I Have to “Cooperate” With My Title Insurance Carrier?

William O. Kessler, Edmonds Lawyer

In the recent Washington Court of Appeals case Cherberg v. Fidelity National Title Ins. Company, the Cherbergs bought their dream home – or so they thought. The property purported to include access to a waterfront dock. But two “exclusive easements” encumbered the property—easements granting the sellers / next door neighbors sole access to the dock, i.e. excluding the Cherbergs from access. The Cherbergs received a title insurance policy at closing, but that document failed to mention those easements.

A title insurance policy guarantees the legal status of a property’s title, including any encumbrances, easements, or claims affecting the property. The title insurer typically provides a “preliminary commitment” before closing, i.e. a snapshot of the title to ensure the buyer is fully aware of the property title status before closing. The preliminary commitment then becomes an insurance policy at closing.

After closing, the Cherbergs discovered the easements and resulting preclusion of their free use of the dock. They then tendered a claim to their title insurer, Fidelity. Fidelity rejected the claim, arguing (a) the Cherbergs knew about these easements before buying the property, and (b) the Cherbergs’ failure to disclose such knowledge to Fidelity constituted a “failure to cooperate,” thus justifying denial of the claim. In response, the Cherbergs sued Fidelity for breach of contract, bad faith, and violations of insurance laws.

The Cherbergs argued they did not fully understand the extent of the easements, pointing out that Fidelity already possessed this information via public records which Fidelity should have included in its exceptions prior to closing. The trial court granted summary judgment to Fidelity, but the Court of Appeals reversed, finding unresolved factual questions about whether the Cherbergs knew about the easements, how much they knew, and whether the Cherbergs sufficiently cooperated with Fidelity pre-closing. As a result, the Court of Appeals remanded for resolution of these factual issues at trial.

Cherberg demonstrates the minefield insureds can face when tendering a title claim. The case also underscores an insured’s inability to rely on a title policy in the face of prior knowledge of title encumbrances. The lawyers at Beresford Booth regularly negotiate and litigate easement issues and title insurance issues. Please call us with any questions.

To learn more about Washington title insurance issues, please contact Beresford Booth at info@beresfordlaw.com or by phone at (425) 776-4100.

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