Can A Title Insurer Avoid All Obligations And Liability By Paying Its Insured Policy Limits?
Past webinars and blog posts have addressed several principles of insurance law in Washington, including: (a) the duty to defend is broader than the duty to indemnify; and (b) an insurer must deal fairly with its insured, giving equal consideration in all matters to the insured’s interests. Title insurance, however, is unique.
Differing from other types of insurance policies, many title insurance policies include provisions stating that the insurer can end its obligations, including any defense obligations, by paying its insured the limits available under the policy. Courts have enforced these types of provisions in title insurance policies for decades. As a result, some title insurance companies have taken the position that they are insulated from all liability by paying the insured the limits available under the policy. Based on a recent unpublished opinion issued by the Ninth Circuit, that may not be true. Quilbillies, LLC v. First Am. Title Ins. Co., No. 25-501, 2026 U.S. App. LEXIS 28773, at *3 (9th Cir. Sep. 16, 2026).
In Quilbillies, two property owners with title insurance through First American Title Insurance Company (“First American”) separately made claims with First American because non-owners had been crossing over their properties, allegedly pursuant to an easement. First American accepted the claims but said its obligations ended by paying its insureds the amount available under the policy. Both policies gave First American that option. One of the policies provided in relevant part as follows:
COMPANY’S DUTY TO DEFEND AGAINST COURT CASES
We will defend your title in any court case as to that part of the case that is based on a Covered Title Risk insured against by this Policy. We will pay the costs, attorneys’ fees, and expenses we incur in that defense.
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We can end this duty to defend your title by exercising any of our options listed in Item 4 of the Conditions.
4. OUR CHOICES WHEN YOU NOTIFY US OF A CLAIM
After we receive your claim notice or in any other way learn of a matter for which we are liable, we can do one or more of the following:
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f. Cancel this policy by paying the Policy Amount, then in force, and only those costs, attorneys’ fees and expenses incurred up to that time which we are obligated to pay.
The other title insurance policy at issue in the case provided similar language:
7. OPTIONS TO PAY OR OTHERWISE SETTLE CLAIMS; TERMINATION OF LIABILITY
In case of a claim under this policy, the Company shall have the following additional options:
- To Pay or Tender Payment of the Amount of Insurance.
To pay or tender payment of the Amount of Insurance under this policy together with any costs, attorneys’ fees, and expenses incurred by the Insured Claimant that were authorized by the Company up to the time of payment or tender of payment and that the Company is obligated to pay. Upon the exercise by the Company of this option, all liability and obligations of the Company to the Insured under this policy, other than to make the payment required in this subsection, shall terminate, including any liability or obligation to defend, prosecute, or continue any litigation.
Because First American had paid policy limits to its insureds, First American declined to defend its insureds in a lawsuit brought against them related to the purported easement. The insureds alleged that First American abandoned them and put its interests above theirs by unilaterally paying policy limits and doing nothing more. In a lawsuit against First American, the insureds asserted both contractual claims and extracontractual claims, referred to broadly as “bad faith” claims.
At the trial court level, the court granted First American’s motion for summary judgment, holding that because First American properly exercised its option under the subject policies to pay policy limits, First American had no contractual or extracontractual liability. The insureds appealed.
The Ninth Circuit concluded that the trial court erred in granting First American summary judgment on the insureds’ bad faith claims. According to the Ninth Circuit, while First American could exercise the option stated in the policies to pay the insureds policy limits and avoid having to defend the insureds in a lawsuit, that, in and of itself, did not foreclose bad faith claims as a matter of law. Therefore, the Ninth Circuit remanded the case back to the trial court for further proceedings on the bad faith claims.
Time will tell what impact, if any, the Ninth Circuit’s opinion in Quilbillies will have on title insurance claims moving forward. From the economic perspective of a title insurer, it may be more cost-effective to pay its insured policy limits than having to defend its insured a lawsuit. From an insured’s perspective, having a defense in a lawsuit paid for by their title insurer may be more valuable than receiving policy limits. If title insurers are potentially subject to bad faith liability for making an economic decision that arguably places its interests above its insured’s interests, title insurers may be more reluctant to exercise an option available in a title insurance policy that purports to end the title insurer’s obligations upon paying its insured policy limits. Therefore, the trial court’s decision on remand will be one that practitioners will pay close attention to.
The lawyers at Beresford Booth have great experience with title insurance claims and litigation. Please do not hesitate to contact us at info@beresfordlaw.com or by phone at (425) 776-4100 to discuss your specific situation.