Hansen v. Western Title Ins. Co.

• Decision Date: 20 September 1963
• Parties: , 98 A.L.R.2d 520 Alfred R. HANSEN and Nathan E. Bales, Cross-Complainants and Respondents, v. WESTERN TITLE INSURANCE COMPANY, Cross-Defendant and Appellant. Civ. 20931.
• Court: California Court of Appeals Court of Appeals

Page 668

33 Cal.Rptr. 668

220 Cal.App.2d 531, 98 A.L.R.2d 520

Alfred R. HANSEN and Nathan E. Bales, Cross-Complainants and Respondents, v. WESTERN TITLE INSURANCE COMPANY, Cross-Defendant and Appellant.

Civ. 20931.

District Court of Appeal, First District, Division 3, California.

Sept. 20, 1963.

Gordon B. Turner, Maurice E. Huguet, Jr., Martinez, for appellant.

Sellar & Engleking, Concord, for respondents.

DEVINE, Justice.

Respondents, holders of a title insurance policy issued by appellant, having been sued by a third person on transactions connected with acquisition of the insured property, cross-complained against appellant on the policy and obtained judgment in amount $8,782.25. ¹ This amount represents the sum paid to the third person in settlemen of his lawsuit, plus attorney's fees and costs.

Respondents, who are builders, were interested in acquiring two adjacent parcels of undeveloped land near Concord in Contra Costa County, for purposes of subdivision. One parcel was owned by Wilson, the other by Fissori. ² Respondents dealt directly with Wilson and obtained an option to purchase his land, but because Wilson was friendly with Fissouri, it was arranged that he would obtain an option, if he could, from Fissori and assign it to respondents. This was done. The transaction involving the original Wilson property is not directly concerned in this lawsuit, but the Fissori deal is, because the title insurance policy which is sued on was issued on the Fissori parcel.

The Fissori option to Wilson contained a detailed recitation of the price per acre, the duties of the optionee to subdivide and improve, and other matters not particularly relevant; that option was for two years, but was renewable for two more. It was expressly made assignable by the optionee without consent of Fissori. The agreement was drawn by respondents' attorney. On February 24, 1955, about four months after Fissori had granted the option to Wilson, Wilson entered into a contract with respondents, which contained a grant of an option of his own property, and an assignment of the Fissori option. Here, again, the contract was prepared by respondents' attorney. The contract provided, to put it most generally, that respondents would develop the land into a subdivision, and there was set up a profit-sharing arrangement between Wilson and respondents. One part of this contract has given rise to this litigation, namely, paragraph 17(a) which reads, in part, as follows: 'Upon the expiration of said four year period all unimproved lots, pieces or parcels shall be reconveyed to first parties by appropriate conveyance.' The lawsuit between Wilson and respondents, which was settled before trial and which is described below, was based upon the claim of Wilson that the sentence just quoted applies to the Fissori land as well as to the Wilson property. The contract was recorded on May 2, 1955, at the request of appellant title insurance company, and at the direction of respondents

About ten weeks later, and on May 2, 1955, a holding agreement between Fissori and respondents and the title insurance company was executed. This document was prepared, not by counsel for respondents as the option had been, but by an escrow officer of the title insurance company who, it would appear from some efforts to qualify him as an expert, was not a lawyer. The holding agreement provides that the Fissori property is conveyed to the title company on instruction to convey to respondents on payment of $2,500 an acre, but if the entire price is not paid in four years, any land not paid for at the agreed price per acre shall be reconveyed to Fissori. A few days later, this was modified by a supplemental holding agreement, also prepared by the title company, which provides for purchase by respondents of all of the Fissori property at a price of $34,000, except one parcel, upon which respondents were to build a home for Fissori; and a deed to respondents of all but the excepted parcel was authorized on down payment of $5,000. A policy was issued to respondents, showing title vested in the title company, but this, of course, was pursuant to the holding agreement and respondents were named as the insured.

It was testified by the former officer of the title company who had drawn the holding agreements (he was, at trial time, in the construction business) that he knew of the option of February 24, 1955, when he was preparing the holding agreements, that he obtained the consent of Wilson to both of these agreements (Wilson consented in writing to each of them), that he considered that the interest created by the Fissori option merged on conveyance of the property to the title company, and that as a result the policy does not list among the exceptions any interest or encumbrance of Wilson.

The title insurance policy contains the following exclusion from coverage among its stipulations: '(c) defects, liens, encumbrances, or other matters created or suffered by the insured claiming such loss or damage.' The policy also contains an agreement of the company to defend against loss or damage not exceeding $34,000, by reason of any defect or any lien or encumbrance upon the title to the insured existing as of May 23, 1955.

The Wilson land was not developed by respondents at any time, nor was the Fissori land. The reasons are testified to but briefly by the respondents, namely, changes in zoning and in sewerage requirements, and the reasons are not particularly material, anyway, as between the present parties. Dispute about the development, or lack of it, arose between Wilson and respondents, and the plan to develop the Wilson properties under the option was abandoned. In 1957 respondents, who were then ready to pay the total purchase price of the Fissori parcel, became uneasy about any interest which Wilson might have therein and consulted an attorney whom they engaged for the specific purpose of advising them on this subject, and the manager of the title insurance company. They were assured by them that Wilson had no interest; thereupon, they paid the whole purchase price, and obtained a deed to the Fissori property from the title company on August 7, 1957.

On November 20, 1958, Wilson filed an action against respondents, alleging that they had failed to develop the Wilson and Fissori lands, as provided in the option agreement of February 24, 1955; that they had refused to reconvey the Fissori lands to Wilson, and that they were obliged to do so because the entire Fissori parcel was unimproved; and alleging damages in amount $40,000. Demand was made by respondents against the title company to defend the action and the company refused on the ground that the Wilson claim was created by the insured and, therefore, was excepted from the policy under the stipulation quoted above. Respondents cross-complained against the title company, which answered setting up the defense of creation of the claim by the insured, and also the statute of limitations. (Code Civ.Proc. § 339, subd. 1.) The trial court found that the claim was not created by respondents, that the settlement made by respondents was a reasonable one, and that cross-complainants, respondents, had no knowledge of the Wilson claim for reconveyance until August 12, 1959, the date of the filing of the second amended complaint by Wilson.

Interpretation of the Policy

The principal problem in the case is, what is meant by excluding from the insured risks a lien, encumbrance or defect 'created' by the insured? Does the word 'created' refer only to a charge which has been consciously produced by the insured, or does it also include one which has resulted from inadvertence, such as the signing by the insured of an ambiguous document, the terms of which are known to the insurer before issuance of the policy, and which, if given that interpretation which is unfavorable to the insured but which was unintended by him, casts some...