After a trial court determined a title insurer was not obligated to defend and indemnify its insureds in an action brought by their neighbors, the insureds appealed.
The case is David Melamed et al. v. First American Title Insurance Co. (Supreme Court, Appellate Division, Second Department, New York, No. 2018-03876).
David Melamed and Mahvash Danielian own property in Roslyn Harbor, N.Y. Susan Abeles owns an adjoining parcel of land. Abeles filed suit against Melamed and Danielian for judgment declaring Abeles the owner by adverse possession of a portion of Melamed and Danielian’s property. Melamed and Danielian filed a claim with their title insurer, First American Title Insurance Co. They requested First American defend and indemnify them in the Abeles action.
First American refused the demand and Melamed and Danielian filed suit. They sought a judgment declaring First American was obligated to defend and indemnify them in the Abeles action and for damages arising from the legal defenses incurred in defending the Abeles action. Melamed and Danielian moved for summary judgment on the complaint. First American cross-moved for summary judgment, seeking a declaration it was not obligated to defend and indemnify Melamed and Danielian in the Abeles action. A New York trial court denied the plaintiffs’ motion and granted First American’s cross motion. Melamed and Danielian appealed.
The appellate court affirmed the lower court’s order and remitted it back for the entry of a judgment, inter alia, declaring that the defendant is not obligated to defend and indemnify the plaintiffs in the underlying action.
In making its decision, the court noted a title insurer’s liability to its insured is based on contract law and, therefore, liability is governed by the terms and conditions of the title insurance policy. It further noted that a duty to defend arises when the allegations in a complaint fall within the scope of the risks undertaken by the insurer, regardless of how false or groundless those allegations might be. An insurer can be relieved of its duty to defend if it establishes there is no possible factual or legal basis on which it might eventually be obligated to indemnify its insured under the policy.
“Here we agree with the Supreme Court’s determination that First American was not required to defend and indemnify the plaintiffs in the Abeles action,” the court stated. “The subject title insurance policy included an exception for claims arising from the rights of persons in possession. Abeles’ claim for possession of a portion of the plaintiffs’ property by adverse possession was a claim arising from the rights of persons in possession. Contrary to the plaintiffs’ contention, there was no other reasonable interpretation of this exception to the policy. Furthermore, as there was ‘no possible factual or legal basis on which’ First American ‘might eventually be obligated to indemnify’ the plaintiffs, it was not required to defend them in the Abeles action. Since the plaintiffs’ demand for First American to defend and indemnify them in the Abeles action fell squarely within the foregoing exception from coverage, we agree with the court’s determination denying their motion for summary judgment on the complaint and granting First American’s cross motion, in effect, for summary judgment declaring that it was not obligated to defend and indemnify the plaintiffs in the Abeles action.”
The appellate court found Melamed and Danielian’s remaining arguments to be without merit.
“Since, this is, in part, a declaratory judgment action, we remit the matter to the Supreme Court, Nassau County, for the entry of a judgment, inter alia, declaring that First American is not obligated to defend and indemnify the plaintiffs in the Abeles action.”