Bad Faith After Defining “Demand”

Bad Faith After Defining “Demand”

Demands may present in many forms. The most common of those forms is a letter. Typical demand letters contain the word “demand,” specify what is demanded, and often provide a timeframe for the demand to be met. The Washington Supreme Court performed an analysis of a letter in Robbins v. Mason County Title Ins. Co., 462 P.3d 430 (2020), which turned on the plain meaning of the word “demand.”

Mr. and Mrs. Robbins (the Robbins’) purchased property in Mason County in 1978, which contained tidelands with clam beds. The Robbins’ obtained a standard policy of title insurance from Mason County Title Ins. Co. (MCTI), which included insurance “against loss or damage sustained by reason of: . . . [a]ny defect in, or lien or encumbrance on, said title existing at the date hereof.”  Specifically, “[MCTI] shall have the right to, and will, at its own expense, defend the insured with respect to all demands and legal proceedings founded upon a claim of title, encumbrance or defect which existed or is claimed to have existed prior to the date hereof and is not set forth or excepted herein.”

The policy excluded from coverage “public or private easements not disclosed by the public records.” “[P]ublic records” is defined under the policy as “records which, under the recording laws, impart constructive notice with respect to said real estate.” No other pertinent terms are defined within the policy.

Over the years, the Robbins’ would contract with commercial shellfish harvesters to enter the property tidelands and harvest shellfish. The tidelands were subject to the 1854 Treaty of Medicine Creek (the Treaty). Under the Treaty, tribes, including the Squaxin Island Tribe (the Tribe), relinquished their rights to the land but retained “the right of taking fish at all usual and accustomed grounds and stations . . . , in common with all citizens of the Territory.” This right to take fish included the right to harvest shellfish from private lands within the usual and accustomed places with naturally occurring shellfish beds, but not artificial shellfish beds.

In 2015, the Robbins’ sought a new contract with a new harvester. The new harvester notified the Tribe of his intent to harvest, even though he had reasons to believe the Robbins’ shellfish beds were not natural, and thus, not part of the Treaty. The Tribe disagreed, and asserted the Robbins’ property did contain natural shellfish beds. The Tribe sent the Robbins’ a formal letter to notify them of the Tribe’s plan to enter their property and harvest shellfish in accordance with the Treaty.

The Robbins’ notified MCTI of the Tribe’s intentions and requested a defense. MCTI denied the Robbins’ request for a defense because the Tribe had an “easement” and the Treaty was not a record which imparted constructive notice pursuant to Washington law. This breach-of-duty-to-defend lawsuit was born.

The superior court granted MCTI’s motion for summary judgment, denied the Robbins’ motion for partial summary judgment, and dismissed the Robbins’ claims with prejudice. The Court of Appeals held the Tribe’s letter was a demand, triggering the duty to defend, and reversed the order granting summary judgment. The court reasoned the Tribe’s asserted right was a profit a prendre (profit), and a profit is not an easement.

MCTI petitioned the Washington Supreme court for review of whether MCTI had a duty to defend, whether the Tribe’s right was excluded from coverage, and whether the Court of Appeals properly considered the issue of whether MCTI acted in bad faith, when it was not raised by either party in the trial court.

The duty to defend arises if the policy conceivably covers the insured. An insurer is relieved of the duty to defend only if the policy clearly does not cover the claim. If a complaint is ambiguous, the language is liberally construed in favor of triggering the duty to defend.

The MCTI insurance policy promises to defend against all demands and legal proceedings founded upon a claim of title. However, the term “demand” is not defined within the insurance policy. The Washington Supreme court looked to the plain and ordinary meaning of “demand.” Webster’s Dictionary defined “demand” as “the asking or seeking for what is due or claimed as due.” Black’s Law Dictionary defined “demand” as “[t]he assertion of a legal or procedural right.” Because the tribe asserted its legal right to harvest shellfish it was due on the Robbins’ tidelands via letter, the Court found the plain meaning of the policy supported the conclusion the letter was a demand. MTCI had a duty to defend against the demand when the Tribe sent the letter to the Robbins’, even though legal proceedings had not yet been initiated.

With a duty in place, the Court next turned to exceptions potentially relieving MCTI of the duty to defend. MCTI argued the Tribe’s asserted right was an easement. The Robbins’ argued the right was a profit. The Court held the Tribe’s right was a profit. The court had defined easement in previous decisions as a right to enter and use property for some specified purpose. The court had defined profit in previous decisions as the right to sever and remove some substance from the land. It is easy to see how MCTI’s easement argument had merit. Because the core issue was whether Washington law was clear as to the interplay of profits and easements, the Court declined to explicitly decide whether a profit was an easement or whether they are two distinct types of servitude.

The court held Washington law dictated any uncertainty in the law must be construed in favor of the insured, the policy exception for “easements” did not apply, and MCTI had a duty to defend. The Court also held because MCTI unreasonably failed to defend the Robbins’ against an asserted right, MCTI acted in bad faith. As such, MCTI was estopped from denying coverage.

The dissent in this case would have held the letter was not a demand. They felt many of the typical elements of a demand were absent. The dissent reasoned the letter was sent to merely inform the Robbins’ of the Tribe’s plan to harvest clams on the tidelands. The letter was informational and lacked the character of a demand – the assertion of a legal right.

The letter in question was from the Tribe’s shellfish biologist, and was entitled “Notification of Squaxin Island Tribe Plan To Harvest on Non-Commercial, Privately Owned Tidelands at {183 SE Morgan Rd}.” The letter informed the Robbins of a shellfish survey outcome on the tidelands and of the upcoming Tribal clam harvest(s) there. The letter explained the Tribe’s rights under the Treaty of Medicine Creek to take a 50% share of the harvestable biomass of each shellfish species within the Tribe’s usual and accustomed grounds and stations.

The letter provided a web address that contained documents including a court-approved “Shellfish Implementation Plan” that described the process for notifying private landowners for tideland surveys and harvests, and for resolving disagreements. The letter informed Robbins that the tribe had conducted a shellfish population survey the previous May, estimating the tribe’s “Treaty share in pounds (50%)” on Robbins’ property to be 3,391 pounds, and noted the planned harvest time and date set for the following August.

In looking at the plain language of the letter, the Tribe was indeed asserting a legal right – their right to come in and harvest clams per the Treaty. The letter asserted the right to half of the Robbins’ clams, cited the authority, and then stated a date for clam extraction. The letter was informational, but the information came with a very forward stance. The letter made it clear the Tribe was coming to take what was rightfully theirs. A more sound approach would have been for MCTI to defend the Robbins’ under a reservation of rights, while seeking declaratory judgment on the issues above, thus avoiding breaching its duty to defend.

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