After purchasing property in Tacoma, Wash., the new owner learned of an undisclosed title encumbrance and filed a claim with his title insurer. While the title insurer did provide coverage and secure counsel, the owner was dissatisfied with the insurer’s actions on his behalf. He filed suit against the insurer for breach of contract, violation of Washington’s Insurance Fair Conduct and Consumer Protection Acts, and insurance bad faith.
The case is Kyle Sundet v. Chicago Title Insurance Co. (U.S. District Court for the Western District of Washington, No. C22-0341-JCC).
Kyle Sundet purchased property in Tacoma, Wash., in August 2021. He purchased title insurance on the property from Chicago Title Insurance Co. After the sale was closed, Sundet learned of an undisclosed title encumbrance. It filed a claim with Chicago Title and Chicago Title confirmed coverage and secured counsel to represent Sundet in resolving the title issue.
In November 2021, the hired counsel filed suit in Pierce County Superior Court on Sundet’s behalf, asserting causes of action for rescission of the breached purchase agreement, breach of statutory warranty deed and fraud and intentional misrepresentation.
Sundet was dissatisfied with Chicago Title’s actions in resolving his claim and filed suit against the insurer in federal court. He sought timely relief for the escalating costs of maintaining the encumbered property while the Pierce County suit played out. It alleged claims for breach of contract, violation of Washington’s Insurance Fair Conduct and Consumer Protection Acts and insurance bad faith. Chicago Title moved to dismiss the case.
U.S. District Judge John Coughenour denied Chicago Title’s motion to dismiss but granted its motion to stay in the alternative.
“The defendants claims litigating this case presently constitutes ‘premature adjudication,’” Coughenour stated. “It points to Paragraph 9(b) of the insurance policy’s conditions, which state that ‘in the event of any litigation, including litigation by the company or with the company’s consent, the company shall have no liability for loss or damage until there has been a final determination by a court of competent jurisdiction, and disposition of all appeals, adverse to the title, as insured.’ This express language, which binds both parties, necessitates a stay of this case until there has been a final determination in the underlying lawsuit. While the plaintiff claims that this suit is a cost recovery action and does not attempt to cure title, one of the causes of action of the underlying suit is for breach of statutory warranty deed. Therefore, the underlying lawsuit falls within the express language of Paragraph 9(b), and pursuant to the parties’ agreement, the present suit must be stayed until the underlying suit’s adjudication. Furthermore, resolving the underlying case will clarify the defendant’s liability and obligations. For example, to succeed on his bad faith claim, the plaintiff must demonstrate a ‘duty, breach of that duty, and damages proximately caused by any breach of duty.’ The plaintiff cannot prevail if he is unable to demonstrate what damages the defendant’s alleged breach caused.
“To note: in its motion, the defendants asserts that the plaintiff’s Consumer Protection Act cause of action should be dismissed for failing to state a claim,” he continued. “However, this argument is not appropriate for a motion challenging the court’s subject matter jurisdiction. And, because the defendant failed to move pursuant to Rule 12(b)(6) prior to answering the plaintiff’s complaint, the defendant is precluded from so doing at this point.
“Accordingly, the defendant’s motion to dismiss is denied, the defendant’s motion to stay in the alternative is granted,” Coughenhour stated. This case is hereby stayed pending the resolution of the underlying action in Pierce County Superior Court. The parties are ordered to file a joint status report with the court within 30 days of a final resolution of the Pierce County matter.”