IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF OREGON

JACK R. YARBROUGH, 3:14-cv-01453-BR

Plaintiff, OPINION AND ORDER

v.

FIRST AMERICAN TITLE INSURANCE

COMPANY and FIRST AMERICAN 

CORPORATION,

Defendants.

_______________________________

FIRST AMERICAN TITLE INSURANCE

COMPANY and FIRST AMERICAN 

CORPORATION,

Counterclaimants,

v.

JACK R. YARBROUGH,

Counterclaim Defendant.

 - OPINION AND ORDER 1

Case 3:14-cv-01453-BR Document 50 Filed 11/23/15 Page 1 of 15
WILLIAM L. GHIORSO

The Ghiorso Law Firm

495 State Street, Suite 500

Salem, OR 97301

(503) 362-8966

Attorney for Plaintiff-Counterclaim Defendant

C. CLAYTON GILL

TYLER J. ANDERSON

Moffatt Thomas

P.O. Box 829

Boise, ID 83701-0829

(208) 345-2000

Attorneys for Defendants-Counterclaimants

BROWN, Judge.

This matter comes before the Court on the Motion (#32) for

Summary Judgment filed by Defendants First American Title

Insurance Company and First American Corporation and Plaintiff’s

Motion (#37) for Partial Summary Judgment. The Court heard oral

argument on September 14, 2015. With the submission of

supplemental briefing, the Court took the matter under advisement

on September 28, 2015.

For the reasons that follow, the Court GRANTS Defendants'

Motion for Summary Judgment, DENIES Plaintiff’s Motion for

Partial Summary Judgment, and DISMISSES this matter with

prejudice.1

1 Defendants also filed Objections (#38) to Evidence Offered

by Plaintiff in which Defendant seeks to exclude portions of the

Declaration (#36-2) of Richard Stacey that Plaintiff filed as an

attachment to his Response (#36) to Defendant’s Motion for

 - OPINION AND ORDER 2

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BACKGROUND

The following facts are undisputed and taken from the record

on summary judgment:

In 2007 PremierWest Bank made a loan to Idaho Waste Systems,

Inc., (IWS) that was secured by a deed of trust on property in

Elmore County, Idaho. The maximum lien amount on the property

was $5,000,000. Defendants issued a title-insurance policy in

the amount of $5,000,000.

In 2010 Plaintiff purchased the loan from PremierWest Bank

and was assigned the Bank’s note, all related loan documents, the

beneficial interest in the deed of trust securing the debt, and

the lender’s policy of title insurance (collectively referred to

herein as the Policy).

Endorsement 110.5, which was contained in the Policy, 

provides the Policy

insures the owner of the indebtedness secured by the

insured mortgage against loss or damage, which the

insured shall sustain by reason of . . . [t]he failure

of that certain agreement executed by Idaho Waste

Systems, Inc.[,] dated May 18, 2010[,] and recorded

July 21, 2010[,] as Instrument No. 415544 to modify the

insured mortgage or the obligation secured thereby.

The agreement referenced in Endorsement 110.5 is the Modification

of Deed of Trust in which the original deed of trust was modified

Summary Judgment. Because the evidence that Defendants object to

is not relevant to the resolution of the parties’ Motions for

Summary Judgment, the Court OVERRULES as moot Defendants’

Objections.

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to reflect that the amount owing on the promissory note was

increased to $4,200,000.00. In addition, the Policy extends

insurance coverage to loss or damage incurred as a result of

the invalidity or unenforceability of the lien of the

Insured Mortgage upon the Title. This Covered Risk

includes but is not limited to insurance against loss

from any of the following impairing the lien of the

Insured Mortgage

(a) forgery, fraud, undue influence, duress,

incompetency, incapacity, or impersonation;

(b) failure of any person or Entity to have

authorized a transfer or conveyance;

(c) the Insured Mortgage not being properly

created, executed, witnessed, sealed,

acknowledged, notarized, or delivered; [and]

(d) failure to perform those acts necessary to

create a document by electronic means authorized

by law.

The Policy also provides Defendants “shall provide for the

defense of an Insured in litigation in which any third party

asserts a claim covered by this policy adverse to the Insured. 

This obligation is limited to only those stated causes of action

alleging matters insured against by this policy.”

On May 13, 2014, Plaintiff filed an action in Elmore County

seeking to recover past-due amounts owed under the loan and to

foreclose the deed of trust. Together with its answer in that

action, Idaho Waste asserted 21 affirmative defenses, three

crossclaims, and a counterclaim. 

On July 7, 2014, Plaintiff sent a written request to

 - OPINION AND ORDER 4

Case 3:14-cv-01453-BR Document 50 Filed 11/23/15 Page 4 of 15
Defendants to provide for the defense of “affirmative defenses

challenging the validity of certain loan modifications and

assignments which are covered by endorsements issued by First

American Title.” Plaintiff did not request Defendants to provide

a defense as to the counterclaim.

On July 23, 2014, Defendants tendered a defense as to the

fifteenth and sixteenth affirmative defenses under a “full and

complete reservation of rights.” Plaintiff responded, however,

that he believed the Policy also provided coverage for the

second, fourth, fifth, sixth, eighth, and nineteenth affirmative

defenses. 

On September 10, 2014, Plaintiff initiated this action in

which he brings claims against Defendants for breach of contract

and breach of the implied duty of good faith and fair dealing. 

In his Complaint Plaintiff alleges Defendants have a duty to

“defend” under the Policy as to the following affirmative

defenses:

Second Affirmative Defense: This Defendant IWS (Idaho

Waste Solutions) asserts that it has rights pursuant to

the provisions of Idaho Code § 6-101 together with

potentially applicable additional provisions of the

Idaho Code relating to real estate mortgage foreclosure

that bars all or a portion of the claims asserted by

the Plaintiff in this litigation.

Fifth Affirmative Defense: The Plaintiff has failed to

establish and has the obligation to prove that it is

the lawful holder of the Promissory Note, which forms

the basis for the claims asserted and relief sought in

the Plaintiff’s Complaint.

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Sixth Affirmative Defense: The Plaintiff has the

burden of establishing that the loan transactions

referred to in the Plaintiff’s Complaint and the

issuance of any security documentation regarding any

such loan transactions was issued by individuals having

authority to act by, on behalf, and with the authority

of IWS.

Eighth Affirmative Defense: The 2010 loan transaction

is unenforceable, in whole or in part, due to a lack of

or failure of consideration.

Ninth Affirmative Defense: The 2010 loan transaction

is unenforceable, in whole or in part, due to the

conduct of the Plaintiff, in concert with third

parties, that resulted in financial detriment to IWS.

Twelfth Affirmative Defense: The 2010 loan transaction

is unenforceable, in whole or in part, due to the

misappropriation of corporate funds in which the

Plaintiff participated.

Thirteenth Affirmative Defense: The 2010 loan

transaction is unenforceable, in whole or in part, due

to the usurpation of corporate funds in which the

Plaintiff participated.

Fourteenth Affirmative Defense: The 2010 loan

transaction is unenforceable, in whole or in part,

since the Defendant IWS did not receive the benefit of

the bargain that was contemplated by the transaction.

Seventeenth Affirmative Defense: The 2010 loan

transaction is unenforceable, in whole or in part,

since the transaction was unconscionable and the

obligations it imposed were unconscionable.

In their Answer (#17) Defendants bring a Counterclaim

against Plaintiff in which they seek a declaration that

Defendants do not have a duty to defend Plaintiff in the Idaho

state-court case as to the first through fourteenth and

seventeenth through twenty-first affirmative defenses.

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STANDARD

Summary judgment is appropriate when there is not a “genuine

dispute as to any material fact and the movant is entitled to

judgment as a matter of law.” Washington Mut. Ins. v. United

States, 636 F.3d 1207, 1216 (9th Cir. 2011). See also Fed. R.

Civ. P. 56(a). The moving party must show the absence of a

dispute as to a material fact. Rivera v. Philip Morris, Inc.,

395 F.3d 1142, 1146 (9th Cir. 2005). In response to a properly

supported motion for summary judgment, the nonmoving party must

go beyond the pleadings and show there is a genuine dispute as to

a material fact for trial. Id. "This burden is not a light one

. . . . The non-moving party must do more than show there is

some 'metaphysical doubt' as to the material facts at issue." In

re Oracle Corp. Sec. Litig., 627 F.3d 376, 387 (9th Cir. 2010)

(citation omitted). 

A dispute as to a material fact is genuine "if the evidence

is such that a reasonable jury could return a verdict for the

nonmoving party." Villiarimo v. Aloha Island Air, Inc., 281 F.3d

1054, 1061 (9th Cir. 2002)(quoting Anderson v. Liberty Lobby,

Inc., 477 U.S. 242, 248 (1986)). The court must draw all

reasonable inferences in favor of the nonmoving party. Sluimer

v. Verity, Inc., 606 F.3d 584, 587 (9th Cir. 2010). "Summary

judgment cannot be granted where contrary inferences may be drawn

from the evidence as to material issues." Easter v. Am. W. Fin.,

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381 F.3d 948, 957 (9th Cir. 2004)(citing Sherman Oaks Med. Arts

Ctr., Ltd. v. Carpenters Local Union No. 1936, 680 F.2d 594, 598

(9th Cir. 1982)).

A “mere disagreement or bald assertion” that a genuine

dispute as to a material fact exists “will not preclude the grant

of summary judgment.” Deering v. Lassen Cmty. Coll. Dist., No.

2:07-CV-1521-JAM-DAD, 2011 WL 202797, at *2 (E.D. Cal., Jan. 20,

2011)(citing Harper v. Wallingford, 877 F.2d 728, 731 (9th Cir.

1989)). See also Moore v. Potter, 701 F. Supp. 2d 1171 (D. Or.

2010). When the nonmoving party's claims are factually

implausible, that party must "come forward with more persuasive

evidence than otherwise would be necessary." LVRC Holdings LLC

v. Brekka, 581 F.3d 1127, 1137 (9th Cir. 2009)(citing Blue Ridge

Ins. Co. v. Stanewich, 142 F.3d 1145, 1149 (9th Cir. 1998)). 

The substantive law governing a claim or a defense

determines whether a fact is material. Miller v. Glenn Miller

Prod., Inc., 454 F.3d 975, 987 (9th Cir. 2006). If the

resolution of a factual dispute would not affect the outcome of

the claim, the court may grant summary judgment. Id.

DISCUSSION

Defendants contend they are entitled to summary judgment on

the grounds that (1) they did not owe Plaintiff any duty to

defend in the underlying litigation because Idaho Waste’s

 - OPINION AND ORDER 8

Case 3:14-cv-01453-BR Document 50 Filed 11/23/15 Page 8 of 15
affirmative defenses were not “claims” within the meaning of the

Policy; (2) even if a duty to defend existed, Defendants

satisfied that duty by tendering a defense for affirmative

defenses fifteen and sixteen; and (3) assuming Defendants

breached their duty to defend, there are not any damages that

have arisen from that breach.

Plaintiff contends Defendants are not entitled to summary

judgment and, in fact, that Plaintiff is entitled to summary

judgment as to breach of the insurance contract because

Defendants breached their duty to defend as set out in the Policy

when they only tendered a defense of affirmative defenses fifteen

and sixteen.

Under Idaho law, which the parties agree controls this case,

an insurer’s “duty to defend arises upon the filing of a

complaint whose allegations, in whole or in part, read broadly,

reveal a potential for liability that would be covered by the

insured's policy.” Hoyle v. Utica Mut. Ins. Co., 137 Idaho 367,

371-72 (2002). See also AMCO Ins. Co. v. Tri-Spur Inv. Co., 140

Idaho 733, 737 (2004). The Hoyle court noted:

Where there is doubt as to whether a theory of recovery

within the policy coverage has been pleaded in the

underlying complaint, or which is potentially included

in the underlying complaint, the insurer must defend

regardless of potential defenses arising under the

policy or potential defenses arising under the

substantive law under which the claim is brought

against the insured.

Hoyle, 137 Idaho at 372 (quoting Kootenai County v. W. Cas. and

 - OPINION AND ORDER 9

Case 3:14-cv-01453-BR Document 50 Filed 11/23/15 Page 9 of 15
Sur. Co., 113 Idaho 908, 910 (1988)). “‘Because insurance

contracts are adhesion contracts, typically not subject to

negotiation between the parties, any ambiguity that exists in the

contract must be construed most strongly against the insurer.’” 

Weinstein v. Prudential Prop. and Cas. Ins. Co., 149 Idaho 299,

321 (2010)(quoting Armstrong v. Farmers Ins. Co. of Idaho, 147

Idaho 67, 69 (2009)). Nonetheless, the allegations must raise a

potential basis for liability on the face of the complaint

because “an insurer does not have to look beyond the words of the

complaint to determine if a possibility of coverage exists.” 

Hoyle, 137 Idaho at 373.

In order to conclude that the Policy required Defendants to

defend Plaintiff in the underlying litigation, the Court must 

(1) find the allegations in the affirmative defenses fall within

the scope of the Policy, and, if so,(2) conclude Defendants had a

duty to “defend” Plaintiff against the affirmative defenses.

The parties focus on Endorsement 110.5, which, as noted,

provides the Policy

insures the owner of the indebtedness secured by the

insured mortgage against loss or damage, which the

insured shall sustain by reason of . . . [t]he failure

of that certain agreement executed by Idaho Waste

Systems, Inc.[,] dated May 18, 2010[,] and recorded

July 21, 2010[,] as Instrument No. 415544 to modify the

insured mortgage or the obligation secured thereby.

Plaintiff contends the affirmative defenses raised in the

underlying litigation fall within the scope of Endorsement 110.5

 - OPINION AND ORDER 10

Case 3:14-cv-01453-BR Document 50 Filed 11/23/15 Page 10 of 15
because the Endorsement insures Plaintiff against loss sustained

by reason of the failure of the modification of deed of trust

agreement to modify the original deed of trust. Specifically,

Plaintiff contends the affirmative defenses in the underlying

litigation raise the issue as to whether the parties to the

original loan agreement (including the agreement to modify the

original deed of trust) were properly authorized to enter into

such agreement on behalf of IWS.

Reading broadly both Endorsement 110.5 and IWS’s answer in

the underlying litigation, the Court agrees with Plaintiff that

at least affirmative defenses six, eight, nine, twelve, thirteen,

fourteen, and seventeen may implicate the validity of the

modification of deed of trust and, therefore, its ability to

modify the “insured mortgage or the obligation secured thereby”

because those affirmative defenses implicate the enforceability

of the “loan transaction.” Although the Court notes there is

considerable ambiguity in Endorsement 110.5, any such ambiguity

“‘must be construed most strongly against the insurer.’” 

Weinstein, 149 Idaho at 321 (2010)(quoting Armstrong, 147 Idaho

at 69). Accordingly, on this record the Court concludes

affirmative defenses six, eight, nine, twelve, thirteen,

fourteen, and seventeen fall within the substantive scope of the

insurance contract.

Nonetheless, Plaintiff’s contention that Defendants had a

 - OPINION AND ORDER 11

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duty to defend Plaintiff in the underlying litigation suffers

from a more fundamental defect: Defendants had nothing to defend

Plaintiff against. 

As noted, the Policy requires Defendants to “provide for the

defense of an Insured in litigation in which any third party

asserts a claim covered by this policy adverse to the Insured. 

This obligation is limited to only those stated causes of action

alleging matters insured against by this policy.”

Relying on Philadelphia Indemnity Insurance Co. v. Chicago

Title Insurance, Defendants contend they do not owe Plaintiff a

duty to defend because “[a]n affirmative defense is not a

‘claim’” (771 F.3d 391, 401 (7th Cir. 2014)), and, unlike

counterclaims, “affirmative defenses are liability avoidance

measures that are not designed to create liability, but merely to

avoid it.” Def.’s Mem. in Supp. (#32) at 14. See also

Philadelphia Indem. Ins. Co., 771 F.3d at 401. Thus, because

Plaintiff only requested Defendants to defend him in relation to

the affirmative defenses pled by Idaho Waste Systems, Defendants

contend they did not owe any duty to defend Plaintiff in the

underlying litigation.

Plaintiff, on the other hand, relies on language from

Philadelphia Indemnity Insurance that suggests “[p]erhaps an

affirmative defense in a foreclosure action might be functionally

characterized as a counterclaim to the extent that it alleges a

 - OPINION AND ORDER 12

Case 3:14-cv-01453-BR Document 50 Filed 11/23/15 Page 12 of 15
defect in title or lien priority or some other title risk

potentially covered by the title policy.” 771 F.3d at 402. 

Plaintiff contends that is the case here because the “affirmative

defenses are functionally equivalent to claims” in that the

affirmative defenses allege defects in the loan documents that

would render those documents invalid and, therefore, also

invalidate the associated lien. As a result, Plaintiff contends

affirmative defenses two, five, six, eight, nine, twelve,

thirteen, fourteen, and seventeen trigger Defendants' duty to

defend.

Although the Court notes there is not any Idaho law directly

on point, the Court finds persuasive the Seventh Circuit’s

reasoning in Philadelphia Indemnity Insurance. Absent language

to the contrary in the insurance contract, under normal

circumstances an insurer’s duty to defend an insured is not

implicated when the insured is a plaintiff in an action in which

a defendant pleads an affirmative defense that relates to subject

matter that may otherwise fall within the scope of coverage. See

Philadelphia Indem. Ins. Co., 771 F.3d at 401. See also P.J.P.

Mechanical Corp. v. Commerce and Indus. Co., 882 N.Y.S. 2d 34,

36-39 (N.Y. App. Div. 1 Dep’t 2009); CDM Investors v. Travelers

Cas. and Sur. Co., 43 Cal. Rptr. 3d 669, 680-82 (Cal. App. 6th

Dist. 2006)(“[U]nder ordinary duty-to-defend language, an insurer

has no duty to defend an affirmative defense asserted against the

 - OPINION AND ORDER 13

Case 3:14-cv-01453-BR Document 50 Filed 11/23/15 Page 13 of 15
insured in an insured-initiated action,” but a setoff affirmative

defense could implicate a duty to defend if the affirmative

defense “(1) would unquestionably have been a suit for damages if

asserted in a court of law, and (2) fell within the scope of the

contractual obligation.”). In other words, even construing the

Policy as broadly as possible, the Court cannot conclude

Defendants' obligation under the Policy to “provide for

[Plaintiff’s] defense” also imparted on Defendants an obligation

to provide for the prosecution of a portion of Plaintiff’s statecourt foreclosure action.

Moreover, the principle that a true affirmative defense does

not trigger a duty to defend is consistent with the Idaho Supreme

Court’s statement in Hoyle that a duty to defend is triggered

when the allegations in the complaint “reveal a potential for

liability that would be covered by the insured’s policy.” 137

Idaho at 371-72 (emphasis added). Thus, as noted, absent

language to the contrary in the insurance policy, an affirmative

defense raised in opposition to a suit initiated by the plaintiff

insured does not trigger the insurer’s duty to defend unless that

affirmative defense “reveal[s] a potential for liability” on the

part of the insured plaintiff in that action. See id. As noted,

there is not any indication that any of the affirmative defenses

pled by IWS raise a potential of liability for Plaintiff in the

underlying litigation. 

 - OPINION AND ORDER 14

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On this record, therefore, the Court concludes Defendants 

do not owe a duty to “defend” Plaintiff in the underlying

litigation.

CONCLUSION

For these reasons, the Court GRANTS Defendants' Motion (#32)

for Summary Judgment and DECLARES Defendants do not have a duty

to defend Plaintiff in the underlying litigation; DENIES

Plaintiff’s Motion (#37) for Partial Summary Judgment; and

DISMISSES this matter with prejudice. The Court also OVERRULES

as moot Defendants’ Objections (#38) to Evidence Offered by

Plaintiff.

IT IS SO ORDERED.

DATED this 23rd day of November, 2015.

/s/ Anna J. Brown

 

ANNA J. BROWN

United States District Judge

 - OPINION AND ORDER 15

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