Knapp v. Commonwealth Land Title Ins. Co., Inc.

• Decision Date: 08 July 1996
• Docket Number: No. CV 3-94-373.,CV 3-94-373.
• Citation: 932 F. Supp. 1169
• Parties: Robert J. KNAPP, Plaintiff, v. COMMONWEALTH LAND TITLE INSURANCE COMPANY, INC., Defendant and Third-Party Plaintiff, v. NATIONAL TITLE RESOURCES CORP., Third Party Defendant.
• Court: U.S. District Court — District of Minnesota

932 F. Supp. 1169

Robert J. KNAPP, Plaintiff, v. COMMONWEALTH LAND TITLE INSURANCE COMPANY, INC., Defendant and Third-Party Plaintiff, v. NATIONAL TITLE RESOURCES CORP., Third Party Defendant.

No. CV 3-94-373.

United States District Court, D. Minnesota, Third Division.

July 8, 1996.

Alan T. Tschida, Tschida Law Office, St. Paul, MN, for Plaintiff.

Timothy J. Grande, Denis E. Grande, Mackall, Crounse & Moore, Minneapolis, MN, for defendant.

Frederic W. Knaak, James K. Kohl, Rauenhorst & Carlson, St. Paul, MN; Larry S. Mountain, Holstad & Larson, St. Paul, MN, for Third Party Defendant.

MEMORANDUM AND ORDER

DAVIS, District Judge.

This matter is before the Court on a motion for summary judgment in which defendant Commonwealth Land Title Insurance Company ("Commonwealth") seeks the reimbursement of attorney's fees and costs that it incurred in defending plaintiff Robert J. Knapp ("Knapp"). Defendant also seeks the determination of the Court that the amount sought, $28,681.77, is reasonable. For the reasons set forth below, Commonwealth's motion for summary judgment is granted and attorney's fees and costs requested in the amount of $28,681.77 are reasonable.

Factual Summary

In 1988, Knapp applied for, and was granted, title insurance ("Title Policy") from Commonwealth for land that he had purchased from a bankruptcy estate. Knapp's title to this land was subsequently contested. Commonwealth agreed to defend Knapp against the claims, prefacing this undertaking with a "reservation of rights" letter. That letter, dated August 9, 1990, specifically accepted the tender of defense of the claim against the insured property, but also specifically reserved Commonwealth's right to later seek attorneys' fees and costs if coverage was later denied. In that letter, Commonwealth stated:

This claim will be subject to a reservation of rights in favor of Commonwealth Land Title Insurance Company ... It should be distinctly understood that no action by Commonwealth heretofore or hereinafter taken in this matter is to be constructed in any way as a waiver of our right to later disclaim liability in the event it comes to light that Commonwealth has provided a defense for matters excluded from Policy coverage ... Commonwealth reserves the right to deny the claim, discontinue payment of outside counsel and seek reimbursement from you for counsel fees and costs incurred by the Company by reason of the claim subsequently found not to be within Policy coverage.

Commonwealth proceeded to defend Knapp against the title dispute to land which Knapp claimed was within the scope of the Title Policy. Knapp lost in his defense to the claims against the property and consequently lost some of the land. Knapp then moved for summary judgment against Commonwealth for these losses, claiming said losses were covered by the Title Policy. On March 30, 1995, this Court granted Commonwealth's motion for summary judgment and held that no coverage existed for the claim.

Commonwealth, pursuant to its earlier "reservation of rights letter" of August 9, 1990, having successfully challenged the Knapp's claim for policy coverage, now seeks to be reimbursed for all attorneys fees and costs it incurred on behalf of Knapp.

Standard for Summary Judgment

Under Federal Rule of Civil Procedure 56, a moving party is entitled to summary judgment if the evidence shows that "there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). The moving party bears the initial burden of establishing the nonexistence of a genuine issue of material fact. Id. at 323, 106 S.Ct. at 2552-53; City of Mt. Pleasant, Iowa v. Assoc., Elec. Co-op., 838 F.2d 268, 273 (8th Cir.1988). Once it meets that burden, the non-moving party may not then "rest upon the mere allegations or denials of his pleading, but ... must set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, (1986). If, based upon the evidence, a reasonable jury could not return a verdict for the non-moving party, summary judgment is appropriate. Id., at 248, 106 S.Ct. at 2510.

Analysis

There are three issues in this case: 1) whether an insurer can recover expenses incurred defending insured pursuant to a "reservation of rights" letter; 2) if a right to reimbursement exists, whether Commonwealth is entitled to such reimbursement based upon the facts herein; and 3) whether the amount of attorney's fees and costs incurred in defense of the insured is reasonable.

Does an insurer have a right to recover defense costs?

It is established law in Minnesota that an insurer has a duty to defend where only part of a claim is arguably within the scope of a policy's coverage. United States Liability Insurance Company v. Johnson & Lindberg, P.A., 617 F.Supp. 968, 972 (Minn. 1985), (citing, Prahm v. Rupp Construction Co., 277 N.W.2d 389, 390 (Minn.1982)). Minnesota courts have further established that the duty to defend is broader than the duty to indemnify and that "if any part of the claim is arguably within the scope of coverage afforded by the policy, the insurer should defend and reserve its rights to contest coverage based on facts developed at trial." Brown v. State Automobile & Casualty Underwriters, 293 N.W.2d 822, 825-26 (Minn.1980), citation omitted. When facts extrinsic to the complaint establish that the policy does not provide coverage, however, the insurer will not be required to defend the action. Lanoue v. Fireman's Fund American Insurance Companies, 278 N.W.2d 49, 52 (Minn.1979).

Commonwealth argues that even though it considered the claims outside the scope of the policy coverage, it met its duty to defend and clearly indicated to Knapp in its reservation of rights letter that it would seek reimbursement for fees and costs incurred by it in defense of the claims.

Knapp argues that parts of his claims arguably fell within the scope of coverage under the Title Policy, therefore Commonwealth had a duty to defend and is not entitled to reimbursement. Knapp further argues that Commonwealth is misreading this Court's previous Order granting summary judgment to Commonwealth for that Order did not specifically find no duty to defend. The Court's Order granting Commonwealth summary judgment is clear, there was no basis for coverage. Knapp did not put forth any facts which would arguably establish coverage. Therefore, Commonwealth did not have a duty to defend. See, Lanoue, 278 N.W.2d at 52.

A determination of no duty to defend does not necessarily entitle Commonwealth to reimbursement of its attorney's fees and costs expended defending the claims on behalf of Knapp. Minnesota has not before determined whether or not an insurer may be reimbursed for attorney's fees and costs, when it has been determined that no coverage exists and the insurer undertook the defense under a reservation of rights letter.

In support of its claim for reimbursement, Commonwealth cites to established law in California that supports the right of the insurer to reimbursement of its attorneys fees and costs if the insurer has either secured a nonwaiver agreement from the insured or made an adequate reservation of rights. Gossard v. Ohio Casualty Group of Insurance Companies, 39 Cal.App.4th 450, 35 Cal. Rptr.2d 190 (6th Dist.1994) (citing Val's Painting & Drywall, Inc. v. Allstate Ins. Co., 53 Cal.App.3d 576, 585, 126 Cal.Rptr. 267 (1975); Richardson v. State Farm Fire and Casualty Company, 32 Cal.App.4th 1, 37 Cal. Rptr.2d 824 (1995).

In Walbrook Insurance Co. Ltd. v. Goshgarian & Goshgarian, 726 F.Supp. 777 (C.D.Cal.1989) an insured tendered a claim to its insurer. The insurer claimed no coverage existed under the policy, but nonetheless agreed to defend the insured recognizing that the "duty to defend" is greater than the "duty to insure." In agreeing to defend, however, the insurer, by letter, reserved its rights to seek attorney's fees and costs if coverage was later denied. Walbrook, 726 F.Supp. at 782. The insured argued that they objected by letter to the reservation of rights, therefore there was no agreement or understanding sufficient to allow such recovery. Id. Although there was no California case on point on such facts, the Walbrook court determined that because the insurer specifically informed the insured that it would seek such reimbursement and because the insured accepted the defense paid by the insurer, an implied agreement to the right to reimbursement was established. Id. at 784.

There can be no doubt that the insured knew that the insurer

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