Cheverly Terrace Partnership v. Ticor Title Insurance Co.

ALPERT, Judge. Appellant, Cheverly Terrace Partnership (“Cheverly”), appeals from an order entered in the Circuit Court for Prince George’s County (Ahalt, J.), granting summary judgment in favor of appellee, Ticor Title Insurance Company (“Ticor”). Cheverly asks: Whether the Circuit Court erred in concluding, as a matter of law, that under the terms of the April 1985 title insurance policy between the parties Ticor was not obligated to defend Cheverly in the underlying action brought by Cheverly Terrace II Limited Partnership (“Cheverly II”). We answer this question in the negative and, therefore, affirm. 1 Facts and Proceedings In April 1985, Cheverly purchased property consisting of a shopping center surrounded by a parking lot in Prince George’s County, Maryland.

At the time of settlement, Cheverly purchased title insurance for this property from Ticor. In July 1988, Cheverly II, the owner of an apartment complex adjacent to Cheverly’s shopping center, filed suit against Cheverly in the Circuit Court for Prince George’s County. Cheverly II contended that its tenants used Cheverly’s parking lot and, thus, it sought to establish title to a portion of the ⁶⁰⁹ lot through adverse possession or, in the alternative, by an implied easement. Ticor refused to defend Cheverly in this suit, contending that the claims alleged by Cheverly II were excluded under the terms of the title insurance policy between the parties.

The circuit court granted Cheverly’s motion for summary judgment in the underlying suit. In Cheverly Terrace II v. Cheverly Terrace Partnership, 81 Md.App. 766 (Ct.Spec.App.1990) (per curiam), we affirmed the circuit court, stating, “we fail to see how mere use of the disputed property for parking and for access to the apartment complex by unidentified tenants, without evidence that such use was by the express or implied authority of [Cheverly II], can be said to amount to possession by [Cheverly II].” (footnote omitted). Cheverly then filed the action that is the subject of this appeal, seeking compensatory damages for its legal expenses in defending the underlying suit. The circuit court granted Ticor’s motion for summary judgment.

This appeal followed. Discussion Cheverly contends that, under its title insurance policy, Ticor was required “to defend all claims made against [Cheverly] based upon an alleged defect, lien or encumbrance, unless specifically excluded by the [p]olicy.” Thus, Cheverly argues that because the facts alleged in the underlying action constituted a claim within the coverage of the policy, the circuit court erred in concluding that Ticor was not required to defend the action. We disagree. The duty of an insurer to defend an insured under a policy provision has been principally discussed in the context of tort actions.

In Brohawn v. Transamerica Ins. Co., 276 Md. 396, 407-08 , 347 A.2d 842 (1975), the Court of Appeals stated, The obligation of an insurer to defend its insured under a contract provision such as here involved is determined by the allegations in the tort actions. If the plaintiffs in the tort suits allege a claim covered by the policy, the insurer has a duty to defend. Even if a tort plaintiff does not allege facts which clearly bring the claim within or without the ⁶¹⁰ policy coverage, the insurer still must defend if there is a potentiality that the claim could be covered by the policy, (citations omitted).

Additionally, under the exclusive pleading rule, “an insurer’s duty to defend is determined by reference to the policy language and the allegations made in the complaint.” Eastern Shore Financial v. Donegal Mut. Ins. Co., 84 Md.App. 609, 620, 627 , 581 A.2d 452 (1990), cert. denied, 322 Md. 131 , 586 A.2d 13 (1991); see also Mount Vernon Fire Ins. Co. v. Scottsdale Ins.

Co., 99 Md.App. 545, 556-57 , 638 A.2d 1196 (1994); Cochran v. Aetna Casualty, 99 Md.App. 350, 358 , 637 A.2d 509 (1994). In St. Paul Fire & Marine Ins. Co. v. Pryseski, 292 Md. 187, 193 , 438 A.2d 282 (1981), the Court of Appeals set forth the following two-part test for determining whether a liability insurer has a duty to defend its insured in a tort action: (1) what is the coverage and what are the defenses under the terms and requirements of the insurance policy? (2) do the allegations in the tort action potentially bring the tort claim within the policy’s coverage?

We conclude that the reasoning behind this two-part test is equally applicable to the question of whether a title insurance company is required to defend a claim of adverse possession or implied easement. Thus, we shall consider (1) the scope of the policy’s coverage and (2) whether the allegations in the underlying suit bring the claim within this coverage. Policy coverage Under the title insurance policy at issue in this case, Ticor insured Cheverly against: loss or damage ... and costs, attorneys’ fees and expenses which the Company may become obligated to pay hereunder, sustained or incurred by the insured by reason of: 1. Title to the estate or interest ... being vested otherwise than as stated [in the policy]; 2.

Any defect in or lien or encumbrance on such title; 3. Lack of a right of access to and from the land; or ⁶¹¹ 4. Unmarketability of such title. Under the terms of the policy, Ticor agreed to defend Cheverly in all litigation “to the extent that such litigation is founded upon an alleged defect, lien, encumbrance, or other matter insured against by this policy.” The policy’s exclusionary clause provided: This policy does not insure against loss or damage by reason of the following: General Exceptions: (1) Rights or claims of parties in possession not shown by the public records.

(2) Encroachments, overlaps, boundary line disputes, and any other matters which would be disclosed by an accurate survey and inspection of the premises. (3) Easements or claims of easements not shown by the public records. (4) Any lien, or right to a lien, for services, labor, or material heretofore or hereafter furnished, imposed by law, and not shown by the public records. (emphasis added).

Thus, the title insurance policy clearly and unambiguously excluded from coverage “rights or claims of parties in possession” and “easements or claims of easements” when these claims were not recorded. The Allegations in the Underlying Suit In the underlying suit, Cheverly II contended, in part: 14. [Cheverly II], through its predecessors constructed a parking lot ... and is currently using the lot for parking and access for the Cheverly Terrace Apartments.... 15. [Cheverly II] and its predecessors’ use has been adverse, open, exclusive, and continuous for over twenty years. 16. [Cheverly II] is currently in physical possession of the western and northern part of the [parking lot]. Thus, Cheverly II alleged two legal theories supporting its claim to title, “adverse possession” or, in the alternative, “a perpetual easement by implication.” ⁶¹² During the hearing on the motion for summary judgment in the case now before us, the circuit court asked Cheverly’s counsel to address the potentiality of coverage in the underlying suit. THE COURT: What I’m having trouble following in your analysis is, if Ticor had no obligation, had the plaintiff in the underlying action been successful to pay the result of that litigation, where does the potentiality of coverage exist that would bring it within Eastern Shore [ 84 Md.App. at 609 ]?

MR. BARON [Cheverly’s counsel]: If the underlying claim was successful on their theory, there might not have been a duty to indemnify for the losses. But there still was a duty to defend the action, because there [are] two issues under the insurance policy. It’s not just a duty to indemnify.

It’s also a duty to defend. There [are] two separate provisions. THE COURT: But the duty—according to Eastern Shore, the duty to defend is dependent upon potentiality in terms of indemnification. MR.

BARON: Correct. But they would have had it— THE COURT: Where is the potentiality? MR. BARON: The potentiality is because the claim is being brought ... by a party not in possession, as being claimed usage of the property.

By— THE COURT: But if they were