Kleveland v. Chicago Title Ins. Co.

• Decision Date: 24 July 2006
• Docket Number: No. B187427.,B187427.
• Citation: 46 Cal.Rptr.3d 314,141 Cal.App.4th 761
• Court: California Court of Appeals Court of Appeals
• Parties: Chris KLEVELAND et al., Plaintiffs and Respondents, v. CHICAGO TITLE INSURANCE COMPANY, Defendant and Appellant.

46 Cal.Rptr.3d 314

141 Cal.App.4th 761

Chris KLEVELAND et al., Plaintiffs and Respondents, v. CHICAGO TITLE INSURANCE COMPANY, Defendant and Appellant.

No. B187427.

Court of Appeal, Second District, Division 6.

July 24, 2006.

Snyder Law, a Professional Corporation, Barry Clifford Snyder and Sean R. Burnett, Santa Barbara; Law Offices of Herb Fox, Herb Fox, Santa Barbara, for Defendant and Appellant.

Law Offices of Zilinskas & Woosley, Victor G. Zilinskas & Eric A. Woosley, Santa Barbara, for Plaintiffs and Respondents.

COFFEE, J.

Is an arbitration clause in a title insurance policy enforceable where arbitration was not mentioned in the preliminary title report and where that report referred to a policy that was different than that actually issued by the insurer? We conclude the answer is no. Under these circumstances, the arbitration clause was not incorporated by reference into the preliminary report and is not binding upon the insured. We affirm.

FACTS AND PROCEDURAL HISTORY

Plaintiffs Chris Kleveland and AOK Land Company LLC purchased a title insurance policy from defendant Chicago Title Insurance Company (Chicago Title) on the basis of a preliminary title report they received and approved.¹ The preliminary report described the real property to be insured, the coverage to be afforded and the exceptions and exclusions to that coverage, but it did not indicate the policy would include an arbitration clause. The cover sheet of the preliminary report stated, "The form of policy title insurance contemplated by this report is: ALTA [American Land Title Association] HOME-OWNER'S POLICY OF TITLE INSURANCE (11/98)." It further advised, "Copies of the Policy forms are available upon request." This policy had an arbitration clause.

Chicago Title subsequently issued a different type of insurance policy than that specified in the preliminary report: a California Land Title Association Standard Coverage Policy (CLTA).² This policy contained an arbitration clause applicable to "any controversy or claim between the Company and the insured arising out of or relating to this policy, any service of the Company in connection with its issuance or the breach of a policy provision or other obligation."

Plaintiffs filed an action for breach of contract and bad faith against Chicago Title after their discovery of an easement on the insured property that they claimed was not mentioned in the preliminary title report. Chicago Title filed a motion to compel arbitration based on the clause in the CLTA policy it had issued. Plaintiffs opposed the motion, arguing that they could not be bound by an arbitration clause that was neither included in the preliminary title report nor incorporated by reference into that report. Chicago Title argued that arbitration was appropriate because plaintiffs had accepted the CLTA policy and was bound by its terms. The court denied the motion to compel arbitration. In a motion for reconsideration, Chicago Title argued that the ALTA policy referenced in the preliminary report also contained an arbitration clause, which was incorporated by reference into the preliminary report. The court denied the motion.

DISCUSSION

The trial court shall order parties "to arbitrate the controversy if it determines that an agreement to arbitrate exists...." (Code Civ. Proc., § 1281.2.) On appeal, we review the arbitration agreement de novo to determine whether it is legally enforceable, applying general principles of California contract law. (Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 174, 116 Cal.Rptr.2d 671; Chan v Drexel Burnham Lambert, Inc. (1986) 178 Cal.App.3d 632, 637, 223 Cal.Rptr. 838.) Although public policy favors arbitration in general, we will not infer that the right to a jury trial has been waived absent a clear agreement to submit the dispute to arbitration. (Titan Group, Inc. v. Sonoma Valley County Sanitation Dist. (1985) 164 Cal.App.3d 1122, 1129, 211 Cal.Rptr. 62.)

Chicago Title argues that plaintiffs are bound by the arbitration clause in the CLTA policy because they received a copy of that policy and did not object. It relies on the rule that an insured has a duty to read the policy and cannot thereafter complain that the terms were unknown. (See Aetna Casualty & Surety Company v. Richmond (1977) 76 Cal.App.3d 645, 652, 143 Cal.Rptr. 75.) This rule does not apply to title insurance: "[U]nlike a health or liability insurance policy, ... a title insurance policy has a one-time premium and remains in effect so long as the insured owns the property. A purchaser may not cancel the policy and switch to another carrier without forfeiting his premium. [¶] The process of obtaining title insurance, therefore, contemplates the receipt of a title report before the close of escrow, setting forth the `conditions upon which the issuer is willing to issue its title policy.' (Ins.Code, § 12340.11.) The...