Lipinski v. Title Ins. Co.
| Decision Date | 14 January 1983 |
| Docket Number | No. 81-37,81-37 |
| Citation | 202 Mont. 1,655 P.2d 970,39 St.Rep. 2283 |
| Parties | John J. LIPINSKI, Plaintiff and Respondent, v. The TITLE INSURANCE COMPANY, an Idaho Corporation, and Flathead County Title Company, a Montana Corporation, Defendants and Appellants. |
| Court | Montana Supreme Court |
Richard DeJana argued, Kalispell, for defendants and appellants.
Jonkel & Kemmis, Daniel Kemmis argued, Missoula, for plaintiff and respondent.
The defendant title insurance companies appeal a judgment of the Flathead County District Court in which they were found liable to Lipinski for damages caused by their failure to determine and disclose certain ditch rights easements, and because they failed to defend Lipinski in lawsuits brought as a result of those undisclosed rights. Three lawsuits were brought against Lipinski. The insurance companies defended the first lawsuit under a reservation of rights, and eventually contributed $2,500 to settle that lawsuit (referred to as the Maris settlement). Later, two more lawsuits were filed against Lipinski and the title companies refused to defend both lawsuits. Lipinski sued the title companies for damages arising from the existence of the undisclosed easements, and for punitive damages because the title companies were in bad faith in refusing to defend the lawsuits. We affirm in part, reverse in part, and remand for further proceedings.
Although the issues raised by the title companies are rambling and disjointed, it appears that their appeal centers on three areas of the trial court's judgment. The first area concerns the trial court's ruling that the title companies were liable to Lipinski up to the face amount of the policy for their failure to discover and disclose, or insure against, the existence of the easements. Lipinski paid $46,000 to purchase the easement rights, and the trial court held that the amount paid to remove the defect was the measure of damages. The trial court therefore awarded the damages up to the face amount of the policy, $25,000. The title companies pose three arguments as to why Lipinski is not entitled to damages. We affirm except that we hold that $2,500 paid the title companies to settle the Maris lawsuit must be deducted from the amount ordered to be paid.
The second area of appeal concerns the trial court's assessment of $15,000 punitive damages against the title companies for their refusal to defend two lawsuits against Lipinski--referred to as O'Neil I and O'Neil II. The title companies argue in effect that punitive damages cannot be imposed against an insurance company based on findings and conclusions that the companies were in bad faith in refusing to defend Lipinski. The title companies further argue that punitive damages could not be imposed because the trial court failed to find any actual damages, incurred by Lipinski, that were separate from the costs incurred in defending the lawsuits caused by their breach of a contract to defend. The trial court awarded a lump sum of $15,000 for refusal to defend O'Neil I and O'Neil II. We hold that the title companies had only a duty to defend O'Neil I, and because the damages were not assessed separately, we remand for a redetermination of punitive damages for refusal to defend O'Neil I. We further hold that Lipinski can recover his costs incurred for defending O'Neil I and that he cannot recover his costs incurred for defending O'Neil II, which defense was occasioned by Lipinski's own refusal to abide by a settlement he reached in O'Neil I.
The third area of damages concerns prejudgment interest awarded on costs incurred to defend O'Neil I and O'Neil II, and surveying and engineering costs incurred in defending O'Neil I and O'Neil II. The trial court awarded prejudgment interest at the rate of 10 percent per annum, and the title companies argue that 6 percent per annum is the proper interest rate. Lipinski concedes error on this issue. Because we have held that costs incurred in defending O'Neil II are not recoverable, we remand for a redetermination of interest on costs incurred in defending O'Neil I only.
The trial courts also awarded costs for surveying and engineering expenses incurred in defending O'Neil I and O'Neil II--the costs were not apportioned by the trial court in its findings or in its judgment. Because no costs are recoverable for defending O'Neil II, we remand for a determination of the survey and engineering costs incurred for defending O'Neil I only.
The chain of events leading to this appeal started in 1961 when Lipinski purchased land near Kalispell for $25,000. Before buying the land, Lipinski had the property surveyed. He knew there were irrigation ditches on the property and that one of them, known as the "Grief" ditch, had been repaired recently, but he did not know that easements accompanied the ditches. He began building a home on the land. Before the title companies issued him a title policy in February 1963, he knew that a neighbor was using the "Grief" ditch which passed through his land. The neighbor, Jack Maris, was leasing the adjoining property and asked to enter on Lipinski's land to maintain the ditches. Lipinski denied him access and relied on the title policy which showed no easements. This resulted in Maris bringing suit against Lipinski for interference with the easement.
The lawsuit was settled for $6,000, with the title companies paying $2,500 of their total $25,000 exposure, and with Lipinski paying $3,500.
Shortly after the Maris settlement, O'Neil, the owner of the adjoining property, filed suit against Lipinski for interference with his easement rights and for other relief. Lipinski requested the title companies to defend him but they refused to do so. Lipinski hired his own counsel and eventually the O'Neil suit was settled, although not for long. Lipinski refused to abide by the settlement agreement and O'Neil again sued Lipinski, this time for specific performance. Lipinski again asked the title companies to defend the lawsuit but they refused to do so.
The trial court granted specific performance in O'Neil II, and this Court affirmed. O'Neil v. Lipinski (1977), 173 Mont. 332, 567 P.2d 909. After remand, Lipinski and O'Neil, rather than proceed with the terms of the specific performance agreement, agreed that Lipinski would purchase O'Neil's ditch rights for $46,000 and the O'Neil's would quitclaim their interest in the ditch rights to Lipinski. The parties performed this agreement.
The present litigation involves Lipinski's suit against the title companies and the resulting judgment against the title companies. Part of the lawsuit involves the language of an agreement between the title companies and Lipinski when the Maris suit was settled. Paragraph two of that agreement stated:
Lipinski signed this agreement and sent it back to the title companies. Before signing the agreement, however, the title companies inserted the phrase "see insert below" next to paragraph two and then placed the following insertion underneath the signatures:
"Insert: 'except that the payment hereunder by the [title companies] shall be deemed to be in full compensation for any reduction in the value of the insured property of ... [Lipinski] caused by the existence of the two ditches thereon.' "
Lipinski's title policy obligated the title companies to defend Lipinski at their own cost in any litigation "... founded upon a defect, lien, encumbrance, or other matter insured against by this policy." In checking the records before issuing the policy, the title companies failed to find, or note on the policy, that a 1944 warranty deed existed in Lipinski's chain of title which contained the recital: "... subject to rights established by irrigation ditch ..." the Maris lawsuit and the O'Neil lawsuits were based on an underlying easement relating to the irrigation ditch and the rights of the owner of the easement to maintain and repair the irrigation ditch.
The first O'Neil suit was based on contentions that Lipinski had wrongfully interfered with the O'Neil's primary easement to transport water across Lipinski's lands and a secondary easement to maintain a dam and two irrigation ditches. The title companies refused to defend Lipinski in that action. We hold that the title companies were obligated to defend Lipinski. The second O'Neil suit, however, was brought to enforce the agreement reached between O'Neil and Lipinski to settle the first suit. We hold that the title companies were not obligated to defend that lawsuit because Lipinski invited this lawsuit by refusing to abide by the settlement terms of the first O'Neil suit.
As we have previously stated, the trial court found that Lipinski had been damaged in the amount of $46,000 (the amount he paid to buy the easement rights from O'Neil), but limited recovery to the face amount of the policy--$25,000. The court further ruled that the title companies' refusal to defend O'Neil I and O'Neil II was both a breach of contract and an act of bad faith. The court held that the refusal to defend "was an act done without justification, was willful, malicious, oppressive, and constituted bad faith on the part of the defendants." The court assessed $15,000 punitive damages against the title companies. The trial court also awarded Lipinski his costs incurred for defending O'Neil I and O'Neil II, including attorney fees, survey and engineering expenses, and prejudgment interest on these amounts from the time the costs were incurred.
EFFECT OF THE FAILURE TO DISCOVER THE EASEMENTS:
The title companies argue that under the policy terms they had no duty to discover the ditch right...
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