The California Court of Appeals recently affirmed a lower court’s decision granting summary judgment to a title insurance company after the insured voluntarily conveyed the property to a third party. See Fid. Nat’l Title Ins. Co. v. Butler, 2017 WL 2774337 (Cal. Ct. App. June 27, 2017), reh’g denied (July 21, 2017). In the case, plaintiffs purchased a parcel of property in 1980 and obtained a title insurance policy from defendant title insurance company. Among other conditions, the policy stated that “[t]he coverage of this policy shall continue in force as of Date of Policy, in favor of an insured so long as such insured retains an estate or interest in the land.” In 2009, plaintiffs’ neighbor brought a quiet title action against them regarding a strip of property. Plaintiffs notified defendant of the lawsuit and, after initially denying coverage, defendant offered to defend under a reservation of rights. Defendant then filed this action, seeking a declaratory judgment that it had no duty to defend or indemnify in the quiet title action because plaintiffs had conveyed the property to a third party in 2003. After the parties filed cross-motions for summary judgment, the trial court granted defendant’s motion.
On appeal, plaintiffs argued that the transfer of the property did not terminate coverage because it was “pursuant to a confidential agreement for financing purposes only.” Specifically, plaintiffs had transferred the property to a third party and, after obtaining refinancing, he had immediately executed a deed transferring it back. The third party execute a declaration confirming that he never believed he had an interest in the property and that the conveyance was solely for refinancing purposes. Nonetheless, the Court affirmed the trial court’s judgment and confirmed that “the policy specifically states that coverage continues so long as the insured retains an estate or interest in the land. Thus, if [plaintiffs] conveyed the property to a third party, i.e. someone such as Smith who is not named as an insured in the policy, without retaining any interest therein, coverage terminated as to the property conveyed.” The Court further dismissed plaintiffs’ argument that they always held an easement over the insured property that constituted an interest in the property sufficient to retain coverage under the policy. It held that the maps and letters submitted by plaintiffs as evidence of this easement were not sufficient to raise a triable issue of fact as to whether they retained an easement or the legal consequences if they did. Finally, the Court confirmed that defendant’s reservation of rights letter properly reserved defendant’s right to deny coverage.