December 14th, 2020

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California Court Of Appeal Affirms Demurrer Victory Obtained By William Wright on Behalf of First American Title Insurance Company

In Pak v. First American Title Insurance Company, the Court of Appeal has affirmed a demurrer ruling obtained by Early Sullivan for its client First American Title Insurance Company.

The Pak case concerned claims for breach of title policy and bad faith relating to an easement on commercial property in Los Angeles. The Superior Court sustained First American’s demurrers without leave to amend, agreeing that First American had no duty of defense or indemnification in light of the individual insureds’ prior conveyance of the property to their LLC, which conveyance terminated coverage under Condition 2 of their policy.

The Court of Appeal’s decision in Pak involves issues that are important to the title insurance industry and its insureds, because it interprets and provides clarity regarding a key policy provision, namely Condition 2.  The language of Condition 2 – which provides that coverage under the policy shall continue in force in favor of an insured only so long as the insured “retains an estate or interest in the land” – is ubiquitous in title policies of all types issued in California and around the country.

The Pak decision is the first in California to specifically analyze and interpret the language “estate or interest in the land” in Condition 2, and is the first to find that an insured owner’s conveyance of its fee interest in property to a limited liability company (LLC) owned by the insured, terminates coverage under Condition 2. The opinion is also the first California appellate decision to find that rescission of a conveyance of land does not revive coverage in a title insurance policy that has been terminated under Condition 2.