The Washington Supreme Court’s latest insurance coverage case, Robbins, et al. v. Mason County Title Insurance Co., et al., Slip Op. 96726-1 (May 7, 2020), marks another expansion of insurers’ duty to defend in Washington. First, the court adopted a broad interpretation of the policy’s insuring agreement in holding that a letter informing the insureds of the Squaxin Island Tribe’s intent to harvest clams from the insureds’ tidelands was a “demand” triggering coverage. Second, the court found that the insurer committed bad faith by rejecting the insureds’ tender under an easement exclusion given ambiguities in Washington property law regarding the scope of easements. Three justices issued compelling dissents.
The insureds purchased coastal property that included tidelands with clam beds and a title insurance policy from MCTI insuring “against loss or damage sustained by reason of … [a]ny defect in, or lien or encumbrance on” the property’s title. Id. at 3. The policy also required MCTI to “defend the insured with respect to all demands and legal proceedings founded upon a claim of title, encumbrance or defect” existing at the policy’s purchase. The policy excluded coverage for “easements not disclosed by the public records.” “Public records” were defined as “records which, under the recording laws, impart constructive notice” respecting the property. Id.
A Squaxin Island tribal biologist informed the insureds by letter that the tribe intended to harvest Manila clams from the insureds’ tidelands under fishing rights retained in the tribe’s treaty with the federal government. Id., Madsen, J. dissenting, at 2. The letter explained the tribe’s harvesting plans and directed the insureds to public resources delineating the tribe’s harvesting rights. Id. The insureds tendered the letter to MCTI seeking a defense against the “Tribe’s demand to enter the [insureds’] property to harvest clams.” Id., Majority Op., at 4. MCTI declined the tender under the easement exclusion because the tribe’s fishing rights were an easement and the treaty was not a “record that imparts constructive notice.” The insureds then sued MCTI for policy breach. Both parties moved for summary judgment; which the trial court granted to MCTI. The Court of Appeals reversed, holding that the tribe’s letter was a demand triggering coverage and that the tribe’s fishing rights were not an easement but rather a distinct property right called a “profit.” Id. at 5-6. MCTI appealed to the Washington Supreme Court.
Upon review, the Washington Supreme Court first held that the tribe’s letter was a demand. Id. at 9. Because the policy did not define demand, the court applied a common dictionary definition: “the asking or seeking for what is due or claimed as due.” Because the “Tribe was seeking the shellfish it was due,” its letter asserted a demand against the insureds. Id. Next, the court held that the easement exclusion did not apply because Washington property law was unsettled respecting whether a profit was a subcategory of easement or a distinct legal right. Id. at 14-15. Easements are rights “to enter and use property for some specified purpose;” e.g. to run public utilities through privately owned land. Id. at 12. Profits, on the other hand, are rights “to sever and to remove some substance from the land;” e.g. to log another’s property for timber. Id. The court reasoned that the tribe’s fishing rights were a profit because they concerned the removal of clams from the tidelands. Id. at 13.
The court acknowledged, however, that Washington law was unclear regarding the relationship between a profit and an easement. Id. at 13, 14. Some authorities hold that a profit is an easement — in which case the easement exclusion applied — and others hold that a profit is a separate property right — rendering the exclusion inapplicable. The court declined to clarify the legal ambiguity, instead, holding that Washington law required construing the exclusion in the insured’s favor given the ambiguity. Id. at 15. Because MCTI resolved the legal ambiguity in favor of non-coverage, the court found MCTI acted in bad faith. Id. at 17.
Justice Madsen dissented; she would have held that the duty to defend arises only after a lawsuit has been filed and that the letter was not a demand because it did not assert a claim for relief, but rather informally explained the tribe’s harvesting plan. Id., Madsen, J. dissenting, at 1, 5. Further, in her view, the ambiguity regarding easements was not the sort of “uncertainty … that would require construing the policy in favor of coverage.” Id. at 8. Rather, the tribe’s fishing rights necessarily implicated an easement because harvesting clams required physical entry onto the insureds’ tidelands. Id. at 9. The easement exclusion’s requirement that the easement not be “disclosed by public records” was likewise satisfied because the tribe’s fishing rights were not recorded at the County Accessor’s office. Id. at 10-11.
Justices Gordon McCloud and Johnson concurred in Justice Madsen’s analysis, save that, in their judgment, the easement exclusion was inapplicable because the tribe did not need to record the harvest rights as it possessed them originally and retained them under the treaty. Id., Gordon McLoud, J., concurring, at 2-3.
The court’s holding that MCTI had a duty to defend is curious given that the “defense” the insureds’ sought was to prosecute affirmative claims against the tribe; e.g. seek damages or an injunction. This holding is difficult to square with the general rule that insurers are not obligated to fund insureds’ prosecution of affirmative claims against the plaintiff when providing a defense. Although Robbins turned significantly on the technical details of Washington property law, the case reaffirms Washington courts’ expectation that insurers “put the insured’s needs before its own” when interpreting legal ambiguities respecting their policies. Id., Majority Op. at 17.