Escheat Allegation Triggers Duty to Defend
An unsupported escheat allegation in a routine land registration proceeding triggered the title insurer’s duty to defend. The Harts owned two adjoining parcels in Honolulu, Hawai’i. They had obtained fee insurance from TICOR Title Insurance Company at the time of purchase. They later applied to the Land Court to register and consolidate both parcels into one. In response to the application, the State of Hawai’i filed an answer that contained a pro forma defense that “the State reserves any interest in the property that may have escheated to the state.” No other facts concerning an escheat were ever adduced in the proceeding. In fact, the State later filed a memorandum with the Land Court stating that “the State is not pursuing any claim of escheat to the State.” In the coverage litigation, both the trial court and the intermediate appellate court found that TICOR had no duty to defend because the defense was “routine” and “did not create a realistic or reasonable potential for coverage.” In addition, there was evidence that the Harts’ counsel expended no time in defending the escheat allegation.
The Supreme Court of Hawai’i determined that “because a mere potential for coverage existed under the Policy,” TICOR was obligated to defend against the escheat “claim.” Accordingly, the Court remanded the case to the trial court to determine the amount of attorney’s fees and costs to be awarded to the Harts. Hart v. TICOR Tile Insurance Company, No. SCWC-29467, decided March 27, 2012.
This appears to be the first reported case on these facts anywhere in the nation. While it arose in the context of a land registration proceeding, there are many types of litigation to which state or municipal agencies are necessary parties. Pro forma answers or allegations are commonplace in these proceedings. The rationale of this decision, if it takes hold in other states, could open the floodgates to title coverage litigation over completely baseless allegations.