Case Name: Shah v. Fidelity National Title Ins. Co.
Case No.: 2011-1-CV-203571

According to the allegations of the first amended complaint (“FAC”), and the policy itself, on August 29, 1996, Defendant issued a policy of title insurance dated December 29, 1995 to JAY C. SHAH, LIVING TRUST DATED JUNE 8, 1993. (See FAC, ¶ 19, exh.2.)

The policy attached to the complaint states:

After Conveyance of Title: The coverage of this policy shall continue in force as of Date of Policy in favor of an insured only so long as the insured retains an estate or interest in the land, or holds an indebtedness secured by a purchase money mortgage given by a purchaser from the estate or interest. This policy shall not continue in force in favor of any purchaser from the insured of either (i) an estate or interest in the land, or (ii) an indebtedness secured by a purchase money mortgage given to an insured.

(Complaint, exh.3, p.3, § 2, subd.(b) (emphasis original).)

Subsequently, on June 18, 2002, and recorded on June 19, 2002, plaintiff Jay C. Shah, trustee of the Jay C. Shah Revocable Trust, dated June 8, 1993, for valuable consideration, granted via a grant deed the subject property to Chandrakant K. Shah and Mrudula C. Shah, as Trustees of the Shah 1978 Revocable Trust, dated January 22, 1978. (See Def.’s request for judicial notice, exh. D.)

Plaintiff alleges that he recorded grant deeds to Chandrakant K. Shah and Mrudula C. Shah, as Trustees of the Shah 1978 Revocable Trust, dated January 22, 1978. (Complaint, ¶ 26.) Plaintiff concedes that “[b]y their outward appearance they look like absolute conveyances.” (Pl.’s opposition to demurrer to FAC (“Opposition”), p.10:5-6; see also Evid. Code § 662 (stating that “[t]he owner of the legal title to property is presumed to be the owner of the full beneficial title”); see also Wineberg v. Moore (N.D. Cal. 1961) 194 F. Supp. 12, 14 (stating that “[a] deed purporting to convey all interests that a grantor possesses is presumed to do just that, and not to create a mere security interest”); see also FAC, ¶ 28 (alleging that the recorded deeds “appeared to be absolute conveyances”).) In contradiction to the allegation that “[n]o sale consideration was paid by the parents as to this transaction,” (complaint, ¶ 27), [t]he grant deed explicitly states that the grant was made “FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged.” (See Def.’s request for judicial notice, exh. D; see also Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604 (stating that “[although a]s a general rule in testing a pleading against a demurrer the facts alleged in the pleading are deemed to be true…[t]he courts, however, will not close their eyes to situations where a complaint contains allegations of fact inconsistent with attached documents, or allegations contrary to facts which are judicially noticed”).)

Subsequent to the June 18, 2002 conveyance/“mortgage”, from 2002 to 2006, recorded deeds suggest the property changed hands between Plaintiff as trustee of his living trust, his parents as trustees of their living trust and his parents as husband and wife. In November 2006, Plaintiff signed a grant deed conveying the property from “Jay C. Shah, a married man as his sole and separate property” to his parents as trustees of their trust. On December 12, 2006, Chandrakant K. Shah and Mrudula C. Shah, as Trustees of the Shah 1978 Revocable Trust, dated January 22, 1978, conveyed their interest to Plaintiff “Jay C. Shah, a married man as his sole and separate property.” On April 9, 2007, Chandrakant K. Shah and Mrudula C. Shah, as Trustees of the Shah 1978 Revocable Trust, dated January 22, 1978 again deeded any interest in the subject property to Plaintiff “Jay C. Shah, a married man as his sole and separate property.”

In September 2007, Plaintiff borrowed $350,000 against the property from Conquest Investments, LLC, secured by a deed of trust recorded with the Santa Clara County Recorder. After Plaintiff failed to make payments on the Conquest deed of trust, a notice of default and notice of trustee’s sale were recorded and a trustee’s sale was set for February 3, 2009.

To prevent the trustee’s sale, Plaintiff attempted to refinance the deed of trust with a loan broker. In January 2009, the broker’s title insurance company informed Plaintiff that he did not actually possess fee title to the property. The title officer discovered that the prior owner acquired her interest via a decree of distribution in 1959 but that her interest only extended “for and during the term of her natural life and upon her death then to the issue of her body….” Thus, when Plaintiff purchased the property via grant deed in 1995, he acquired only a life estate for the term of the prior owner Silva’s life, also known as a life estate pur autre vie. When Silva died in 2002, Plaintiff’s estate in the property was extinguished. Plaintiff alleges that he was unable to refinance the deed of trust due to the cloud on title, resulting in the trustee’s sale to Bob and Jody Schwartz, who made the high bid at the February 2009 trustee’s sale and recorded a trustee’s deed, conveying Plaintiff’s interest in the property to the Schwartzes.

Although Plaintiff discovered the cloud on his title in January 2009, before the trustee’s sale, he did not contact defendant Fidelity National Title Insurance Company (“Defendant”) seeking coverage under his title insurance policy until March 2009. Defendant denied Plaintiff’s claim in September 2009, asserting that Plaintiff’s numerous recorded conveyances between himself and his family had terminated the policy, relying on section 2, subdivision (b) of the policy to deny the claim.

In June 2011, Plaintiff filed a complaint against Defendant. Before a hearing could be held on the demurrer, Plaintiff filed an amended complaint, alleging that by denying his claim for coverage, defendant breached both the title insurance policy and the contract’s implied covenant of good faith and fair dealing.

Acting under the instructions of the Sixth District, on July 3, 2017, the Court overruled Defendant’s demurrer to the first amended complaint (“FAC”). Defendant now moves for judgment on the pleadings as to the second cause of action for tortious breach of the implied covenant of good faith and fair dealing.

Defendant argues that the second cause of action fails to allege specific facts demonstrating that it acted unreasonably in denying coverage under its policy. As Defendant argues, “[t]he withholding of benefits due under the policy may constitute a breach of contract even if the conduct was reasonable, but liability in tort arises only if the conduct was unreasonable, that is, without proper cause… the withholding of benefits due under the policy is not unreasonable if there was a genuine dispute between the insurer and the insured as to coverage or the amount of payment due.” (Rappaport-Scott v. Interinsurance Exchange of Auto. Club (2007) 146 Cal.App.4th 831, 837; see also Chateau Chamberay Homeowners Ass’n v. Associated Intern. Ins. Co. (2001) 90 Cal.App.4th 335, 347 (stating that “before an insurer can be found to have acted tortiously (i.e., in bad faith), for its delay or denial in the payment of policy benefits, it must be shown that the insurer acted unreasonably or without proper cause… where there is a genuine issue as to the insurer’s liability under the policy for the claim asserted by the insured, there can be no bad faith liability imposed on the insurer for advancing its side of that dispute”; also stating that “I[i]t is now settled law in California that an insurer denying or delaying the payment of policy benefits due to the existence of a genuine dispute with its insured as to the existence of coverage liability or the amount of the insured’s coverage claim is not liable in bad faith even though it might be liable for breach of contract”) (emphasis original).) It is also true that “[a] court can conclude as a matter of law that an insurer’s denial of a claim is not unreasonable, so long as there existed a genuine issue as to the insurer’s liability.” (Chateau Chamberay Homeowners Ass’n, supra, 90 Cal.App.4th at p.347.) However, the FAC alleges that “[a]fter receipt of notice of the insured’s claim during the force of the policy, the title insurer unreasonably or without proper cause, acted or failed to act in a manner that deprived plaintiff Shah of the benefits of that policy.” (FAC, ¶ 62.) The Court is required to assume the truth of these allegations. (See Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081, citing Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) It may well be true that there was a genuine dispute as to coverage; however, as the Sixth District has indicated with regards to other matters, whether there was a genuine dispute is a matter more amenable to resolution by summary judgment or a trier of fact. Accordingly, Defendant’s motion for judgment on the pleadings as to the second cause of action is DENIED.

The Court will prepare the Order.