“Slander of Title” Coverage under E&O Policy Unearthed by Ninth Circuit
/“Slander of Title” Coverage under E&O Policy Unearthed by Ninth Circuit
By David A. Gauntlett*
Introduction
“Slander of Title” is a commonly added cause of action in lawsuits addressing disputes over real property. Historically, such claims have had a limited intersection with insurance coverage. The principle exception is where the targeted defendant procured a Title Insurance policy providing directly applicable coverage.[1] A recent decision by the Ninth Circuit analyzing potential coverage under an Errors & Omissions (“E&O”) Management Liability policy, however, has finally acknowledged the potential for coverage under more general policies. The decision’s rationale allows policyholders to reap policy benefits from both a Commercial General Liability (CGL”) policy as well as a Title Insurance policy if both are implicated by the fact dispute.
Ninth Circuit Recognizes Potential Coverage
In Cal. State Grange v. Carolina Cas. Ins. Co.,[2] the court reversed the trial court’s determination that there was no potential coverage for “Slander of Title” under the applicable E&O policy. The underlying case concerned a dispute over the ownership of real and personal property. It featured several causes of action including Cancellation of Deed and Quiet Title, Slander of Title, and Conversion. The California state court entered judgment in favor of California State Grange, who then commenced an insurance coverage lawsuit against Carolina Casualty Insurance Company to secure payment of the judgment.
The E&O insurance policy provided coverage for any “wrongful act,” defined to include any “error, misstatement, [or] misleading statement.”[3] The district court acknowledged that “‘[s]lander of title occurs when there is an unprivileged publication of a false statement which disparages title to property and causes pecuniary loss.’”[4] Despite this acknowledgement, the district court determined that these claims did not even potentially fall within the policy’s coverage for “error, misstatement, [or] misleading statement.” Its decision provided no justification beyond a statement that “‘[t]he tort of slander of title is meant to protect against frivolous title disputes that interfere with the salability of property.’”[5]
On appeal, the Ninth Circuit highlighted the inescapable fact that the elements of “Slander of Title” included making a false statement.[6] Thus, the Court of Appeals determined that the policy’s coverage for any “error, misstatement, [or] misleading statement” could reasonably be interpreted to extend to Slander of Title. California law required the court to accept any reasonable construction in favor of the insured in evaluating the insurer’s duty to defend.[7] Though not applied in this manner due to the facts of the case, the court’s rationale opens the possibility for “Slander of Title” coverage to also arise under a CGL policy’s coverage for “personal and advertising injury” offense “d,” which encompasses claims for publication of advertisement-based disparagement.
Carolina argued that the Guild’s “Slander of Title” claims that must fall within the policy’s “personal injury” definition, but recording a false deed was a slander of title to real property, not intellectual property. Moreover, publication of rights to title in derogation of others’ claims might well be “personal or advertising injury” under offense “d” falling outside any intellectual property exclusion in a CGL policy.[8]
Cal. Ins. Code § 533 Is No Obstacle to Potential Coverage
The court’s decision stopped short of outright declaring potential coverage existed because the district court had failed to consider the application of California Insurance Code § 533.[9] The Ninth Circuit expressed no opinion as to the statute’s applicability, leaving that determination to the district court on remand. The court correctly observed, however, the extremely high scienter necessary for implicating the statute. The court observed that its application requires “‘something more blameworthy than the sort of misconduct involved in ordinary negligence, and something more than the mere intentional doing of an act constituting such negligence.’”[10] If the wrongful acts at issue are determined to be some form of negligent misrepresentation, this statute would have no application.
Cal. Ins. Code § 533 is unlikely to be an issue on remand and should not be in most “Slander of Title” cases. As Gonzalez v. Fire Ins. Exch., 234 Cal. App. 4th 1220, 1239 (2015) noted, “[c]ourts have held . . . even an act which is ‘intentional’ or ‘willful’ within the meaning of traditional tort principles will not exonerate the insurer from liability under Insurance Code section 533 unless it is done with a ‘preconceived design to inflict injury.” Although not always taken into consideration in Ins. Code Section 533 cases, the statute operates as an exclusion, so the insurer bears the burden of demonstrating this heightened scienter applies to the facts asserted.[11] Given this high burden, it is rare that an insurer can “prov[e] through conclusive evidence that [Section 533] applies in all possible worlds.”[12]
“Other Insurance” Provision Will Not Be Implicated for Secured Defense Fees or to Limit Coverage under Distinct Policies
The Ninth Circuit’s decision will make it easier for Policyholders facing cases with facts analogous to those in California State Grange to secure benefits under one policy, but well-insured entities may be able to do better than that. These opportunities may be especially of interest to non-profit organizations who typically possess broad form policies. If an entity possesses a directly applicable Title Insurance policy as well as a CGL policy, the differing obligations imposed on the insurers by each policy will not result in the “Other Insurance” provisions being triggered. That provision is only implicated if two policies cover the same risks.[13] Potential distinctions between policies that may bolster this argument include the basic insuring provision (i.e., “claims made” vs. “occurrence”) and variance in the definitions of defense costs.
It has long been held that “the fact that one insurer may owe a duty to provide a defense will not excuse a second insurer's failure to honor its separate and independent contractual obligation to defend.”[14] Given two policies with distinct triggers of coverage and distinct defenses provided, there is no justification for one insurer to shirk its duties based on the performance of another. The policyholder is entitled to a complete defense from both insurers, who may possess rights for defense fee contributions between themselves.[15]
Conclusion
The Grange case exemplifies a truth that insurers have long tried to hide from both policyholders and courts: Insurance policies cover much more than insurers are willing to admit. The Ninth Circuit’s decision demonstrates the scope of coverage a policy can include if the coverage provisions are properly interpreted. Laypersons and general counsel may not appreciate that scope absent the aid of experienced insurance coverage counsel whose assistance can be an invaluable aid in such disputes. Expert coverage counsel should be used in evaluating any policy to determine whether coverage exists.
*David A. Gauntlett is a principal of Gauntlett & Associates and represents policyholders in insurance coverage disputes regarding intellectual property, antitrust, and business tort claims, as well as in the underlying actions. Mr. Gauntlett can be reached at (949) 553-1010 by voicemail or dag@gauntlettlaw.com. For more information, visit Gauntlett & Associates at www.gauntlettlaw.com.
[1] Certain Underwriters at Lloyds, London v. Arch Specialty Ins. Co., No. C072500, 2016 Cal. App. LEXIS 381, *1 (Ct. App. May 10, 2016) (“Arch's ‘other insurance’ clauses are unenforceable to relieve Arch of a duty to defend in this equitable contribution case.”)
[2] Cal. State Grange v. Carolina Cas. Ins. Co., No. 22-16169, 2023 U.S. App. LEXIS 30078 (9th Cir. (Cal.) Nov. 13, 2023).
[3] Id. at *4.
[4] Cal. State Grange v. Carolina Cas. Ins. Co., No. 2:22-cv-00777 WBS DB, 2022 U.S. Dist. LEXIS 123914, *7–8 (E.D. Cal. July 12, 2022) (emphasis added).
[5] Id. at *8 (quoting Westfield Ins. Co. v. TWT, Inc., 723 F. Supp. 492, 496 (N.D. Cal. 1989)).
[6] Cal. State Grange, 2023 U.S. App. LEXIS 30078 at *4 (“Slander of title involves the publication of a false statement. Truck Ins. Exchange v. Bennett, 53 Cal. App. 4th 75, 61 Cal. Rptr. 2d 497, 503 (Cal. Ct. App. 1997) (the elements of slander of title are 1) a publication, 2) without privilege or justification, 3) falsity, and 4) direct pecuniary loss).”)
[7] Legacy Vulcan Corp. v. Superior Court, 185 Cal. App. 4th 677, 688 (2010) (“Policy language is ambiguous if it is susceptible of more than one reasonable interpretation in the context of the policy as a whole. . . . Any ambiguity must be resolved in a manner consistent with the objectively reasonable expectations of the insured in light of the nature and kind of risks covered by the policy.”)
[8] Lime Tree Village Cmty. Club Ass’n, Inc. v. State Farm Gen. Ins. Co., 980 F.2d 1402, 1405–07 (11th Cir. (Fla.) 1993) (“[T]he complaint alleges Lime Tree maliciously slandered or disparaged the plaintiffs’ title to their properties by declaring to third parties that ‘[p]laintiffs have no right to sell or lease their properties to families with children or any family without a member [over the age of 55].’ . . . [T]he allegation on its face claims damages for personal injury due to the publication of a slander; an occurrence falling within policy coverage.”)
[9] Cal. Ins. Code § 533 (“An insurer is not liable for a loss caused by the wilful act of the insured; but he is not exonerated by the negligence of the insured, or of the insured’s agents or others.”)
[10] Cal. State Grange, 2023 U.S. App. LEXIS 30078 at *5 (quoting Davidson v. Welch, 270 Cal. App. 2d 220, 232 (1969)).
[11] Office Depot, Inc. v. AIG Specialty Ins. Co., 722 F. App'x 745, 746 (9th Cir. (Cal.) 2018) (“‘Because section 533 is considered under California [law] to be an exclusionary clause, the insurer has the burden of proving that the requested claims are matters uninsurable under the law.’”) (quoting Unified W. Grocers, Inc. v. Twin City Fire Ins. Co., 457 F.3d 1106, 1111 (9th Cir. (Cal.) 2006))
[12] Atlantic Mut. Ins. Co. v. J. Lamb, Inc., 100 Cal. App. 4th 1017, 1039 (2002).
[13] See Endurance Am. Specialty Co. v. Lance-Kashian & Co., No. CV F 10-1284 LJO BAM, 2011 U.S. Dist. LEXIS 129330, at *85-86 (E.D. Cal. Nov. 8, 2011).
[14] Emerald Bay Cmty. Ass'n v. Golden Eagle Ins. Corp., 130 Cal. App. 4th 1078, 1088 (2005) (citing Continental Cas. Co. v. Zurich Ins. Co., 57 Cal.2d 27, 37–38 (1961)).
[15] CNA Cas. of Cal. v. Seaboard Sur. Co., 176 Cal. App. 3d 598, 619 (Cal. Ct. App. 1986) (“The costs of defense must be apportioned on the basis of equitable considerations not found in the insurers' own contracts, since the insurance companies who must share the burden do not have any agreements among themselves.”)