Alexander Kaay vs Chicago Title Insurance Co

Case Number

22CV02308

Case Type

Hearing Date / Time

Mon, 11/27/2023 - 10:00

Nature of Proceedings

Demurrer

Tentative Ruling

Alexander Kaay v. Chicago Title Insurance Co. 

Case No. 22CV02308

           

Hearing Date: November 27, 2023                                                    

HEARING:              Defendant’s Demurrer To Plaintiff’s Second Amended Complaint

ATTORNEYS:        For Plaintiff Alexander Kaay: E. Patrick Morris, Law Offices of E. Patrick Morris

For Defendant Chicago Title Insurance Company: Susan M. Hutchison, Fidelity National Law group

TENTATIVE RULING:

The court overrules the demurrer of defendant to plaintiff’s second amended complaint. Defendant shall file and serve its answer to plaintiff’s second amended complaint on or before December 7, 2023.

Background:

Plaintiff Alexander Kaay filed his original complaint in this matter on June 20, 2022. As alleged in the original complaint, plaintiff bought undeveloped property located at 1160 Barger Canyon Road in the County of Santa Barbara (the property) from Briar Yong (Yong) in August 2014. (Complaint, ¶ 4.) Defendant Chicago Title Insurance Co. (Chicago Title) issued a policy of title insurance to plaintiff (the policy) in which it warranted that the title plaintiff was purchasing was valid and enforceable. (Id. at ¶ 4.) The title plaintiff purchased was not valid and was in question. (Id. at ¶ 6.) Chicago Title refused to clear the title to the property as requested by plaintiff. (Ibid.) The caption page of the complaint alleges a cause of action for “damages due to breach of contract”. (Id. at p. 1.)

On January 19, 2023, Chicago Title filed a demurrer to the complaint and a motion to strike the prayer for attorneys’ fees alleged in the complaint. Plaintiff did not file an opposition to the demurrer or the motion to strike.

On April 17, 2023, the court sustained the demurrer of Chicago Title with leave to amend, finding that plaintiff had not attached a copy of the policy to the complaint and failed to plead the policy by its terms or by the substance of its relevant terms. (Apr. 17, 2023, Minute Order.) The court also granted the motion to strike of Chicago Title with leave to amend, finding that the complaint failed to allege a basis for the recovery of attorneys’ fees.

On April 17, 2023, plaintiff filed his first amended complaint (FAC), entitling it an amended complaint for damages arising from breach of contract and/or breach of special relationship of insurance. The FAC expanded on the allegations of plaintiff’s purchase of the property from non-party Yong, and his purchase of the policy from Chicago Title. The policy was attached to and incorporated into the FAC. As alleged in the FAC, under the policy, Chicago Title agreed to pay all costs, attorneys’ fees and expenses incurred in defense of the title. Plaintiff further alleged that he paid valid consideration, and has performed all things required of him under the policy.

The FAC alleged further that the title insured by Chicago Title was “unmarketable as of the date the policy was issued,” and that any competent title insurance company would have so determined before issuing the policy. Plaintiff requested that Chicago Title defend the title and, if there were damages due to the title issued, to pay those damages. Chicago Title refused to defend the claim of unmarketability, and has refused to pay any damages for loss of marketable title.

On May 30, 2023, Chicago Title filed a demurrer to the FAC on the grounds that the cause of action for breach of contract was barred by the applicable 2-year statute of limitations, and that absent any allegations to support plaintiff’s conclusion that his title is “unmarketable,” the FAC failed to state a cause of action for breach of the policy.

Also on May 30, 2023, Chicago Title filed a motion to strike the prayer for attorneys’ fees alleged in the FAC on the ground that the FAC did not allege any basis for a claim for attorneys’ fees.

On July 31, 2023, the court overruled the demurrer of Chicago Title as to the statute of limitations bar, and sustained the demurrer, with leave to amend, as to plaintiff’s failure to specifically allege facts constituting the breach of the policy. The court also granted the motion to strike the prayer for attorneys’ fees, with leave to amend to permit plaintiff one further opportunity to allege a proper basis for the attorneys’ fees claim.

On September 21, 2023, plaintiff filed a second amended complaint (SAC). As alleged in the SAC:

In connection with plaintiff’s purchase of the property, and in reliance on the representations of Chicago Title that it was skilled in the process of confirming valid title to real property and would use that expertise for the benefit of plaintiff by confirming the validity of the title to the property, plaintiff agreed to pay a fee to Chicago Title for it to research and make an agreement to confirm that the title being transferred was valid, marketable, and without defect, as well as to insure that marketability in connection with plaintiff paying the premium requested by Chicago Title.

To that end, Chicago Title made an offer to insure the title, subject to terms and conditions, all as set forth in a Preliminary Title Report prepared and presented to plaintiff prior to the purchase. Chicago Title agreed to and did insure the validity and marketability of the title being transferred, representing that it would insure against loss or damage sustained or incurred by reason of any defect in title and/or unmarketability of the title.

The SAC also alleges, that, unknown to plaintiff, the title insured by Chicago Title was “unmarketable as of the date the policy was issued,” and that any competent title insurance company would have so determined before issuing the policy. Plaintiff believes that discovery will determine that the claimed unmarketability was the fact that the public records of title did not readily demonstrate that the lot being insured was legally created with proper documentation of its creation. The title was in question based in part on a claim by the County of Santa Barbara that the lot was illegal.

During the time the title was in question, the balloon payment on a loan made by Yong came due. Yong commenced a non-judicial foreclosure. Plaintiff was forced to commence a lawsuit and seek a Temporary Restraining Order to stop the foreclosure, which was issued based in part on the lack of finality regarding the validity of the title conveyed by Yong. Chicago Title refused to defend the claim of unmarketability, or agree to clear the title, claiming only that the claim “did not implicate any of the Policy’s Covered Risks and is otherwise excluded from coverage by the Exclusions . . ..”

Once the title issue was resolved, plaintiff again requested that Chicago Title clear the title and pay the losses suffered by plaintiff due to lack of marketable title, but Chicago Title failed to perform its obligations under the policy.

Chicago Title has filed a demurrer to the SAC. On November 20, 2023, plaintiff late-filed an opposition to the demurrer.

Analysis:

The court’s task in ruling on a demurrer is to determine whether the complaint states a cause of action. (People ex rel. Lungren v. Superior Court (1996) 14 Cal.4th 294, 300.) A demurrer admits the truth of all material facts properly pleaded (Aubry v. Tri-City Hosp. Dist. (1992) 2 Cal.4th 962, 966-967), no matter how unlikely or improbable they may be (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604), or how unlikely it will be that plaintiff will be able to prove the claim (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213-214). The court also assumes the truth of all reasonable inferences that may be drawn from the properly pleaded facts. (Reynolds v. Bement (2005) 36 Cal.4th 1075, 1083.) The assumption of truth does not apply, however, to contentions, deductions, or conclusions of law or fact. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) A demurrer tests the pleadings alone and not the evidence or other extrinsic matters, and therefore lies only where the defects appear on the face of the pleading or are judicially noticed. (Ibid.)

Chicago Title contends that the allegations of the SAC regarding the unmarketability of title to the property are without merit because, Chicago Title argues, the allegations of the SAC demonstrate a violation of Business and Professions Code section 11500 et seq., relating to the market value or condition of the property and not to the rights or incidents of title. Chicago Title further asserts that to the extent any illegal land division triggers a covered risk, the statutory violation alleged in the SAC are expressly excluded from coverage.

“Where a complaint is based on a written contract which it sets out in full, a general demurrer to the complaint admits not only the contents of the instrument but also any pleaded meaning to which the instrument is reasonably susceptible. [Citation.] While plaintiff's interpretation of the contract ultimately may prove invalid, it [is] improper to resolve the issue against [the plaintiff] solely on [the plaintiff’s] own pleading. ‘In ruling on a demurrer, the likelihood that the pleader will be able to prove his allegations is not the question.’ [Citation.]” (Aragon-Haas v. Family Security Ins. Services, Inc. (1991) 231 Cal.App.3d 232, 239.)

Moreover, an indemnity agreement is “construed under the same rules governing other contracts with a view to determining the actual intent of the parties. [Citation.]” (Myers Building Industries, Ltd. v. Interface Technology, Inc. (1993) 13 Cal.App.4th 949, 968-969; see also AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 821-822 [discussing principles of contract interpretation]; see also Civ. Code, §§ 1638, 1644 [a contract’s language governs its interpretation provided the language is “clear and explicit, and does not involve an absurdity[,]” and its words “are to be understood in their ordinary and popular sense”].)

As previously noted by the court, the policy itself, which is attached to the SAC and incorporated therein, defines “unmarketability of the title,” as “an alleged or apparent matter affecting the title to the land, not excluded or excepted from coverage, which would entitle a purchaser of the estate or interest described in Schedule A or the insured to be released from the obligation to purchase by virtue of a contractual condition requiring the delivery of marketable title.” The definition is broad, and could encompass any number of circumstances which affect title to the land.

In addition, the California Supreme Court has defined “marketable title” as that “ ‘to which the vendee in a contract for the sale of land is entitled, means a title which a reasonable purchaser, well informed as to the facts and their legal bearings, willing and anxious to perform his contract, would, in the exercise of that prudence which business men ordinarily bring to bear on such transactions, be willing and ought to accept.” (Citations.)’ [Citations.]” (Hocking v. Title Ins. & Trust Co. (1951) 37 Cal.2d 644, 649-650.)

In the SAC, plaintiff alleges that the title is unmarketable because the property insured by the policy was not legally created, lacks proper documentation of its creation, and because, according to the County of Santa Barbara, the lot is illegal. It can be inferred from the express allegations of the SAC that the County’s assertions were sufficient to suspend the foreclosure proceedings commenced by Yong based on the validity of the title conveyed by Yong.

A demurrer challenges only those defects that appear on the face of the pleading at issue or from matters that may be judicially noticed. (Code Civ. Proc., §§ 430.30, subds. (a), (b); 430.70; Evans v. City of Berkeley (2006) 38 Cal.4th 1, 6.) Therefore, extrinsic matters may not be considered on demurrer. (Code Civ. Proc., § 430.30, subd. (a); SKF Farms v. Superior Court (1984) 153 Cal.App.3d 902, 905.) Absent from the SAC are any facts alleged that would require the court to conclude, at the pleading stage, that plaintiff asserts a violation of Business and Professions Code section 11500, or a subdivision violation as Chicago Title contends. For these reasons, the court disregards Chicago Title’s assertions that the allegations relate to issues regarding a statutory violation or improper subdivision of the property. For these same reasons, the allegations of the SAC do not disclose, for pleading purposes, that the claims are necessarily excluded under the policy.

Based on the allegations discussed above, plaintiff has effectively alleged his construction of the terms “unmarketability of the title” contained in the policy to include a lot that is not legal or legally created and that lacks proper documentation. It is also reasonable to interpret the SAC to allege unmarketability of title based on the assertion that the County of Santa Barbara has claimed the lot is illegal. At the pleading stage, it is reasonable to conclude that, based on the allegations described above, a reasonable and well-informed purchaser would not be willing or required to accept title to the property in its allegedly illegal condition.

As the demurrer admits any pleaded meaning to which a contractual provision at issue is reasonably susceptible, the court will accept as correct the construction of the terms “unmarketability of the title” offered by plaintiff. Accepting the allegations as true, these allegations are sufficiently certain to allege a breach of the policy. (Baldwin v. AAA Northern California, Nevada & Utah Ins. Exchange (2016) 1 Cal.App.5th 545, 550-551.) For all reasons discussed above, the court will overrule the demurrer to the SAC.

As Chicago Title did not meet its burden to demonstrate that the SAC fails to state facts sufficient to constitute a cause of action for breach of contract, the court need not consider plaintiff’s opposing papers which were filed outside the time limits provided in Code of Civil Procedure section 1005, subdivision (b). However, counsel is reminded of their obligation to comply with statutory deadlines when filing papers with the court, and serving papers on the parties.