The California Court of Appeals recently reversed a trial court’s order and held that an insured property owner was collaterally estopped from suing a title insurance company for coverage regarding a forged deed to the insured property. See Gillard v. Fid. Nat’l Title Ins. Co., 2017 WL 345086 (Cal. Ct. App. 2017), reh’g denied (Feb. 14, 2017), review filed (Mar. 7, 2017). In the case, the insured purchased the property in 2004. The prior owner had represented that he was the sole owner of the property and that his wife had conveyed any of her community property interest in the property to him via prior deeds. In 2008, as part of a construction defect lawsuit the insured instituted against the prior owner, it was revealed that the prior owner had forged his wife’s name to the prior deeds, albeit with his wife’s knowledge. The insured then filed a claim with the title insurance company, but the title insurance company denied it because neither the prior owner’s wife nor anyone else was challenging the insured’s title to the property. Indeed, the prior owner’s wife had offered to quitclaim her interest in the property to the insured, but the insured rejected the offer, allegedly because she was concerned about the wife’s judgment creditors’ liens attaching. Although the court in the construction defect lawsuit entered judgment for the insured on her breach of contract and negligence claims against the prior owner, it denied the insured’s request to declare her 2004 deed void because it found that the prior owner’s wife had authorized the conveyance.
The insured then initiated an action against the title insurance company, among others. She sought a judgment that, inter alia, the prior deeds to the property, including her 2004 deed, were void and that the title insurance policy covered the defect. After a trial, the court entered judgment that the deeds were void, that the policy covered the defect, and that the title insurance company had breached its contract by not defending the insured in the underlying lawsuit. On appeal, the appellate court reversed the lower court’s decision. It held that the court in the construction defect lawsuit had determined that the insured had title to the property and that the insured was collaterally estopped from bringing a lawsuit on that issue again. Accordingly, because there was no adverse claim as to the insured’s title, the title insurance company had no duty to defend and did not breach the policy.