Unreported / Non-Citable
Background
Property owners and their company made claims under title insurance policies issued by First American. The insurer chose a policy option allowing it to pay limits and terminate the policies rather than provide a defense. The insureds sued under Washington law for breach of contract, bad faith, and related statutory remedies.
The district court granted summary judgment to First American across the case. The insureds appealed, contending that payment of limits did not erase the insurer’s broader good-faith duties or the consequences of its claim handling.
The Court’s Holding
The Ninth Circuit affirmed in part but vacated the judgment on the bad-faith theory and related claims. The policy language allowed First American to end contractual obligations by paying policy limits, so the breach-of-contract claim failed. One individual also lacked rights independent of the insured entities.
But contractual performance did not automatically establish good faith. Washington’s insurer duty is broader than the express policy promises, and a factfinder could consider whether claim handling before payment breached that duty. The panel remanded the affected extra-contractual claims. Judge Christen dissented in part, reasoning that full payment supplied every contractual benefit and should end the bad-faith theory on this record.
Key Takeaways
- An insurer’s payment of policy limits can satisfy the contract without necessarily resolving a bad-faith claim.
- Title policies may give the insurer alternatives—defend, settle, or pay limits—and courts will enforce that allocation.
- Only parties holding enforceable policy rights may pursue claims based on duties owed to the insured.
- Claim-handling conduct before payment can remain material to extra-contractual liability.
Why It Matters
Although the decision applies Washington law, it is useful to California lawyers handling multistate title and insurer-conduct disputes. Contract benefits and the implied or statutory duties governing claim handling should be analyzed separately.
Insurers should document investigation and communications even when they plan to tender limits. Insureds should identify specific pre-payment conduct and resulting harm rather than assuming a contract payment conclusively proves or disproves bad faith.
On remand, the insureds still must prove the elements of bad faith and any resulting loss; vacating summary judgment is not a finding of liability. The insurer may rely on the policy’s termination option while defending the reasonableness of its investigation and communications. Transactional lawyers should also check the governing law and identify precisely who is named or otherwise protected by a title policy. Entity ownership or an economic interest in property does not automatically give every stakeholder an individual insurance claim.
The procedural posture matters when using this opinion. A published Ninth Circuit decision supplies binding circuit law unless later rehearing or Supreme Court review changes it; an unpublished memorandum is generally nonprecedential but still illustrates how the panel evaluated the record. Counsel should separate the rule of law from facts that merely explain the outcome, confirm whether an issue was preserved, and check the mandate and subsequent history before relying on the result. Transactional and compliance teams can use the decision prospectively by documenting the facts that the court treated as decisive. Litigators should build that documentation into declarations, discovery, and the statement of undisputed facts rather than waiting until appeal. Where the panel remanded, the prevailing party still has work to do and should not describe the opinion as a final merits victory. Where it affirmed, lawyers should identify whether the holding rests on statutory interpretation, contract language, evidentiary failure, or harmless error, because that distinction determines how readily the analysis transfers to another dispute.