigation nor the lis perdens notices were ultimately listed as exceptions on the title insurance policy.

14 After its purchase of the subject property, Plaintiff sought to secure a construction loan to build commercial office space. Plaintiff claimed it had signed a contract with a tenant who agreed to a five (5) year lease at $60,000 per year. However, Plaintiff alleged its chosen lender, Spirit Bank, refused to. fund a construction loan for Plaintiff causing the tenant to withdraw from its rental agreement. Plaintiff claimed this was due to the uncertainty in its title generated by the ' Ya-vuz litigation and demanded Defendant either intervene in the suit to assert Plaintiff's title or file a separate quiet title action. Defendant did not intervene in the Yavuz litigation nor did it file a quiet title action at that time. The dispute between Plaintiff and Defendant continued informally for some time, ultimately resulting in Plaintiff filing this case in October 2007 against Defendant for breach of contract and for breach of the ' implied covenant of good faith and fair dealing. Included with its answer to Plaintiff's Petition, Defendant filed a third-party petition against Yavuz and 61 MM, LTD seeking to quiet title to the subject property in Plaintiff's name. 2

15 After the trial court denied its initial motion for summary judgment against Defendant, Plaintiff filed a second motion for partial summary judgment against Defendant asking the trial court to determine whether, as a matter of law, a particular provision of the title insurance policy, specifically paragraph 4(b), imposed an affirmative duty on Defendant to confirm Plaintiffs title or whether it merely granted Defendant the option to confirm Plaintiff's title. Defendant had previously filed its own. motion for partial summary judgment against Plaintiff which was still pending at that time. Defendant's motion argued that Plaintiff did not have a valid claim under the title insurance policy. Defendant maintained it did not have a duty to defend Plaintiff in the Yavuz litigation because Defendant was not a party and because the orders expunging the lis pen-dens notices eliminated any right, title, or interest Yavuz may have claimed in the subject property. Defendant also argued the title insurance policy did not require it to take affirmative action to confirm Plaintiff's title by intervening in the Yavuz litigation or filing a separate quiet title action. The trial court denied Plaintiffs motion but granted Defendant's motion finding Defendant did not breach the title insurance policy.: Specifically, the trial court stated:

The orders expunging and discharging the two lis pendens terminated any right, title, claim, lien or interest of Mr. Yavuz in the property made the subject of this action. [Defendant] was not obligated to take any additional action to quiet the title of the Plaintiff in relation to the claims of Mr. Yavuz.

On appeal, Plaintiff argues the trial court erred in concluding the title insurance policy did not impose an affirmative duty on Defen *165 dant to confirm Plaintiffs title. Additionally, Plaintiff challenges the trial court's finding the expungement of the lis pendens notices eliminated any cloud on Plaintiffs title considering the continuing nature of the Yavuz litigation after the closing.

STANDARD OF REVIEW

T6 Whether the trial court's entry of summary judgment was proper is a question of law we review de movo. See Manley v. Brown, 1999 OK 79, ¶ 22, 989 P.2d 448, 455. Summary judgment is appropriate where the record establishes no genuine issue of material fact and the prevailing party is entitled to judgment as a matter of law. Brown v. Alliance Real Estate Group, 1999 OK 7, ¶ 7, 976 P.2d 1043. Here, the parties agree on the relevant material facts, and the only question before us is whether paragraph 4(b) imposes a duty on a title insurer to take affirmative action to confirm an insured's title.

NATURE OF TITLE INSURANCE

T7 Title insurance is "ordinarily considered a contract of indemnity." Steven Plitt et al., 11 Couce on Insurance § 159:8 (8d.2013). "The importance of the contract not being one of guaranty is primarily that the insurer's liability to pay monetary compensation under the policy does not arise immediately upon the existence of a covered defect being proved." Id. at § 159:9. Rather, the insurer has "a range of options by which it may fulfill its obligations under the policy" including "paying the amount of the insured's loss, paying the face amount of the policy ..., successfully defending the insured against an adverse claim, instituting affirmative litigation to clear the title" or settling with adverse title claimants. Id. The unique nature of title insurance makes it somewhat different from other breach of contract disputes. 3

INSURER'S "RIGHT" TO TAKE AFFIRMATIVE ACTION

T8 The relevant policy provisions come from a standard American Land Title Association ("ALTA") policy. Paragraph 4(a) provides in pertinent part:

Upon written request by the insured and subject to the options contained in Section 6 of these Conditions and Stipulations, 4 the Company, at its own cost and without unreasonable delay, shall provide for the defense of an insured in litigation in which any third party asserts a claim adverse to the title or interest as insured, but only as to those stated causes of action alleging a defect, lien or encumbrance or other matter insured against by this policy.

Paragraph 4(b) states:

The Company shall have the right, at its own cost, to institute and prosecute any action or proceeding or to do any other act which in its opinion may be necessary or desirable to establish the title to the estate or interest, as insured, or to prevent or reduce loss or damage to the insured. The Company may take any appropriate action under the terms of this policy, whether or not it shall be Hable thereunder, and shall - not thereby concede liability or waive any, provision of this policy. If the Company shall exercise its rights under this paragraph, it shall do so diligently.

Plaintiff framed the issue on appeal as being whether paragraph 4(b) imposes a duty on Defendant to take affirmative action to confirm Plaintiff's title While many jurisdictions have analyzed the same uniform policy language, Oklahoma has not. Thus, this is a question of first impression in this jurisdiction.

*166 T9 "Oklahoma law governing insurance coverage disputes is well-established. The foremost principle is that an insurance policy is a contract." Cranfill v. Aetna Life Ins. Co., 2002 OK 26, ¶ 5, 49 P.3d 703. "Parties may contract for risk coverage and will be bound by policy terms. When policy provisions are unambiguous and clear, the employed language is accorded its ordinary, plain meaning, and the contract is enforced carrying out the parties' intentions. The policy is read as a whole, giving the words and terms their ordinary meaning, enforcing each part thereof. This Court may not rewrite an insurance contract to benefit either party.... We will not impose coverage where the policy language clearly does not intend that a particular individual or risk should be covered." BP America, Inc. v. State Auto Property and Casualty Ins. Co., 2005 OK 65, ¶ 6, 148 P.3d 832. (Footnotes omitted). "The interpretation of an insurance contract and whether it is ambiguous is a matter of law that will be resolved by the court." Redcorn v. State Farm Fire & Casualty Co., 2002 OK 15, ¶ 4, 55 P.3d 1017. (Internal citation omitted). "An insurance contract is ambiguous only if it is susceptible to two constructions on its face from the standpoint of a reasonably prudent layperson, not from that of a lawyer." Haworth v. Jantzen, 2006 OK 35, ¶ 13, 172 P.3d 193. This Court will not indulge in strained interpretations to create such an ambiguity. Id.

T10 Plaintiff has not argued the policy language is ambiguous in any way, and the plain language of paragraph 4(b) clearly states Defendant shall have the "right" to take whatever action "in its opinion may be necessary or desirable to establish the title." The policy language does not impose a duty on the insurer to take affirmative action to confirm the insured's title. Rather, such affirmative action is an option the insurer may exercise should it so choose. 5 In addition to the plain language of the policy and decisions from other jurisdictions, 6 this conclusion is supported by numerous commentaries on the subject. E.g. Joyce D. Palomar, 1 Tirur® Insurance Law § 11:11 (2018-2014); Steven Plitt et al., 11 Couch on Insurance § 159:9 (3d.2018). As summarized in a recent decision from the U.S. District Court for the District of Colorado analyzing the same policy language at issue here:

Paragraph 4(b) does not place an independent duty to act on [the insurer]; rather, the paragraph mentions only [the insurer's] rights under the policy and [the insurer's] option to take whatever action it deems necessary. If the provision cited by [the insured] created as broad a duty as [the insured] argues, Paragraph 4(b) would have been drafted differently to capture the reasonable expectations of the insured, such as providing that [the insurer] "shall institute" a defense of the insured ... or that [the insurer has] "the obligation to institute" action to clear title. Paragraph 4(b) contains no such mandatory language. Moreover, the policy must be interpreted as a whole. Were [the insurer] under the same obligation to defend the insured and unilaterally cure title defects, the differences between the language of paragraph 4(a) and paragraph 4(b) would be left *167 unexplained. U.S. Bank N.A. v. Stewart Title Guaranty Co., No. 13-CV-00117, 2014 WL 1096961, at *9 (D.Colo. March 20, 2014).

{11 In support of its argument, Plaintiff cited three cases, Davis v. Stewart Title Guaranty Co., 726 SW.2d 839 (Mo.App.1987); Summonte v. First American Title Ins. Co., 180 N.J. Super. 605, 436 A.2d 110 (1981); and Jarchow v. Transamerica Title Ins. Co., 48 Cal. 917, 122 Cal.Rptr. 470 (App.1975) (overruled on other grounds by Soto v. Royal Globe Ins. Corp., 184 Cal.App.3d 420, 229 Cal.Rptr.192 (App.1986)). These cases are distinguishable from the instant case. 7 First, Jarckhow interpreted different policy provisions than those at issue here. 8 The provisions at issue in that case provided:

The [Title] Company, at its own cost and without undue delay shall provide (1) for the defense of the insured in all litigation consisting of actions commenced against the insured ...; or (2) for such actions as may be appropriate to establish the title ... as insured, which litigation . is founded upon an alleged defect, lien or encumbrance insured against by this policy...."

Jarchow, 48 Cal.App.3d 917, 122 Cal.Rptr. 470, 487. (Emphasis added.) The California appellate court found those provisions established two obligations of the insurer:

(1) to defend the insured's title if a third party claims, in a judicial proceeding, an interest insured against by the policy, and (2) in the event that a third-party claimant chooses not to litigate his claim, to take affirmative action (by filing an action to quiet title or by offering to compromise the third party's claim) ... Id. 9

We note the Jarchow policy provisions included mandatory "shall" language before both obligations as the two courses of action were connected with the disjunctive conjunction "or." Id. While the word "shall" is used in paragraph 4(b) of the ALTA policy at issue here, the terms "right" and "in its option" included in that paragraph modify the action into options the Defendant could take if it so chose. In contrast, paragraph 4(a) of the ALTA policy indicates Defendant "shall provide" a defense for Plaintiff if a third party brings a claim adverse to Plaintiffs title. The directive does not include any qualifying or limiting language. "Were [Defendant] under the same obligation to defend the insured and unilaterally cure title defects, the differences between the language in paragraph 4(a) and paragraph 4(b) would be left unexplained." U.S. Bank N.A. v. Stewart Title Guaranty Co., 2014 WL 1096961, at *9.

1 12 The Summonte court interpreted policy language nearly identical to the policy language at issue here. Summonte, 180 N.J.Super. 605, 486 A.2d 110, 115. The court noted the policy language in paragraph 4(b) ° *168 seemed to require the insurer "to establish title only at its option." Id. However, the court found:

When liberal and obligatory rules of construction are applied, the reading is different ... and require[s] a construction of the policy in favor of the insured and one which ... will give the insured the protection which he reasonably had a right to expect. This requires paragraphs [4(a) and 4(b)] ... to be read together so that the right to establish the title is a mandatory alternative to the obligation to defend. Id. (Internal quotations and citations omitted).

The analysis employed by the Summonte court is contra to Oklahoma law. 10 In Oklahoma, insurance policies, like all other contracts, are enforced according to the express agreement of the parties, absent ambiguity." BP America, Inc., 2005 OK 65, ¶ 6, 148 P.3d 832. See also Max True Plastering Co. v. U.S. Fidelity and Guaranty Co., 1996 OK 28, 912 P.2d 861. 11 Here, the terms of the policy are not ambiguous and clearly establish Defendant has the right, but not the duty, to take whatever affirmative action it may deem necessary to establish Plaintiffs title.

13 Plaintiff also relied heavily on Davis v. Stewart Title Guaranty Co., 726 S.W.2d 839 (Mo.Ct.App.1987) to support its claim Defendant had a duty to take affirmative action. 12 The Davis court, citing specific policy provisions at issue there, found the insurer had two alternatives "when presented with a claim of an adverse interest to an insured property: (1) to pursue a quiet title action without unreasonable delay; or (2) to pay damages within thirty days after determination." Davis 726 SW.2d at 845 (emphasis original) (footnotes omitted). The court further concluded the claim was presented to the insurer when the plaintiff first requested the insurer to take affirmative action to clear its title before plaintiff ever pursued litigation on its own. Id. at 858. First, we note we do not have all of the relevant policy language from Davis necessary to compare it to the ALTA policy language at issue here. The Davis policy language appears to be substantially similar, see Davis, 726 S.W.2d at 845, n. 2, but without all the relevant portions available for comparison, we decline to blindly follow the holding in Davis. Second, we recognize the insurer in Davis completely denied liability under the policy even after the insured brought its own unsuceess *169 ful unlawful detainer action against the adverse claimant. 13 Id. at 848. The insurer refused to participate in any appeal from the unlawful detainer suit, refused to tender the policy limits, and only filed a quiet title action after being sued by its insured. 14

€ 14 Unlike the insurer in Dowis, Defendant here had not refused to take any action while also denying it was liable under the policy at all. Rather, Defendant, while recognizing its option to pursue affirmative action, chose to wait until the conclusion of the Yavuz litigation. This course of action was permitted by the policy, which stated, in the event of litigation, Defendant's Hability under the policy did not arise until "there hald] been a final determination by a court of competent jurisdiction, and disposition of all appeals therefrom, adverse to the title as insured." 15 This course of action was also supported by the fact title insurance is a policy of indemnity, not guaranty, which gives the insurer options other than to pay upon the showing of an adverse claim insured by the policy. See George K. Baum Properties, Inc. v. Columbian Nat'l Title Ins. Co., 763 S.W.2d 194, 200-02 (Mo.Ct.App.1988) (reversing and remanding suit brought for breach of title insurance policy when jury instructions indicated the only option insurer had when presented with an adverse claim was to tender the policy limits). 16

' 15 We hold, therefore, under the particular facts and circumstances presented by this case, the uniform ALTA policy language, specifically paragraph 4(b), does not impose a duty on the insurer to take affirmative action to confirm the title of an insured. Because we find Defendant did not have a duty to take such affirmative action, the effect of the expungement of the lis pendens notices is irrelevant. Even if the expungement failed to eliminate any cloud on the title created by the Yavuz litigation, the insurer still was not under a duty to take affirmative action and would not have been required to perform under the policy, if at all, until the conclusion of the Yavuz litigation.

16 As explained herein, the order granting summary judgment to Defendant is AP-FIRMED.