Schram v. Fid. Nat'l Title Ins. Co., CAUSE NO. 1:15-cv-00131-SLC

• Decision Date: 17 January 2017
• Docket Number: CAUSE NO. 1:15-cv-00131-SLC
• Parties: BETH C. SCHRAM, et al., Plaintiffs, v. FIDELITY NATIONAL TITLE INSURANCE COMPANY, successor by merger to Lawyers Title Insurance Corporation, Defendant.
• Court: U.S. District Court — Northern District of Indiana

BETH C. SCHRAM, et al., Plaintiffs, v. FIDELITY NATIONAL TITLE INSURANCE COMPANY,successor by merger to Lawyers Title Insurance Corporation, Defendant.

CAUSE NO. 1:15-cv-00131-SLC

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF INDIANA FORT WAYNE DIVISION

January 17, 2017

OPINION AND ORDER

Plaintiffs Beth C. Schram and P.T. Schram (together, "the Schrams") filed this suit against Defendant Fidelity National Title Insurance Company, successor by merger to Lawyers Title Insurance Corporation ("FNTIC"), concerning a title insurance policy issued to the Schrams by Lawyers Title Insurance Corporation ("Lawyers Title").¹ (DE 38). The Schrams assert that FNTIC had a duty to defend them in a suit filed by their neighbor, who asserted the existence of an easement on the Schrams' land. The Schrams seek a declaratory judgment concerning FNTIC's duty to defend and advance claims for breach of contract and breach of the duty of good faith and fair dealing against FNTIC.

Now before the Court are the parties' cross motions for partial summary judgment (DE 54; DE 68), each seeking judgment as a matter of law on the Schrams' claims for breach ofcontract and declaratory judgment. The motions are ripe for ruling.² (DE 55; DE 65; DE 69; DE 70; DE 71; DE 72; DE 76). For the following reasons, the Schrams' motion for partial summary judgment will be GRANTED, and FNTIC's motion for partial summary judgment will be DENIED.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. The Policy

On or about May 2, 2007, the Schrams obtained a policy of title insurance, No. 700702177 (the "Policy"), from Lawyers Title for certain real property owned by the Schrams in Churubusco, Indiana. (DE 55-1 at 4-11; DE 70-1 at 29-36). The parties do not dispute that FNTIC is the successor in interest to Lawyers Title for purposes of the Policy and this suit.

The Policy generally indemnifies against losses sustained by reason of defects in title. (DE 55 at 9). Specifically, the Policy states, in relevant part:

SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULE B AND THE CONDITIONS AND STIPULATIONS, LAWYERS TITLE INSURANCE CORPORATION, a Virginia corporation, herein called the Company, insures, as of the Date of Policy shown in Schedule A, against loss or damage, not exceeding the Amount of Insurance stated in Schedule A, sustained or incurred by the insured by reason of:

1. Title to the estate or interest described in Schedule A being vested other than as stated therein;

2. Any defect in or lien or encumbrance on the title;

3. Unmarketability of the title;

4. Lack of a right of access to and from the land.

The Company will also pay the costs, attorneys' fees and expenses incurred in defense of the title, as insured, but only to the extent provided in the Conditions and Stipulations.

(DE 55-1 at 5; DE 70-1 at 30).

With respect to the "Exclusions from Coverage" portion of the Policy, that section reads, in relevant part:

The following matters are expressly excluded from the coverage of this policy and the Company will not pay loss or damage, costs, attorneys' fees or expenses which arise by reason of:

. . . .

3. Defects, liens, encumbrances, adverse claims or other matters:

(a) created, suffered, assumed or agreed to by the insured claimant;

(b) not known to the Company, not recorded in the public records at Date of Policy, but known to the insured claimant and not disclosed in writing to the Company by the insured claimant prior to the date the insured claimant became an insured under this policy;

(c) resulting in no loss or damage to the insured claimant;

(d) attaching or created subsequent to Date of Policy; or

(e) resulting in loss or damage which would not have been sustained if the insured claimant had paid value for the estate or interest insured by this policy.

(DE 55-1 at 5; DE 70-1 at 30).

Additionally, the "Schedule B Exceptions from Coverage" portion of the Policy identifies 19 exceptions from coverage. Relevant to this dispute is Exception No. 2, "Easements or claims of easements not shown by the public records[,]" and Exception No. 4:

Defects, liens, encumbrances, adverse claims or other matters, if any, created, first appearing in the public records or attaching subsequent to the effective date hereof but prior to the date the Proposed Insured acquires for the value of record the estate or interest or mortgage thereon covered by this Commitment.

(DE 55-1 at 7; DE 70-1 at 32).

Finally, Section 4(a) of the "Conditions and Stipulations" portion of the Policy, entitled "Defense and Prosecution of Actions; Duty of Insured Claimant to Cooperate," reads as follows:

Upon written request by the insured . . . , the Company, at its own cost and without unreasonable delay, shall provide for the defense of an insured in litigation in which any third party asserts a claim adverse to the title or interest as insured, but only as to those stated causes of action alleging a defect, lien or encumbrance or other matter insured against by this policy . . . . The Company will not pay any fees, costs or expenses incurred by the insured in the defense of those causes of action which allege matters not insured against by this policy.

(DE 55-1 at 10; DE 70-1 at 35).

B. Dafforn Files Suit Against the Schrams

On November 7, 2012, the Schrams' neighbor, non-party Donald W. Dafforn, filed a complaint against the Schrams in Whitley Circuit Court, Cause No. 92C01-1211-PL-661 (the "Dafforn Complaint"), alleging that he had legal access over the Schrams' real property located at 8620 East 300 North, Churubusco, Indiana (the "Real Property") by way of an easement. (DE 55-1 at 12-24; DE 70-1 at 2-13). Dafforn's farmland is located at 8700 East 300 North, adjacent to the Real Property; the farmland does not have direct access to 300 North. (DE 55-1 at 83-84). Dafforn sought declaratory relief and an injunction for interference with an easement and also advanced a claim for trespass on the easement. (DE 55-1 at 12-24; DE 70-1 at 2-13).

In his complaint, Dafforn alleged that the chain of title to the Real Property created a valid easement or right of way for him over the western 30 feet of the Real Property. (DE 55-1 at 12-22; DE 70-1 at 2-13). Dafforn described the chain of title to the Real Property as follows: Timothy L. Frazier—from whom Dafforn bought his farmland in 1994—conveyed the Real Property to Roger and Sharon Schnitzer (together, "the Schnitzers") by deed ("the Schnitzers' deed") on February 28, 1996, and provided for "an access easement over the western 30 feet thereof." (DE 55-1 at 14 ¶¶ 5-6; DE 70-1 at 3 ¶¶ 5-6). The Schnitzers then conveyed the Real Property to John and Jeadene Teusch ("the Teuschs") by deed on August 19, 1997, subject to the easement. (DE 55-1 at 14 ¶ 7; DE 70-1 at 3 ¶ 7). The Teuschs then conveyed the Real Propertyto Mark and Kimberly Ashcroft ("the Ashcrofts") on July 13, 2005, subject to the easement. (DE 55-1 at 14 ¶ 3; DE 70-1 at 3 ¶ 3). And the Ashcrofts then conveyed the Real Property to the Schrams on May 2, 2007, subject to "all easements, agreements and restrictions of record and all public right of ways." (DE 55-1 at 14 ¶¶ 9-10; DE 70-1 at 3 ¶¶ 9-10).

Although the Dafforn Complaint indicated that a copy of the Schnitzers' deed providing for the access easement was "attached hereto as Exhibit A, and incorporated herein by reference," apparently it was inadvertently omitted from the Dafforn Complaint when filed. (DE 55-1 at 12-24, 68, 70; DE 70-1 at 2-13).

C. FNTIC Denies Coverage for the Dafforn Suit

On November 16, 2012, the Schrams sent an email to FNTIC, notifying it of the Dafforn Complaint and making a claim under the Policy. (DE 55-1 at 26; DE 70-1 at 28). FNTIC responded to the Schrams with a claims acknowledgment letter on November 21, 2012. (DE 55-1 at 28). On November 27, 2012, FNTIC requested additional documents from the Schrams to investigate their claim. (DE 55-1 at 28). On December 3, 2012, FNTIC received additional information from the Schrams in response to its supplemental requests, including a copy of the Dafforn Complaint and copies of past surveys of the Real Property. (DE 55-1 at 30-66).

On December 14, 2012, FNTIC asked the Schrams about the Schnitzers' deed that was referenced as Exhibit A to the Dafforn Complaint but was not attached. (DE 55-1 at 68). The Schrams replied to FNTIC on December 17, 2012, stating that they had forwarded the entire Dafforn Complaint and that Dafforn's attorney had apparently failed to attach the correct Exhibit A when filing the document. (DE 55-1 at 70).

FNTIC conducted its review of the disputed facts underlying the Dafforn Complaint based on the Schrams' notice of claim, the Schrams' supplemental responses, and its own "record searches, including the chain of title deeds." (DE 55-1 at 74 ¶¶ 12, 13). On December19, 2012, FNTIC sent the Schrams a letter denying their claim under the Policy, citing an exclusion for "Easements or claims of easements not shown by the Public Records." (DE 55-1 at 77-78; DE 70-1 at 38). FNTIC further informed the Schrams that they had 30 days to submit any additional information that may affect the coverage decision, and that if it did not hear from them within that time, the claim file would be closed. (DE 55-1 at 78; DE 70-1 at 38). FNTIC did not receive any additional communication from the Schrams, and it subsequently closed their claim file. (DE 55-1 at 75 ¶ 16).

D. The Schrams Hire Their Own Counsel to Defend Them in the Dafforn Suit

After FNTIC denied their claim, the Schrams hired their own counsel to defend them in the Dafforn suit. (DE 70-1 at 42). On January 13, 2013, Dafforn amended his complaint (the "Dafforn Amended Complaint") to correctly attach the Schnitzers' deed that was inadvertently omitted from his original complaint. (DE 70-1 at 15-26). The legal description of the Real Property attached to the Schnitzers' deed reads, in relevant part: "a distance of 420.0 feet to the point of beginning, containing 2.370 acres of land,...