Duty To Defend: Title Insurance



The language of standard title insurance policies often limits the insurer’s contractual obligation to pay for its policyholder’s defense to some, but not all, causes of action. However, this policy verbiage does not limit ethical obligations owed by dependent counsel to the policyholder/client. Because the Cumis rule is based on attorney ethics[1], dependent counsel is not excused from compliance with Rule 3-310.[2]

Policy Language

The scope of the title insurer’s duty to defend depends upon the wording of the policy.[3] Typical language of a CLTA is:

“[T]he Company, at its own cost and without unreasonable delay, shall provide for the defense of such 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 an insured in the defense of those causes of action which allege matters not insured against by this policy.”

The foregoing verbiage differs significantly from the language of a standard CGL policy, which provides: “We will have the right and the duty to defend the insured against any ‘suit’ seeking those damages.”

Limited Scope of the Duty to Defend

The significance of the difference in this wording was discussed by in a dissenting opinion in Buss v. Superior Court (1997) 16 Cal.4th 35, 64. In dicta, Justice Kennard observed: “CGL carriers have not responded to this changed legal climate by altering the scope of their defense obligation. Redrafting the standard policy language to narrow the defense obligation would not be particularly difficult. A model for such a restriction could be found in the standard title insurance policy. . . . By stating their defense obligation in terms of defending particular causes of action, rather than entire suits, title insurers have done what insurers issuing standard CGL policies have not done – limited their contractual defense obligation to the defense of potentially covered claims.”

Dependent Counsel’s Ethical Obligations

While title insurer’s contractual duty to pay for a policyholder’s defense is limited only to potentially covered causes of action, the risk of a reservation of rights triggering conflicts of interest regarding the outcome of those causes of action is undiminished. Because an insurer is not licensed to practice law,[4] its promise to defend constitutes a promise which it cannot lawfully discharge by itself. Instead, as a financial institution, the insurer may only discharge its promise by paying for counsel to defend on behalf of the insurer.[5] “[T]he insurer’s duty to defend . . . entails the rendering of a service, viz., the mounting and funding of a defense in order to avoid or at least minimize liability.”[6] The policy language does nothing to limit the ethical obligations of dependent counsel it hires to represent the policyholder.

The Cumis Rule Applies to a Defense Under a Title Policy

The Cumis rule[7] applies to dependent counsel’s ethical duties to the policyholder/client equally, whether the lawyer is defending under a title insurance policy or under a CGL policy. “An insurer’s duty to defend requires that it pay for counsel selected and controlled by the insured when resolution of a third party claim will bear directly on the outcome of any coverage dispute between the insurer and its insured. As the court in Cumis explained: ‘A different situation is presented, however, when some or all of the allegations in the complaint do not fall within the scope of coverage under the policy. In such a case, the standard practice of an insurer is to defend under a reservation of rights where the insurer promises to defend but states it may not indemnify the insured if liability is found. In this situation, there may be little commonality of interest. Opposing poles of interest are represented on the one hand in the insurer’s desire to establish in the third party suit that the insured’s liability rested on [non-covered conduct], and thus no coverage under the policy, and on the other hand in the insured’s desire to obtain a ruling such liability emanated from [covered] conduct within his insurance coverage. Although issues of coverage under the policy are not actually litigated in the third party suit, this does not detract from the force of these opposing interests as they operate on the attorney selected by the insurer, who has a dual agency status.”[8]

[1] The Cumis Rule.

[2] Duty to Comply with Rule 3-310 and Dependent Counsel Is Not Exempt from Rule 3-310.

[3] Manneck v. Lawyers Title Ins. Corp. (1994) 28 Cal.App.4th 1294, 1301.

[4] “No person shall practice law in California unless the person is an active member of the State Bar.” (Bus. & Prof. Code § 6125.)

[5] “By its very nature the duty assumed by [the insurer] to defend its assured against suits must necessarily be classified as a delegable duty, understood by all parties as such, for [the insurer] had no authority to perform that duty itself and, in fact, was prohibited from appearing in the California courts. (Bus. & Prof. Code, § 6126.) Since a carrier is not authorized to practice law (Citations), it must rely on independent counsel for the conduct of the litigation.” (Merritt v. Reserve Ins. Co. (1973) 34 Cal.App.3d 858, 880-881.)

[6] Buss v. Superior Court (1997) 16 Cal.4th 35, 46 (citations omitted).

[7] “We conclude the Canons of Ethics impose upon lawyers hired by the insurer an obligation to explain to the insured and the insurer the full implications of joint representation in situations where the insurer has reserved its rights to deny coverage. If the insured does not give an informed consent to continued representation, counsel must cease to represent both.” (Cumis, supra, 162 Cal. App. 3d at 375.)

[8] Native Sun Investment Group v. Ticor Title Ins. Co. (1987) 189 Cal.App.3d 1265, 1276 (citations, quotation marks and ellipses omitted.)

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