T hi s di s pos i t i on i s notappr opr i a t e f orpubl i c a t i on and i s notpr e c e de nt * e xc e pta s pr ovi de d by 9th C i r . R . 36- 3.

Th e H o n o r ab l e J a me s G . Ca rr , Se n i o rD i s tr i c tJ u d g e f o rth e U . S. ** D i s tr i c tC ourtf

orthe N orthe rn D i s tr i c tof O hi o, s i tt i ng by de s i gna t i on. NOT F OR P UB L I CAT I ON UN I TE D STATE S C OU RT OF APPE ALS FOR T HE NI NTH CI RC UI T B A N K O F S A C R A M E N T O , aC a l i f orni ac orpor a t i on, P la in tif

f - A p p e lla n t, v. ST EW ART T I TL E GUA RANTY C O M P A N Y , aT e xa s c orpor a t i on, D ef

endant- A pp el l ee . N o. 10- 17391 D . C . N o . 2 : 0 9 -cv -0 0 7 7 1 -JA M -K JM ME MOR AN DU M *

A pp ea l fr om the U ni t ed S t at es D i stri ctC ou rt f o rth e E a s te rn D is tr ic t o f C a lif o rn ia J ohn A . M e nde z , D i s tr i c tJ udge , P r e s i di ng A r gue d a nd S ubm i tt e d D e c e m be r2, 2011 S a n F r a n c is c o , C a lif

o rn ia B ef ore: T H O M A S and C L IF T O N , C i rc ui tJudg es , and C A R R , S eni or D i stri ct Judg e. ** 

# FI LED DE C 21 2011 M OLLY C. DW Y ER, CLERK U . S. C O U R T OF APPE ALS2

T he B a nk of

S a c r a m e nt o appe a l s the di s tr i c tc ourt ’ s di s m i s s a l of i t s a c t i on a ga i ns tS t e w a rtT i t l e G ua r a nty C om pa ny f orbr e a c h of

c ontr a c ta nd br e a c h of

the i m pl i ed covenant of go od fa i th and fa i r dea l i ng . B ec ause the part i es ar e f am i l i ar w i th the f

a c t s , w e do notr e c ountthe m he r e . W e va c a t e the di s m i s s a l a nd r e m a nd fo r fu rth er p ro ceed i n g s. T he B ank’ s a l l egat i on s i n the S ec on d A m ended C om pl ai ntre gardi ng a l ac k of re as on abl e di l i gence by S t ew artw er e s uffi ci entt o st at e abrea ch of contra ct c la im . T h e B a n ka lle g e d th a t S te w a rt f a ile d to p r o p e r ly in v e s tig a te th e th ir d p a rty ac t i on , fa i l ed t o p ursue the l i t i gat i on agai nstthe adverse cl ai m ant , and d el ay ed c ons e nt i ng t o m e di a t i on. I n a ddi t i on, the B a nk a l l e ge d tha tS t e w a rtkne w of the thi rd party i nt er es tati ss ue, i nsured i tas subo rdi nat e t o the B ank’ s i nt er es t , l at er tr ie d u n ila te r a lly to c h a n g e th e p o lic y , a n d im p r o p e r ly d e la y e d th e u ltim a te r e s o lu tio n b y d is c la im in g c o v e r a g e o n g r o u n d s th a t c o u ld n o t h a v e s u c c e e d e d . T ak in g th es e a ll eg atio n s a s tru e, S tew ar t co u ldb e f o u n d to h av e f

ailed to ac t i n “a reaso n ab l y d i l i g en tm an n er, ” as req u i red b y sect i o n 8 (a) o f th e p o l i cy. S e c t i on 8( b) of

the pol i c y author i z e d S t e w a rtt o l i t i ga t e the unde r l y i ng a dve r s e t i t l e c l a i m . T he B a nk’ s c l a i m i s l i m i t e d t o i nj ury r e s ul t i ng f r om al a c k of reaso n ab l e d i l i g en ce. S ect i o n 8 (b ) d o es n o tb ar al l l i ab i l i ty cl ai m s si m p l y b ecau se l i t i ga t i on di d notr e s ul ti n a n a dve r s e j udgm e nt , how e ve r . T ha ti nt e rpr e t a t i on3

w ou l d p rodu ce an absurd res ul tby absol vi ng the i nsurerof any l i abi l i ty, despi t e a la c ko f d ilig e n c e , w h e n e v e rlitig a tio n w a s in itia te d b u t ac la im w a s s u b s e q u e n tly r e s o lv e d s h o rt o f

f in a l ju d g m e n t, n o tab ly b y s e ttle m e n t. T h e o b lig a tio n im p o s e d in se ct i on 8(a) for the t i t l e i nsurert o p roce ed i n “ a r ea sonabl y di l i gentm anner” ap p li es ev en w h en li ti g atio n is filed . S ec ti o n 8 (a ) s ay s a s m u ch . S tew ar t’ s pr opos e d i nt e rpr e t a t i on w oul d r e nde rthe phr a s e “ i nc l udi ng l i t i ga t i on” i n s e c t i on 8( a ) m e a ni ngl e s s . I n a c c or da nc e w i th C a l i f orni al a w , s e c t i ons 8( a ) a nd 8( b) of the i nsurance pol i cym ustbe re ad t og ether and i nt erpret ed so as t o g i ve ef fe ctt o every p a rt o f th e p o lic y . Se e P alm e rv . T r uc k I ns . E x c h. , 21 C a l . 4th 1109, 1115 ( 1999) (c i t i ng C al . C i v. C od e § 16 41 ). T he B ank h as al l eged l egal l y c og ni zabl e dam ages caused by the cl ai m ed brea ch i n the form of i ncre as ed ca rryi ng cost s f or any a dd i t i on al t i m e t i t l e w as unm a rke t abl e due t o the a l l e ge d l a c k of r e a s onabl e di l i ge nc e . T hi s c l a i m of d am ag es is su ff

icien t fo r th e S ec o n d A m en d ed C o m p lain t t o su rv iv e S tew ar t’ s m ot i on t o d i sm i ss . W e do n otre ac h the val i di ty of any of the other dam ages the or i e s a s s e rt e d by the B a nk. T h e B a n k ’s c la im f

o rab r e a c h o f

th e im p lie d c o v e n a n t o f g o o d f a ith a n d f

a ir de a l i ng a l s o s urvi ve s the m ot i on t o di s m i s s . T o pr ope r l y a l l e ge abr e a c h of the c ove na ntof

good f a i th a nd f

a i rde a l i ng, the B ank m us ts how tha t“ ( 1) be ne f i t s due4

u n d e rth e p o lic y h a v e b e e n w ith h e ld ; a n d ( 2 ) th e r e a s o n f o rw ith h o ld in g b e n e f

its m usthave been un re as on abl e or w i tho utprop ercause. ” L ov e v . Fi r e I ns . E x c h. , 22 1 C al . A pp . 3d 11 36 , 11 51 (199 0). T he B ank al l eged thata benefi tdu e und er th e p o lic y –h a v in g title c le a r e d in ar e a s o n ab ly d ilig e n t m a n n e r–w a s w ith h e ld . F a i l i ng t o a c tw i th r e a s onabl e di l i ge nc e i s , byi t s na tur e , unr e a s onabl e orw i thout pr ope rc aus e , w hi c h s a t i s f i e s the s e c ond pr ong of

the t e s t . A s di s c us s e d above , the B a nk a l l e ge d da m a ge s r e s ul t i ng f r om al a c k of

di l i ge nc e s uf

f i c i e ntt o m ove be y ond the pl ea di ng st age. V A C A T E D A N D R E M A N D E D .