Back Creek Partners, LLC v. First American Title Insurance

NAZARIAN, J. This case is about title insurance, specifically what it does and doesn’t cover. Back Creek Partners, LLC (“Back Creek”) seeks (after the fact) to recover the attorneys’ fees and costs it incurred in defending itself (successfully) in a lawsuit sorting out the easement and access rights in a waterfront community Back Creek developed. The Circuit Court for Montgomery County granted summary judgment to Back Creek’s insurer, appellee First American Title Insurance Company (“First American”). We agree that the claims as ⁷⁰⁶ serted in the third-party litigation against Back Creek fall outside the coverage of the title insurance policies at issue and affirm.

I. BACKGROUND Back Creek is a real estate development company that purchased a piece of waterfront property in Annapolis in 1998. Back Creek developed a residential community called Harbor View on the property, complete with boat slips and water access. At the time of its purchase, Back Creek also bought a title insurance policy from First American Title Insurance Company (“First American”) that insured its interest and estate in the land. The front page of the policy described the categories of “loss or damage” it covered: FIRST AMERICAN TITLE INSURANCE COMPANY, a California corporation, herein called the Company, insures, as of the Date of Policy shown in Schedule A, against loss or damage, not exceeding the Amount of Insurance stated in Schedule A, sustained or incurred by the Insured by reason of: 1.

Title to the estate or interest described in Schedule A being vested other than as stated herein; 2. Any defect in or lien or encumbrance on the title; 3. Unmarketability of the title; 4. Lack of a right of access to and from the land; The Company will also pay the costs, attorneys’ fees and expenses incurred in defense of the title, as insured, but only to the extent provided in the Conditions and Stipulations. 1 (Emphasis added.) In June 1999, in the course of developing Harbor View, Back Creek recorded a subdivision plat that divided the ⁷⁰⁷ property into five single family lots and one larger lot designed for townhouses.

Among other things, the plat depicted an easement going across four of the single family lots that gave each lot and townhouse resident walking access to his or her slip on the anticipated pier. In September 1999, Back Creek filed in the Anne Arundel County land records a Declaration of Easements, Covenants, and Restrictions (“Declaration”) that defined the property rights and obligations of owners for the subdivision and created a community homeowners’ association. The Declaration expressly reserved Back Creek’s right to construct the pier, which Back Creek built before conveying any of the subdivided lots to purchasers. The Declaration also defined community property rights, including a Community Waterfront Access Easement for the residents and a conservation easement to the City of Annapolis. 2 At some time around June 2000, Back Creek “procured a commitment from First American Title for an additional title policy ... in order to protect and insure the value created by both the improvements made since its original 1998 purchase and the recorded Easement.” Back Creek claims that this second commitment “committed for both a lender’s policy and a Back Creek owner’s policy” and “incorporated First American Title’s standard title policy terms and conditions and listed the express exceptions to be contained in the policy.” The commitment also, according to Back Creek, “did not describe any exceptions for either the Easement or the future Pier from coverage.” There is no direct evidence that this commitment ever ripened into an actual second policy, but the parties and the circuit court assumed for purposes of summary judgment (and assume on appeal as well) that the second policy existed and that its terms and conditions “were identical and were comprised of the printed, boilerplate terms of the 1992 ALTA Owner’s Policy Form.” ⁷⁰⁸ Between 2000 and 2006, Back Creek conveyed the five residential lots to separate individual purchasers and conveyed the pier and boat slips to the community homeowners’ association, subject to the Declaration.

Back Creek conveyed Lot 4, the individual lot that is the subject of this case, in April 2001 to Nancy Hassett by way of a special warranty deed. She did not keep it for long: in August 2002, Ms. Hassett sold Lot 4 to Jeffrey C. Smith and Sandra Corry Smith (“the Smiths”). Notwithstanding the idyllic setting, life in Harbor View proved contentious and, ultimately, litigious. The Declaration’s description of the Community Waterfront Access Easement proved ambiguous and impractical, and the neighbors (most notably the Smiths) began to dispute whether and where neighbors farther from the pier could walk to it.

These disputes led to unsuccessful negotiations to establish a new path and, eventually, a lawsuit: on May 13, 2008, the Smiths filed a declaratory judgment suit in the Circuit Court for Anne Arundel County (the “Smith Action”) against the community homeowners’ association and Back Creek. The Smith Action complaint defies easy summarization, but all of its fifteen claims 3 relate to the assertion and definition of the Smiths’ property rights vis-a-vis the other neighbors’, specifically the scope of riparian rights of Lot 4, the pier and boat slips, and access to the pier and boat slips. Importantly, none of the Smith Action claims alleges any defect in the title Back Creek ⁷⁰⁹ passed to them (or any of the other owners), encumbrances, defects in the marketability of their title, or a lack of a right of access to and from the land. After discovery, motions and an animated trial 4 that consumed all or part of twelve days, the court issued a detailed opinion.

The court found that the Smiths’ lot was subject to the initial Declaration but not subsequent versions, noted its earlier decision to dismiss all of the Smiths’ other claims, defined the location of the easement, and enjoined the Smiths from interfering with their neighbors’ use of the easement or pier. Back Creek successfully defended the claims lodged against it, but accumulated over $200,000 in attorneys’ fees and expenses in the process. After the Smith Action concluded, Back Creek sent a letter to First American asserting that the Smith Action claims fell within the scope of coverage of its title insurance policies and ⁷¹⁰ demanding reimbursement for Back Creek’s attorneys’ fees and litigation expenses. First American denied coverage, and Back Creek initiated this action in the Circuit Court for Montgomery County on December 2, 2011, alleging that First American breached the title insurance policies.

First American responded to the complaint with a Motion for Summary Judgment that disputed coverage on three bases: (1) the policies had expired in 2006, when Back Creek finished divesting its interest in the development; (2) the claims against Back Creek in the Smith Action were not covered under the policies’ terms; and (3) Back Creek had failed to give First American timely notice of the claims, and thus deprived First American of its rights to defend the case on Back Creek’s behalf and to select defense counsel. On April 16, 2012, after a hearing, the circuit court granted First American’s motion for summary judgment. Back Creek filed a Motion for Clarification, and the circuit court entered an order on May 15, 2012, that clarified and reaffirmed summary judgment. Back Creek filed a timely notice of appeal.

II

DISCUSSION We review de novo questions of law decided on summary judgment. Myers v. Kayhoe, 391 Md. 188, 203 , 892 A.2d 520 (2006). We must determine as well “whether a material factual issue exists, and in doing so, all factual inferences must be resolved against the moving party,” Cheverly Terrace P’ship v. Ticor Title Ins. Co., 100 Md.App. 606, 615-16 , 642 A.2d 285 (1994) (citing Rosenberg v. Helinski, 328 Md. 664, 674 , 616 A.2d 866 (1992)), in this case, First American.

Boiled to its essence, 5 this case turns on whether First American had a duty to defend Back Creek under these title ⁷¹¹ insurance policies, which in turn depends on whether the policies potentially covered the claims against Back Creek in the Smith Action. If the claims did potentially come within the policies’ substantive coverage, First American’s duty to defend normally would attach, although, under the unusual facts of this case, we would then need to determine whether Back Creek complied with the policies’ notice requirements or whether Back Creek breached the policies by depriving First American of the rights to defend the case and select defense counsel. But we don’t need to reach those questions here because the duty to defend never attached in the first place. Title insurance in general is meant to protect title to property as it existed at a particular time; these title policies in particular covered claims relating to the title that Back Creek obtained when it bought the property and the titles it passed to the Harbor View neighbors.

The Smith Action involved no such claims. Instead, the claims in the Smith Action involved disputes regarding the location of the Community Water Access Easement, the neighbors’ respective access to that easement and dock, and the scope of the Smiths’ riparian rights. Nobody alleged, and the court in the Smith Action never addressed, any defect in Back Creek’s title or the titles it conveyed to the Harbor View residents, nor any liens or encumbrances that hadn’t been disclosed. As we explain below, we agree with the circuit court that the claims against Back Creek in the Smith Action were not and could not be ⁷¹² covered by the policies, and we affirm its decision to grant summary judgment in favor of First American.

Title insurance protects property holders against loss or damage resulting from defects or unmarketability in the title of the property held by the insured. Stewart Title Guar. Co. v. West, 110 Md.App. 114, 128 , 676 A.2d 953 (1996). Title insurance can also serve as “litigation insurance,” id.

(citing D. Barlow Burke, Jr., Real Estate Transactions: Examples and Explanations 185 (1993)), to the extent that the policy requires the insurer to defend the policy holder from attacks by third parties against the insured title. Id. An insurer’s duty to defend is broader than its duty to indemnify. Walk v. Hartford Cas.

Ins. Co., 382 Md. 1, 15 , 852 A.2d 98 (2004); Brohawn v. Transamerica Ins. Co., 276 Md. 396, 408 , 347 A.2d 842 (1975). But the duty to defend is not limitless: a title insurer’s duty to defend depends on (1) the scope of the policy’s coverage and (2) whether the allegations in the underlying suit bring the claim within this coverage.

Cheverly Terrace, 100 Md.App. at 610 , 642 A.2d 285 (citing St. Paul Fire & Marine Ins. Co. v. Pryseski, 292 Md. 187, 193 , 438 A.2d 282 (1981)); see also Lawyers Title Ins. Corp. v. Knopf, 109 Md.App. 134, 144 , 674 A.2d 65 (1996). To determine whether First American had a duty to defend Back Creek in the Smith Action, we must examine (a) the scope of coverage of the title insurance policies, and (b) whether the Smith Action claims against Back Creek fell within this scope of coverage.

As always, we start with the policies, specifically “the terms of the insurance policy, ... according] the terms their ‘customary, ordinary, and accepted meaning.’ ” Knopf, 109 Md.App. at 148 , 674 A.2d 65 (quoting Chantel Assocs. v. Mt. Vernon Fire. Ins. Co., 338 Md. 131, 142 , 656