Walton v. First American Title Insurance Co.

Citations: 844 N.E.2d 143; 2006 Ind. App. LEXIS 470; 2006 WL 686873Docket: 49A02-0506-CV-583

Court: Indiana Court of Appeals; March 20, 2006; Indiana; State Appellate Court

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Deborah M. Walton appealed the trial court's summary judgment favoring First American Title Insurance Company, arguing that the company breached its duty to defend her under a title insurance policy. Walton purchased property at 12878 Mayfair Lane, Hamilton County, Indiana, consisting of two deeded parcels: Lot 107 in Springmill Streams and Parcel A in Claybridge. The title insurance policy provided coverage against claims on her title, including restrictive covenants and easements, and included a defense promise against such claims.

However, the policy contained specific exceptions regarding covered risks, notably: (1) covenants, conditions, and restrictions as outlined in the subdivision plat; and (2) declarations recorded for both subdivisions that included provisions for assessments as liens on the property, which were subordinate to first mortgages. The declarations stated that violations of these restrictions would not result in forfeiture of title and excluded discriminatory covenants in compliance with federal law.

In June 2001, a dispute arose concerning the Claybridge Homeowners Association's claim of an easement on Lot 107, which Walton contended was only applicable to Parcel A. Ultimately, the court affirmed the summary judgment, ruling that the title policy's exceptions were applicable, thus relieving First American of its duty to defend Walton in this matter.

Walton sought clarification on the enforcement of easements on her property and contacted First American for assistance. First American amended the title insurance policy to reference "Lot 107 in Springmill Streams Section Six" and "Parcel A in Claybridge at Springmill." On October 15, 2001, the Claybridge HOA filed a Complaint against Walton, requesting injunctions to use and maintain easements on her property. Walton notified First American of the lawsuit and submitted a claim for defense under her policy. On June 28, 2002, the trial court issued a permanent injunction against Walton, confirming that the Claybridge DCR applied to both Lot 107 and Parcel A, a decision later affirmed by the court of appeals on July 15, 2003. Following this, First American denied Walton's claim for defense. Subsequently, on October 2, 2003, Walton filed a Complaint against First American for breaching the title insurance policy by refusing to defend her in the HOA lawsuit and denying coverage. Walton moved for summary judgment on September 16, 2004, but the trial court ruled in favor of First American on June 6, 2005. Walton is now appealing, arguing the trial court incorrectly denied her motion for summary judgment regarding First American's breach of duty to defend. The standard of review for summary judgment involves determining if there are genuine issues of material fact and whether the law was correctly applied. The construction of insurance contracts follows general contract principles, with ambiguity requiring factual determination. Walton argues that First American breached its duty to defend, claiming the HOA's suit was within the coverage of her title insurance policy, as the duty to defend is broader than the duty to indemnify.

An insurer that refuses to defend an insured must either file a declaratory judgment action to determine its obligations or defend the insured under a reservation of rights. Failure to do so exposes the insurer to potential liability. In this case, First American did not take either action regarding its decision not to defend Walton in her suit against the Claybridge HOA. The insurer's duty to defend is assessed based on the allegations in the complaint and any facts that could be reasonably investigated. The title insurance policy purchased by Walton covered risks including ownership disputes, restrictive covenants, and easements but contained specific exclusions, particularly regarding covenants and conditions in subdivision declarations.

The Claybridge HOA's complaint against Walton sought injunctions related to easement rights, citing a Declaration of Covenants and Restrictions that detailed the rights and duties of the HOA and Walton. The complaint referenced various easements, including drainage, sewer, and utility easements, and outlined the HOA's obligations to maintain entryways and landscaping easements. The declaration also stipulated that any assessments by the HOA would constitute a lien on the property and that violations of covenants would not result in forfeiture of title.

Claybridge HOA is obligated under the First Amendment to the DCR to maintain street signs within its jurisdiction. The HOA's claim against Walton is based on the enforceability of rights within the DCR. Title policy exceptions 11 and 13 clarify that the Springmill Streams DCR does not apply to Lot 107, while the Claybridge DCR applies to Parcel A. The title insurance policy does not exclude the HOA's claims regarding Claybridge DCR's applicability to Lot 107, indicating it is a covered title risk.

First American, the insurer, was aware of both DCRs when executing the policy with Walton. Brenwick Development Company, the developer, reserved the right to amend the Springmill Streams DCR, which was recorded before the Claybridge DCR. Lot 107, located in Springmill Streams, is still subject to the Claybridge DCR's obligations, including maintenance duties assigned to the Claybridge HOA. An amendment to the DCR specifies that Lot 107 is not subject to assessments for certain Claybridge amenities.

The Claybridge DCR effectively amended the Springmill DCR concerning Lot 107, transferring maintenance responsibilities from the Springmill Streams HOA to the Claybridge HOA, thereby reducing the former's obligations. Consequently, First American correctly determined that Lot 107 falls under the Claybridge DCR, justifying its refusal to defend Walton in the lawsuit from the Claybridge HOA. The trial court's summary judgment in favor of First American was affirmed.