Nautilus, Inc. v. Transamerica Title Ins. Co. of Washington

• Decision Date: 05 May 1975
• Docket Number: No. 2308--I,2308--I
• Citation: 534 P.2d 1388,13 Wn.App. 345
• Parties: NAUTILUS, INC., a Washington Corporation, Respondent, v. TRANSAMERICA TITLE INSURANCE COMPANY OF WASHINGTON, a Washington Corporation, Appellant.
• Court: Washington Court of Appeals

Page 345

13 Wn.App. 345

534 P.2d 1388

NAUTILUS, INC., a Washington Corporation, Respondent, v. TRANSAMERICA TITLE INSURANCE COMPANY OF WASHINGTON, a Washington Corporation, Appellant.

No. 2308--I.

Court of Appeals of Washington, Division 1.

May 5, 1975.

Shidler, McBroom, Gates & Baldwin, James R. Irwin, Seattle, for appellant.

James C. Young, Seattle, for respondent.

FARRIS, Judge.

Nautilus, Inc., the insured under a purchaser's standard coverage policy of title insurance, brought action against Transamerica Title Insurance Company, the insurer, for failure to defend a lawsuit brought in Jefferson County Superior Court in December, 1969, against Nautilus and others. The trial court held that Transamerica should have defended the action and granted judgment to Nautilus for the reasonable value of 350 feet of second class tidelands which Nautilus gave up in a pretrial settlement, plus costs and attorney fees in the total sum of $23,071.35. Transamerica appeals.

The primary question on appeal is whether, by the terms of the policy, Transamerica was obligated to defend the action and, if it was, what damages are proper. It is also argued that the trial court erred in striking two of Transamerica's affirmative defenses.

On January 13, 1950, the State of Washington conveyed certain real property to Trail's End Homesites, Inc. In 1951, the property was platted and submitted with maps to the county commissioners, who approved the platting. An addendum to the plat, which was of record when Transamerica issued the title insurance policy to Nautilus, shows the eastern boundary of the property owned by Nautilus to be the government meander line which the map locates in the waters of Hood Canal.

In 1967, Nautilus purchased certain real property which included second class tidelands from a private party; Transamerica insured title. The tidelands conveyed extended from the line of ordinary high tide fronting the uplands to the line of extreme low tide. The legal description of that property included certain property which was included in the Trail's End plat.

The 1969 Trail's End suit against Nautilus et al was brought to quiet title to the tidelands, alleging ownership to the government meander line; this claim encompassed land included in the Nautilus parcel. The action was amended to allege, in addition, a claim of ownership by adverse possession. Nautilus tendered defense of the action to Transamerica which refused to defend relying upon general exception No. 1 of its policy which excludes:

Encroachments or questions of location, boundary and area, which an accurate survey may disclose; public or private easements not disclosed by the public records; rights or claims of persons in possession, or claiming to be in possession, not disclosed by public records; . . . water rights or matters relating thereto; any service, installation or construction charges for sewer, water or electricity.

Transamerica considered the action to be a boundary dispute which an accurate survey would resolve. Nautilus settled the action by conveying 350 front feet of the second class tidelands to Trail's End and brought action against Transamerica in March of 1972 to recover damages for failure to defend.

Nautilus argues that the dispute represents a 'defect in title' as that phrase is used in paragraph 2 of the insurance policy and that Transamerica was obligated to defend the action because of the 'conditions and stipulations' of the insurance policy, which provides in pertinent part:

The Company shall have the right to, and will, at its own expense, defend the insured with respect to all demands and legal proceedings founded upon a claim of title, encumbrance or defect which existed or is claimed to have existed prior to the date hereof and is not set forth or excepted herein; .. .

The trial court upheld Nautilus' contention that the Trail's End dispute concerned a 'title defect' of a character covered by the insurance policy:

TRANSAMERICA TITLE INSURANCE COMPANY OF WASHINGTON, because of its refusal to defend the Jefferson County lawsuit Cause No. 7659, and the claims made thereunder or therein in both the original complaint and the amended complaint, which claims were covered under the terms of the title insurance policy with the plaintiff herein, and which claims were not excepted from the policy, breached its contract with the plaintiff, and is therefore liable for the costs and expenses incurred by the plaintiff, up to the policy limits, for any sums reasonably and necessarily expended by the plaintiff, including the costs of reasonable attorney's fees and the reasonable value of any property given over in settlement thereof.

Conclusion of law No. 2. The findings of fact support the conclusion.

The claim of the plaintiff in the Jefferson County case does not fall within any of the exceptions set forth in paragraph #1 of the insuring policy issued by the defendant herein, the first exception being 'Encroachments or questions of location, boundary and area which an accurate survey may disclose.' If a survey had been undertaken it would have disclosed the meander line and the line of ordinary high tide. Such a survey would not have been dispositive of the claims in the Jefferson County lawsuit because there would still have been the claim of title to the meander line even though the location of the line of ordinary high tide and the meander line had been established. The exception in the policy set forth above does not apply to defeat the claim of the plaintiff in this action.

Finding of fact No. 10. While this construction of the contract is not properly characterized as a factual finding, See Bellingham Securities Syndicate, Inc. v. Bellingham Coal Mines, Inc., 13 Wash.2d 370, 125 P.2d 668 (1942), Murray v. Western Pac. Ins. Co., 2 Wash.App. 985, 472 P.2d 611 (1970), we find that it is nonetheless a correct interpretation of the contract as a matter of law.

In the interpretation of insurance contracts, language must be given its ordinary meaning, Lesamiz v. Lawyers Title Ins. Corp., 51 Wash.2d 835, 322 P.2d 351 (1958), Port Blakely Mill Co. v. Springfield Fire & Marine Ins. Co., 59 Wash. 501, 110 P. 36 (1910), and where two constructions are possible, the 'construction most favorable to the insured must be applied, . . .' Selective Logging Co. v. General Cas. Co. of America, 49 Wash.2d 347, 351, 301 P.2d 535, 537 (1956); Myers v. Kitsap Physicians Serv.,78 Wash.2d 286, 474 P.2d 109 (1970). Further, individual clauses must be read in light of the whole contract, See Holter v. National Union Fire Ins. Co., 1 Wash.App. 46, 459 P.2d 61 (1969), so as to effect the intent of the parties, See Ames v. Baker, 68 Wash.2d 713, 415 P.2d 74 (1966). Construction which contradicts the general purpose of the contract or results in hardship or absurdity is presumed to be unintended by the parties, See Hansen & Rowland, Inc. v. Fidelity & Deposit Co., 72 F.2d 151 (9th Cir. 1934).

Transamerica knew from the public record about the conflict between the Trail's End plat and the Nautilus property at the time it issued its policy. The policy contained no specific coverage exception regarding the disputed tidelands. Transamerica explained that it assumed the 'accurate survey' exception to the policy handled the matter since in its opinion an accurate survey would reveal the error in the Trail's End plat. The trial court found, and we agree, that although a survey would establish a line of ordinary high water and the meander line, the dispute was over who owned the land between those points. A survey would therefore not be dispositive of the dispute; the exception does not apply.

Transamerica also argues that because the amended complaint in the Trail's End lawsuit alleged ownership by adverse possession, usually an exception under the policy since the basis of such ownership claim is generally not of public record, Transamerica was not required to defend the action. The trial court considered the...