Filed 4/24/14 San Jacinto Z v. Stewart Title Guaranty CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for 

publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication

or ordered published for purposes of rule 8.1115. 

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

SAN JACINTO Z, LLC,

 Plaintiff and Appellant,

v.

STEWART TITLE GUARANTY 

COMPANY,

 Defendant and Respondent.

G049208

(Super. Ct. No. RIC535367)

ORDER MODIFYING OPINION 

AND DENYING PETITION FOR 

REHEARING; NO CHANGE IN 

JUDGMENT 

The opinion filed in this case on April 2, 2014 is hereby ORDERED 

modified as follows:

1. After the sentence reading, “However, it reminds us that the second 

amended complaint contained a declaratory relief action . . . [,]” appearing as the second 

full sentence of the last paragraph appearing on page 12 of the opinion, add the following 

footnote:

“Stewart Title says San Jacinto Z, given its prior argument in the motion to 

expunge lis pendens it filed in the Pacific Horizon Action, is both collaterally and 

judicially estopped from arguing now that there was a potential for coverage under the 

title policy based on the declaratory relief cause of action and the deeds of trust of record. 

However, “‘[c]ollateral estoppel . . . involves a second action between the same parties on 
2

a different cause of action.’” (Murray v. Alaska Airlines, Inc. (2010) 50 Cal.4th 860, 

867.) Stewart Title was not a party to the Pacific Horizon Action. Moreover, this is not a 

case where we view San Jacinto Z’s arguments made in the various lawsuits as playing 

fast and loose with the courts or perverting the judicial machinery so as to trigger the 

application of the doctrine of judicial estoppel. (See Blix Street Records, Inc. v. Cassidy 

(2010) 191 Cal.App.4th 39, 51.)”

2. After the sentence reading, “To the extent the potential for coverage is 

based on the Pacific Horizon deeds of trust . . . [,]” appearing as the last sentence of the 

first paragraph appearing on page 13, add the following footnote:

“Our holding that there was a triable issue of material fact arising out of 

deeds of trust of record disposes of both Stewart Title’s arguments based on the insuring 

clause and its arguments based on title policy exception B.I.3 and exclusions 3(a) and 

3(d), pertaining to matters not of record, defects created by the insured, and defects 

created after the date the title policy was issued.”

This modification does not effect a change in the judgment. The petition 

for rehearing filed on April 17, 2014 is DENIED.

MOORE, J.

WE CONCUR:

RYLAARSDAM, ACTING P. J.

BEDSWORTH, J.
Filed 4/2/14 San Jacinto Z v. Stewart Title Guaranty CA4/3 (unmodified version)

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for 

publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication 

or ordered published for purposes of rule 8.1115. 

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

SAN JACINTO Z, LLC,

 Plaintiff and Appellant,

v.

STEWART TITLE GUARANTY 

COMPANY,

 Defendant and Respondent.

 G049208

 (Super. Ct. No. RIC535367)

 O P I N I O N

Appeal from a judgment of the Superior Court of Riverside County, Daniel 

A. Ottolia, Judge. Reversed and remanded.

Shernoff Bidart Echeverria Bentley, Michael J. Bidart, Ricardo Echeverria, 

Steven Schuetze; The Ehrlich Law Firm and Jeffrey Isaac Ehrlich for Plaintiff and 

Appellant.

Sidley Austin, Howard J. Rubinroit, Joshua E. Anderson and Anand Singh 

for Defendant and Respondent.

* * *
2

In this appeal, we address one action awkwardly plucked from a thicket of 

lawsuits. These lawsuits arise out of the purported misdeeds of a multitude of persons 

whose allegedly fraudulent activities have affected a single piece of real property. To 

compound an already snarled web, the various lawsuits have run sometimes concurrently 

and sometimes in different court systems altogether, giving rise to perhaps unexpected 

results. At the heart of the now isolated problem before us is the question of title 

insurance for one of the parties, with respect to the property in question.

Plaintiff San Jacinto Z, LLC (San Jacinto Z) sued defendant Stewart Title 

Guaranty Company (Stewart Title) over its failure to provide either a defense, or 

indemnification, as applicable, with respect to three lawsuits: Pacific Horizon Financial, 

Inc. v. R.H. Construction, Inc. (Case No. RIC414925) (Pacific Horizon Action); Richard 

A. Marshack v. San Jacinto Z, LLC (Adv. Case No. 06-01376 ES, Bankr. C.D. Cal.)

(Royce Partners Adversary Proceeding); and Eastern Municipal Water District v. San 

Jacinto Z, LLC (Case No. RIC470147) (Eminent Domain Action). On appeal, San

Jacinto Z claims the court erred in dismissing its lawsuit after granting summary 

judgment in favor of Stewart Title. We agree.

With respect to the Pacific Horizon Action, San Jacinto Z successfully 

raised triable issues of material fact as to whether there was a potential for coverage 

based on matters of record when the title policy was issued and as to whether the statute 

of limitations barred the lawsuit against Stewart Title. Similarly, with respect to the 

Eminent Domain Action, there were triable issues of material fact as to whether the claim 

was a covered claim and whether San Jacinto Z’s failure to submit a proof of loss 

prejudiced Stewart Title. However, the court did not err with respect to its ruling in the 

Royce Partners Adversary Proceeding, inasmuch as the matter was essentially concluded 

by the time San Jacinto Z provided even constructive notice to Stewart Title. We reverse 

and remand.
3

I

FACTS

This litigation concerns a 31.5-acre piece of real property located in the 

City of San Jacinto, County of Riverside

Gregory Grantham and John Saba,

1 who already held a $4,500,000 

judgment they desired to enforce, filed an action against various parties on October 24, 

2002, to set aside certain allegedly fraudulent transfers of the property at issue in this case

(Grantham v. S.R.I. SFR, Inc. (Case No. RIC383812)) (Grantham/Saba Action). On 

April 16 and April 30, 2003, Grantham and Saba recorded amended lis pendens with 

respect to the Grantham/Saba Action.

During the pendency of that action, Royce Partners, L.P. (Royce Partners), 

which was allegedly involved in the fraudulent transfers, borrowed money from Pacific 

Horizon Financial, Inc. (Pacific Horizon). As security for the loan(s), Royce Partners 

executed three deeds of trust against the property in favor of Pacific Horizon, which were 

recorded on August 1, 2003.

San Jacinto Z acquired the property in December 2003, from Grantham, 

Saba, R.H. Construction, Inc. and the Pacific Coast Trust. San Jacinto Z desired to build 

a residential development on the property. 

In June 2004, San Jacinto Z filed a lawsuit against Pacific Horizon and 

others to quiet title to the property (San Jacinto Z, LLC v. Pacific Horizon Financial, Inc. 

(Case No. RIC414463)) (San Jacinto Z Action).

 

1 According to the September 18, 2003 operating agreement of San Jacinto 

Z, San Jacinto Z had three members: GS San Jacinto, LLC, whose managing members 

were Grantham and Saba; Continental San Jacinto, LLC, whose managing member was 

Robert E. Zuckerman; and Valley Circle Estates Realty, Co., whose president was also 

Zuckerman.
4

On June 25, 2004, Royce Partners filed for bankruptcy (In re Royce 

Partners, L.P. (Case No. SA 04-14084 ES, Bankr. C.D. Cal.)) (Royce Partners 

Bankruptcy).

Shortly thereafter, on July 8, 2004, Pacific Horizon filed the Pacific 

Horizon Action, seeking to quiet title against San Jacinto Z, Grantham, Saba, and others. 

Pacific Horizon did not record a lis pendens with respect to its lawsuit until several years 

later. 

The San Jacinto Z Action and the Pacific Horizon Action were 

consolidated.2 

Although Pacific Horizon had not been named as a defendant in the 

Grantham/Saba Action, it appeared in that lawsuit and argued that its interest in the 

property could be affected by the outcome thereof. On November 16, 2004, judgment 

was entered in the Grantham/Saba Action. The judgment identified Royce Partners as a 

defendant, held in favor of Grantham and Saba, and quieted title to the property in San 

Jacinto Z.

3 The judgment made reference to the amended lis pendens recorded by 

Grantham and Saba on April 16 and April 30, 2003, and held that any deeds of trust 

subsequently executed by Royce Partners or any other defendant were void.4 

 

2 According to Stewart Title’s August 22, 2007 denial of tender letter, the 

two actions were consolidated on September 23, 2004.

3 Judge E. Michael Kaiser ruled in that case. The parties refer to the 

Grantham/Saba Action as the “Kaiser Action” and refer to the judgment as the “Kaiser 

Judgment.” We find these labels to be inappropriate, so we refer to the action and the 

judgment in question as the “Grantham/Saba Action” and the “Grantham/Saba Judgment” 

instead.

4 The judgment stated, inter alia: “Each grant deed and deed of trust which 

conveyed, transferred, or encumbered all or part of the San Jacinto Property, 

commencing after . . . September 6, 2002, and concluding with the transfer of title by 

Royce Industries, Inc. to Royce Partners, L.P. on April 30, 2003 were fraudulent transfers 

and encumbrances under the Uniform Fraudulent Transfer Act. . . . The fraudulent deeds 

and deeds of trust are hereby set aside, annulled and vacated, . . . as follows: [¶] a. The 
5

Pacific Horizon moved to set aside the judgment in the Grantham/Saba 

Action, on the ground that it was an indispensable party that had not been joined, but the 

court denied the motion.

On March 10, 2005, San Jacinto Z obtained a title insurance policy from 

Stewart Title. 

On May 24, 2006, the trustee in the Royce Partners Bankruptcy filed a 

complaint against San Jacinto Z, Grantham, Saba, Stephen Reeder, R.H. Construction, 

Inc., Selinda Lopez both individually and as trustee of the Pacific Coast Trust, and John 

Cruickshank, thereby commencing the Royce Partners Adversary Proceeding. The 

complaint stated 17 claims for relief, including, inter alia, claims for fraud, conspiracy, 

avoidance of fraudulent and/or preferential transfers, quiet title, and damages for willful 

violation of the automatic stay in bankruptcy. 

Pacific Horizon filed first and second amended complaints in the Pacific 

Horizon Action on January 8 and April 16, 2007, respectively. The two amended 

complaints were substantially the same. In the second amended complaint, Pacific 

Horizon omitted the quiet title cause of action and asserted causes of action for equitable 

subordination, unjust enrichment, and declaratory relief instead.

On June 1, 2007, San Jacinto Z tendered to Stewart Title the San Jacinto Z 

Action and the defense of the second amended complaint in the Pacific Horizon Action.

In its letter, it made mention of the Royce Partners Adversary Proceeding. On July 6, 

2007, the Royce Partners Adversary Proceeding was dismissed with prejudice. On 

August 22, 2007, Stewart Title denied the tender of the Pacific Horizon Action.

 

Grant Deed executed by Royce Industries, Inc. . . . , as Grantor, in favor of Royce 

Partners, L.P., as Grantee, dated April 30, 2003, . . . is set aside, annulled and declared 

void; [¶] . . . [¶] g. Any other deeds or deeds of trust, . . . executed by any of the 

defendants purportedly encumbering or transferring the San Jacinto Property, recorded in 

any jurisdiction, after the date of Plaintiffs’ recording of their amended lis pendens are set 

aside, annulled and declared void.”
6

Judgment was entered in the consolidated San Jacinto Z and Pacific 

Horizon Actions on May 20, 2009. The judgment provided that San Jacinto Z take 

nothing on its complaint against Pacific Horizon in the San Jacinto Z Action. 

In the Pacific Horizon Action, the judgment granted to Pacific Horizon 

equitable subrogation with respect to the numerous liens retired by the proceeds of its 

loan funded August 1, 2003. The retired liens were liens recorded from July 19, 2001 

through August 1, 2003, which, together with attorney fees, totaled $13,168,854.63. The 

judgment held that, based on equitable subrogation, the lien rights of Pacific Horizon, in 

that amount, were senior to any interest of San Jacinto Z in the property. However, the 

court held that Pacific Horizon was not entitled to a money judgment against San Jacinto 

Z on the theory of unjust enrichment.

On September 1, 2009, San Jacinto Z filed its lawsuit against Stewart Title 

for bad faith, breach of contract, and declaratory relief. In its first amended complaint, 

San Jacinto Z alleged that Stewart Title wrongfully failed to defend and indemnify it with 

respect to the Pacific Horizon Action, the Royce Partners Adversary Proceeding, and the 

Eminent Domain Action, which we shall describe at a later point.

Stewart Title filed a motion for summary judgment with respect to San 

Jacinto Z’s first amended complaint. The court granted summary judgment in favor of 

Stewart Title and entered a judgment of dismissal. San Jacinto Z appeals.5

 

5 In the underlying lawsuit, San Jacinto Z also sued Stewart Title of 

California, Inc. and Stewart Information Services Corporation. The summary judgment 

motions of those two entities were also granted. In its notice of appeal, San Jacinto Z 

challenged the judgment in favor of each defendant. However, in its briefing on appeal, 

San Jacinto Z makes no argument concerning the judgment in favor of Stewart Title of 

California, Inc. and Stewart Information Services Corporation. Consequently, any 

challenge with respect to the judgment in their favor is deemed waived. (G.R. v. 

Intelligator (2010) 185 Cal.App.4th 606, 610, fn. 1.) 
7

II

DISCUSSION

A. SUMMARY JUDGMENT REVIEW:

“Under summary judgment law, any party to an action, whether plaintiff or 

defendant, ‘may move’ the court ‘for summary judgment’ in his [or her] favor on a cause 

of action . . . or defense (Code Civ. Proc., § 437c, subd. (a))—a plaintiff ‘contend[ing]. . . 

that there is no defense to the action,’ a defendant ‘contend[ing] that the action has no 

merit’ (ibid.). The court must ‘grant[]’ the ‘motion’ ‘if all the papers submitted show’ 

that ‘there is no triable issue as to any material fact’ (id., § 437c, subd. (c))—that is, there 

is no issue requiring a trial as to any fact that is necessary under the pleadings and, 

ultimately, the law [citations]—and that the ‘moving party is entitled to a judgment as a 

matter of law’ (Code Civ. Proc., § 437c, subd. (c)).” (Aguilar v. Atlantic Richfield Co. 

(2001) 25 Cal.4th 826, 843.)

“[I]n moving for summary judgment, a ‘defendant . . . has met’ his [or her] 

‘burden of showing that a cause of action has no merit if’ he [or she] ‘has shown that one 

or more elements of the cause of action . . . cannot be established, or that there is a 

complete defense to that cause of action. Once the defendant . . . has met that burden, the 

burden shifts to the plaintiff . . . to show that a triable issue of one or more material facts 

exists as to that cause of action or a defense thereto. . . .’ (Code Civ. Proc., § 437c, subd. 

(o)(2).)”6 (Aguilar v. Atlantic Richfield Co., supra, 25 Cal.4th at p. 849.)

On review of a summary judgment, we “examine the record de novo and 

independently determine whether [the] decision is correct. [Citation.]” (Colarossi v. 

Coty US Inc. (2002) 97 Cal.App.4th 1142, 1149.) 

 

6 See now Code of Civil Procedure section 437c, subdivision (p)(2).
8

B. PACIFIC HORIZON ACTION:

(1) Pleadings and Ruling in Action against Stewart Title—

In its first amended complaint, San Jacinto Z alleged that after the 

Grantham/Saba Judgment was entered on November 16, 2004, it sought financing to 

develop the property. In order to obtain financing, it needed a title insurance policy. 

Alliance Title wanted $10,000 in fees just to review title on the property.

San Jacinto Z further alleged that its attorney contacted Stewart Title, and 

disclosed that the property had been involved in substantial litigation and that Alliance 

Title ultimately had declined to issue a title policy to San Jacinto Z. With this 

information in hand, Stewart Title nevertheless chose to insure title in San Jacinto Z, 

effective March 10, 2005.

San Jacinto Z recited that it tendered the defense of the Pacific Horizon

Action to Stewart Title on June 1, 2007 and Stewart Title refused the tender on August 

22, 2007. San Jacinto Z thereafter agreed to submit the Pacific Horizon Action to 

arbitration. The arbitrator imposed a lien in the amount of $13,168,854.63 on the 

property, in favor of Pacific Horizon.

In its first amended complaint, San Jacinto Z further asserted that Stewart 

Title acted in bad faith in denying a defense of the Pacific Horizon Action and breached 

the terms of the title policy by both refusing to defend the lawsuit and refusing to 

indemnify it with respect to the arbitration award. In addition, San Jacinto Z sought 

declaratory relief with respect to its rights against Stewart Title.

In its motion for summary judgment, Stewart Title argued it had no duty to 

defend the Pacific Horizon Action because it was not covered by the title policy and San 

Jacinto Z’s action against it was time-barred.

In its opposition to the motion, San Jacinto Z emphasized that Stewart Title 

knowingly chose to issue a title policy that did not exclude coverage with respect to 

claims based on the Pacific Horizon deeds of trust. San Jacinto Z contended that the title 
9

policy covered its claim based on the Pacific Horizon Action because it arose out of 

deeds of trust of record at the time the title policy was issued. It also asserted that, 

Pacific Horizon’s allegations of tortious conduct notwithstanding, Stewart Title still had a 

duty to defend because there was a potential for coverage based on claims arising out of 

the recorded deeds of trust. In addition, San Jacinto Z argued that its action against 

Stewart Title was timely because the statute of limitations began to run only on January 

8, 2007, when Pacific Horizon filed its first amended complaint in the Pacific Horizon 

Action, or in the alternative, that Stewart Title received constructive tender of the claim 

on the date the title policy was issued and the statute of limitations was equitably tolled 

while San Jacinto Z litigated the matter.

The trial court ruled in favor of Stewart Title for a number of reasons, 

including: (1) the claim based on the Pacific Horizon second amended complaint was not 

covered by the title policy insuring clause; (2) the claim fell within various policy 

exclusions and exceptions; and (3) the lawsuit was barred by the statute of limitations. 

We hold that the trial court erred in granting summary judgment, for reasons we shall 

show.

(2) Allegations of Pacific Horizon’s Second Amended Complaint—

In its second amended complaint, Pacific Horizon alleged that the 

November 16, 2004 judgment in the Grantham/Saba Action, as well as a judgment in 

another lawsuit filed by Grantham and Saba, “quieted title to the Property in Defendants 

Grantham, Saba and/or San Jacinto.” This being the case, the second amended complaint 

of Pacific Horizon no longer contained the quiet title cause of action that had been 

asserted in the original complaint. Instead, the second amended complaint asserted 

causes of action for equitable subordination, unjust enrichment, and declaratory relief.

Pacific Horizon alleged that Grantham and Saba had colluded with San 

Jacinto Z to unlawfully take the property from Royce Partners. More specifically, it 

alleged that on June 27, 2003, Grantham, who was aware that Pacific Horizon was 
10

potentially refinancing certain loans on the property, wrote to counsel for Royce Partners 

and represented that he intended to file a petition for a writ of mandate before July 16, 

2003 to challenge a June 26, 2003 order expunging certain lis pendens on the property; 

however, Grantham did not in fact do so by the date represented. Then, on June 30, 

2003, Stephen Reeder, a stranger to Royce Partners who had no authority to act on its 

behalf, executed a deed purporting to convey title from Royce Partners to defendants 

Grantham, Saba, R.H. Construction, Inc. and Lopez and thereby fraudulently divested 

Royce Partners of title to the property.

However, believing Royce Partners to be the record owner of the property, 

Pacific Horizon, on August 1, 2003, funded a $4.425 million loan to Royce Partners for 

the purpose of retiring certain preexisting debt on the property. Three days later, Pacific 

Horizon received a letter from Grantham stating that he had filed his challenge to the 

expungement order on July 18, 2003. The Court of Appeal later overturned the 

expungement order, thereby restoring the lis pendens.

On December 31, 2003, defendants Grantham, Saba, R.H. Construction, 

Inc. and Lopez deeded their interests in the property to San Jacinto Z.

Thereafter, according to Pacific Horizon, San Jacinto Z and Cruickshank 

further fraudulently divested Royce Partners of title to the property through a series of 

deeds executed between May 18, 2004 and July 8, 2004.

Pacific Horizon also alleged that Royce Partners filed for bankruptcy on 

June 25, 2004, thereby staying Pacific Horizon’s foreclosure proceeding against it. 

While Pacific Horizon seemed to acknowledge that the November 16, 2004 judgment in 

the Grantham/Saba Action quieted title to the property, it also alleged that the judgment 

was entered in violation of the bankruptcy stay.

Notably, Pacific Horizon alleged: “Because this Court cannot directly 

remedy the [Bankruptcy Code] violations, Plaintiff must pursue its causes of action in 

this Court to redress the fraudulent, inequitable and unjust conduct of defendants 
11

Grantham, Saba and San Jacinto, who have worked in concert unfairly and unlawfully to 

take the Property from Royce Partners while ignoring any obligations to Plaintiffs as a 

bona fide lender on, and secured creditor in, the Property.”

Pacific Horizon sought equitable subrogation because, when it loaned the 

money to Royce Partners to pay off existing debts on the property, it believed the Pacific 

Horizon deeds of trust would have first priority. It claimed that “[u]nder the doctrine of 

equitable subrogation, [it was] entitled to the rights and payments owed to the lenders 

whose loans were paid off by the proceeds of” its loan to Royce Partners. It also sought a 

constructive trust on the property in connection with the equitable subrogation. In 

addition, Pacific Horizon claimed that its satisfaction of the preexisting debts on the 

property had the effect of unjustly enriching San Jacinto Z by an amount exceeding 

$4,425,000, for which it sought compensatory damages.

In its cause of action for declaratory relief, Pacific Horizon incorporated by 

reference its preceding allegations and stated simply that “[a] judicial determination 

[was] necessary and appropriate . . . to determine the parties’ respective rights, duties and 

liabilities with respect to the Property.” In its prayer for relief with respect to that cause 

of action, Pacific Horizon requested a judgment declaring it to have priority interests in 

the property pursuant to its three deeds of trust recorded August 1, 2003.

(3) Coverage Analysis—

In its motion for summary judgment, Stewart Title argued, inter alia, that 

when Pacific Horizon filed its second amended complaint, it abandoned its quiet title 

action based on the priority of its deeds of trust and instead based its causes of action on 

tortious conduct not covered by the title policy.

The insuring clause of the title policy, as relevant here, is the same as the 

one at issue in Liberty National Enterprises, L.P. v. Chicago Title Ins. Co. (2013) 217 

Cal.App.4th 62, 69. “In pertinent part, the policy provides that [the title company] 

insures [the insured] against loss or damage, as of the date of the policy, ‘by reason of: 
12

[¶] 1. Title to the estate or interest described in Schedule A being vested other than as 

stated therein; [or] [¶] 2. Any defect in or lien or encumbrance on the title.’” (Ibid.) The 

court in Liberty National held that the insuring clause did not cover the lawsuit at issue 

there, because the lawsuit “did not allege defective title, but tortious conduct in the 

manner in which [the insured] acquired title. There was no potential for coverage and 

therefore no duty to defend . . . .” (Id. at p. 81.) It emphasized that “title insurance does 

not protect against alleged tortious conduct by the insured . . . .” (Id. at p. 77.)

In the matter before us, Pacific Horizon alleged title defects in its original 

complaint for quiet title. However, in its second amended complaint, Pacific Horizon 

omitted a quiet title cause of action and appeared to concede that the Grantham/Saba 

Judgment had quieted title in San Jacinto Z. It said that it brought its second amended 

complaint to redress certain fraudulent and otherwise inequitable conduct.

On appeal, San Jacinto Z “fully admits that claims arising purely from its 

conduct or Pacific Horizon’s attempts to obtain an equitable lien are not covered.” 

However, it reminds us that the second amended complaint contained a declaratory relief 

action based on the facts alleged, including the facts regarding Pacific Horizon’s recorded 

deeds of trust. Indeed, we observe the prayer for relief with respect to the declaratory 

relief cause of action specifically requested a judgment declaring Pacific Horizon’s 

interest in the property pursuant to its three deeds of trust recorded August 1, 2003 “as 

valid and first against all adverse claims, rights, titles, estates, liens or interests in or to 

said property asserted or held by Defendants or any of them.” In other words, while one 

portion of the second amended complaint appeared to concede that Pacific Horizon was 

pursuing only claims based on tortious conduct, another portion thereof seemed to 

indicate that Pacific Horizon was continuing to pursue the vitality of its recorded deeds of 

trust.
13

San Jacinto Z emphasizes that if there is even a potential that the claim is 

covered, the insurer has a duty to defend. “‘However, “‘where there is no possibility of 

coverage, there is no duty to defend. . . .’” [Citation.]’” (Liberty National Enterprises, 

L.P. v. Chicago Title Ins. Co., supra, 217 Cal.App.4th at p. 76.) San Jacinto Z says there 

was a potential for coverage based on the possibility that Pacific Horizon could prevail on 

the enforceability of its deeds of trust, even though Pacific Horizon also alleged that San 

Jacinto engaged in fraudulent and inequitable conduct. To the extent the potential for 

coverage is based on the Pacific Horizon deeds of trust, however, a statute of limitations 

issue arises.

(4) Statute of Limitations Analysis—

(a) Code of Civil Procedure section 339

The statute of limitations at issue in this case is found in Code of Civil 

Procedure section 339. Section 339 provides that a lawsuit based upon a title insurance 

policy must be brought within two years and that a cause of action based upon such a 

policy “shall not be deemed to have accrued until the discovery of the loss or damage 

suffered by the aggrieved party thereunder.”

(b) Accrual of cause of action

In its opening brief, San Jacinto Z concedes that the Pacific Horizon second 

amended complaint “repeated the factual allegations that gave rise to its 2004 complaint 

for ‘quiet title.’” So, San Jacinto Z basically admits that Pacific Horizon’s quiet title 

claim has been litigated since 2004. Yet it did not tender the defense of the Pacific 

Horizon Action to Stewart Title until June 2007.

Stewart Title argued in its motion for summary judgment that San Jacinto 

Z’s action against it was time-barred, under Code of Civil Procedure section 339. 

Stewart Title asserted that San Jacinto Z had discovered the potential loss or damage 

from the Pacific Horizon Action no later than August 20, 2004, when San Jacinto Z 

answered the quiet title complaint. However, Stewart Title conceded that San Jacinto Z’s 
14

claim against it arising out of the quiet title action could not accrue before March 10, 

2005—the issuance date of the title policy. Stewart Title argued that, under the two-year 

statute of limitations set forth in section 339, San Jacinto Z had only until March 10, 2007 

to file its bad faith action. Since San Jacinto Z did not file the action until September 1, 

2009, it was time-barred.

In opposition, San Jacinto Z stated: “By the time the Policy was issued, 

San Jacinto had already obtained the [Grantham/Saba] Judgment, so it believed 

(incorrectly) that Pacific Horizon’s deeds of trust were a nonissue. San Jacinto only 

realized that a claim still potentially existed on January 8, 2007 when Pacific Horizon 

filed its [first amended complaint].”

In other words, Pacific Horizon’s quiet title action had been pending since 

2004, but San Jacinto Z only realized it could suffer a loss from that claim when, in 2007, 

Pacific Horizon stated in its amended complaint that the Grantham/Saba Judgment had 

quieted title so it would proceed instead on fraud and tort claims. San Jacinto Z’s 

argument is a non sequitur.7 

Clearly, Stewart Title is correct that San Jacinto Z knew of the potential 

loss from Pacific Horizon’s quiet title claim no later than August 20, 2004, when San 

Jacinto Z filed its answer. It’s just that, as San Jacinto Z concedes, it “incorrectly” 

believed that Pacific Horizon’s claim was no threat after the Grantham/Saba Judgment 

was entered. When Pacific Horizon filed its amended complaint, San Jacinto Z did not 

learn for the first time that Pacific Horizon had a claim based on its deeds of trust. If

there was anything San Jacinto Z then learned for the first time, it was that Pacific 

Horizon doubted its ability to prevail on its quiet title claim, so it levied claims based on 

 

7 San Jacinto Z’s assertion is also hard to reconcile with the dockets in the 

consolidated San Jacinto Z and Pacific Horizon Actions, which span nearly 100 pages 

and show continuous activity in the litigation from inception in 2004 through judgment in 

2009.
15

fraud and other tortious activity instead. The filing of the first amended complaint simply 

cannot be fairly construed as the date San Jacinto Z discovered its potential loss based on 

Pacific Horizon’s quiet title claims.

However, it would be nonsensical, and contrary to case law, to construe the 

two-year limitations period to run from August 20, 2004, inasmuch as San Jacinto Z was 

not then insured. (Smeaton v. Fidelity Nat. Title (1999) 72 Cal.App.4th 1000.) Even so, 

San Jacinto Z could have tendered the litigation to Stewart Title as early as March 10, 

2005, when the title policy was issued.

(c) Constructive tender and tolling

As to that, San Jacinto Z argued in its opposition that the claim was 

constructively tendered to Stewart Title on the date the policy was issued, inasmuch as 

Stewart Title was aware of the litigation before the title policy was issued, and that 

“because [it] knew about the [Pacific Horizon] Action, the statute of limitations was 

equitably tolled while San Jacinto attempted to leverage the [Grantham/Saba] Judgment 

against Pacific Horizon.” (OneBeacon America Ins. Co. v. Fireman’s Fund Ins. Co. 

(2009) 175 Cal.App.4th 183, 200 [tender to insurer can be constructive]; Stalberg v. 

Western Title Ins. Co. (1994) 27 Cal.App.4th 925, 932-934 [limitations period can be 

equitably tolled during pursuit of litigation].) 

San Jacinto Z essentially argued, as it clarifies in its reply brief on appeal, 

that Stewart Title agreed to insure over both Pacific Horizon’s deeds of trust and the 

pending litigation. (See Southland Title Corp. v. Superior Court (1991) 231 Cal.App.3d 

530, 538 [title insurer may choose to insure over title defect based on underwriting 

decision].) The logical extension of this argument is that for the payment of a premium

Stewart Title: (1) took the risk that the Grantham/Saba Judgment would not put an end to 

Pacific Horizon’s claims; (2) agreed to defend San Jacinto Z in the litigation if and when 

requested to do so, and had the opportunity to protect itself by undertaking the defense of 

the Pacific Horizon Action from the day the title policy was issued if it so chose; and (3) 
16

agreed to indemnify San Jacinto Z for any judgment that might be entered against it 

based on the Pacific Horizon deeds of trust or the Pacific Horizon Action. Were that the 

agreement of the parties, the lawsuit against Stewart Title would not necessarily be timebarred if the statute of limitations were tolled either (1) during the period of time that San 

Jacinto Z defended the Pacific Horizon Action on its own (Stalberg v. Western Title Ins. 

Co., supra, 27 Cal.App.4th at pp. 932-934 [equitable tolling during pursuit of litigation]),

or (2) until judgment was entered in the Pacific Horizon Action and the amount of San 

Jacinto Z’s loss was determined (Lambert v. Commonwealth Land Title Ins. Co. (1991) 

53 Cal.3d 1072, 1080 [tolling until final judgment in underlying action]).8

(d) Triable issue of material fact

Whether a statute of limitations has run is ordinarily a question of fact. 

(Lee v. Fidelity National Title Ins. Co. (2010) 188 Cal.App.4th 583, 600.) Furthermore, a

title insurance policy “‘“‘“must be construed so as to give the insured the protection 

which he reasonably had a right to expect, . . . .”’ (Original italics.) [Citation.]”’” 

(Id. at p. 595.) 

The question before us on appeal is whether San Jacinto Z provided enough 

evidence to raise a triable issue of material fact as to whether Stewart Title actually

agreed to insure over the title defects in the manner San Jacinto Z alleges and, if so, 

whether San Jacinto Z’s lawsuit against Stewart Title was timely filed. The evidence 

provided included copies of: (1) a declaration of Robert Zuckerman; (2) a letter from 

Attorney Sue Balistocky to Stewart Title; (3) an Alliance Title preliminary report; (4) a 

Stewart Title Company internal report; and (5) the title insurance policy Stewart Title 

issued to San Jacinto Z. 

 

8 Under this theory, 65 Butterfield v. Chicago Title Ins. Co. (1999) 70 

Cal.App.4th 1047 and Tabachnick v. Ticor Title Ins. Co. (1994) 24 Cal.App.4th 70 are 

distinguishable because in those cases there was no allegation that the title insurer was 

fully aware of the pending litigation at the time the title insurance policy was issued and 

indeed agreed to assume the risk of an adverse outcome.
17

Zuckerman described himself as the managing member of San Jacinto Z. 

He declared that once the Grantham/Saba Judgment had been entered, San Jacinto Z 

believed that title had been quieted in its favor and the title issues affecting the property 

had been resolved. So, in order to develop the property, San Jacinto Z sought title 

insurance from Alliance Title. Although Alliance Title issued a preliminary report, it

demanded $10,000 just to perform a further review of the public records and litigation 

affecting the property.

Zuckerman further declared that counsel for San Jacinto Z, Attorney Sue 

Balistocky, thereafter contacted Stewart Title about title insurance and that San Jacinto Z 

provided Stewart Title with a copy of the Alliance Title report. Zuckerman continued on 

to state that Stewart Title agreed to issue a title policy insuring title in San Jacinto Z 

without exception for the Pacific Horizon deeds of trust. San Jacinto Z paid the required 

premium and the title policy was issued effective March 10, 2005.

In her January 27, 2005 letter to Collyer Church of Stewart Title, Attorney 

Balistocky asked if he “could work [his] magic and have Stewart Title issue an owner’s 

policy . . . forthwith . . . .” She explained: “The subject property was involved in 

SUBSTANTIAL litigation and fraudulent conveyances as reflected in the Alliance Title 

Company’s preliminary title report which I will try to send you once we speak . . . .” 

Attorney Balistocky opined that “after much litigation, and two summary judgment 

motions, these matters have been resolved” and that “a superior court judge ruled in a 

summary judgment motion that title to this property resided with our clients.” 

Nonetheless, she said, Alliance Title had changed its mind about issuing title insurance to 

her client. Attorney Balistocky further said that there was an “immediate crisis [in] that 

the construction loan [was] supposed to fund in less than 2 weeks and it is imperative that 

owner’s and construction policies be issued forthwith.”
18

The preliminary report that Zuckerman said was provided to Stewart Title

was dated September 9, 2004, prior to the date of the Grantham/Saba Judgment, and 

showed that title to the property was vested in Royce Partners. It identified the lis 

pendens filed in the San Jacinto Z Action as an exception to title, and made reference to 

the San Jacinto Z Action itself. That lis pendens was also listed on an internal report of 

Stewart Title Company dated January 31, 2005.

9

The title policy Stewart Title issued on March 10, 2005 showed the 

property vested in San Jacinto Z, subject to exceptions to title listed on over 30 pages. 

Neither the Pacific Horizon deeds of trust nor the San Jacinto Z lis pendens recorded in 

the San Jacinto Z Action were listed among the exceptions to title.

The foregoing evidence was sufficient to raise a triable issue of material 

fact as to whether San Jacinto Z disclosed to Stewart Title the existence of the San 

Jacinto Z Action, including the Pacific Horizon Action with which it had been 

consolidated, and requested that Stewart Title insure around the Pacific Horizon deeds of 

trust and the Pacific Horizon Action, and whether the issuance of the title policy without 

reference to either the San Jacinto Z lis pendens or the Pacific Horizon deeds of trust 

indicated an agreement on the part of Stewart Title to defend the Pacific Horizon Action 

upon request and to indemnify San Jacinto Z with respect to an adverse judgment, arising 

 

9 At oral argument, counsel for Stewart Title acknowledged that there was a 

lis pendens of record in the San Jacinto Z Action, with which the Pacific Horizon Action 

was consolidated, when the title insurance policy was issued. However, he said Stewart 

Title had no obligation to go beyond the lis pendens, look at the docket of the case, and 

find out it was consolidated with another case. However, “[a] title insurer issues its 

policies on the basis of, and in reliance on, its own investigation into recorded 

instruments, which should impart constructive notice. [Citation.] . . . To a large extent, 

therefore, the title insurer is able to control the degree of risk it undertakes in issuing a 

policy by performing its own investigation beforehand. [Citation.]” (Liberty National 

Enterprises, L.P. v. Chicago Title Ins. Co., supra, 217 Cal.App.4th at p. 75.) To the 

extent that Stewart Title chose to issue title insurance without investigating the nature of 

the pending litigation, it was perhaps a little cavalier in doing so, and thereby exposed 

itself to risk. 
19

out of the Pacific Horizon deeds of trust or the Pacific Horizon Action, entered at any 

time in the future. In the context of this summary judgment matter, it is not for us to 

guess the likelihood that Stewart Title made that agreement or to comment on the wisdom 

of such an agreement if made. We only state that the evidence San Jacinto Z provided is 

sufficient to defeat Stewart Title’s motion for summary judgment.

C. ROYCE PARTNERS ADVERSARY PROCEEDING:

(1) Pleadings and Ruling in Action against Stewart Title—

In its first amended complaint against Stewart Title, San Jacinto Z alleged 

that it incurred approximately $400,000 in legal fees and costs in defending the Royce 

Partners Adversary Proceeding. It further alleged that it tendered the defense of the 

proceeding to Stewart Title on June 1, 2007 and that Stewart Title denied the tender in 

the same August 22, 2007 letter in which it denied the tender of the Pacific Horizon 

Action.

In granting summary judgment, the trial court held that Stewart Title had no 

duty to defend the Royce Partners Adversary Proceeding for many reasons, including: 

(1) San Jacinto Z never tendered the action to Stewart Title; (2) San Jacinto Z never 

provided a proof of loss to Stewart Title; (3) the insuring clause of the title policy did not 

cover the Royce Partners Adversary Proceeding; (4) coverage was excluded and/or 

excepted by various different provisions of the title policy; and (5) any cause of action 

against Stewart Title was barred by the statute of limitations. 

We need not address each one of these holdings. Suffice it to say, even if 

we construe the June 1, 2007 letter as constructive notice to Stewart Title of the Royce 

Partners Adversary Proceeding, Stewart Title had no duty to defend because investigation 

would have shown that the litigation had concluded already. (OneBeacon America Ins. 

Co. v. Fireman’s Fund Ins. Co., supra, 175 Cal.App.4th at p. 200.) 
20

(2) Background—

As we have stated, the bankruptcy trustee filed the Royce Partners 

Adversary Proceeding on May 24, 2006. The trustee’s complaint, seeking to quiet title,

alleged, inter alia, that Royce Partners had superior title to that of San Jacinto Z. The 

trustee asserted that Royce Partners held title to the property when it obtained a 

$4,000,000 loan from Pacific Horizon, as evidenced by promissory notes dated June 20, 

2003, secured by deeds of trust recorded August 1, 2003. San Jacinto answered the 

complaint on December 8, 2006.

In the June 1, 2007 tender letter, counsel for San Jacinto Z described the 

San Jacinto Z Action and the Pacific Horizon Action. He then stated: “On behalf of San 

Jacinto Z, we hereby tender the San Jacinto Z Complaint and the [Pacific Horizon] 

Second Amended Complaint filed in the above actions to Stewart Title for defense and 

indemnity.”

After two full paragraphs of discussion of the San Jacinto Z Action and the 

Pacific Horizon Action, counsel said: “San Jacinto Z also has been named as a defendant 

in a related adversary proceeding in the bankruptcy proceeding captioned In re Royce 

Partners Bankruptcy Proceeding, U.S. Bankruptcy Court, Case No. SA-04-14084 . . . . 

Recently, Judge Smith granted San Jacinto Z’s motion for summary judgment. The 

proposed order has been submitted to Judge Smith. . . . San Jacinto Z filed . . . a motion 

to dismiss the bankruptcy case. Since that motion was filed, the Bankruptcy Trustee and 

The United States Trustee [sic] has agreed to dismiss the entire bankruptcy action. At the 

hearing on San Jacinto Z’s motion today, May 31, 2007, Judge Smith granted San Jacinto 

Z’s, the Bankruptcy Trustee’s and the United States Trustee’s stipulation for an order 

dismissing the bankruptcy with prejudice. The proposed stipulated order has been 

submitted to the Court.”
21

In a separate paragraph concluding the letter, counsel stated: “Accordingly, 

we ask for your prompt evaluation and response.” About a month later, on July 6, 2007, 

the Royce Partners Adversary Proceeding was dismissed with prejudice. 

On August 22, 2007, Stewart Title, in response to the June 1, 2007 letter, 

sent San Jacinto Z an 18-page coverage analysis of the Pacific Horizon Action. San 

Jacinto Z filed its lawsuit against Stewart Title, at issue in this appeal, on September 1, 

2009.

(3) Analysis re Duty to Defend—

In its motion for summary judgment, Stewart Title asserted it had no duty 

to defend the Royce Partners Adversary Proceeding for several reasons. The first reason 

was that San Jacinto Z had never tendered the defense of that action. Stewart Title 

maintained that the June 1, 2007 letter, in which San Jacinto Z made mention of the 

Royce Partners Adversary Proceeding, was only a tender of the Pacific Horizon Action. 

It cited North Star Reinsurance Corp. v. Superior Court (1992) 10 Cal.App.4th 1815, for 

the proposition that “the duty . . . to defend had never arisen because [the insured] had 

never tendered the defense . . . . [Citation.]” (Id. at p. 1823.) We observe North Star 

Reinsurance Corp. continues on to state: “‘The duty [to defend] commences upon tender 

of the defense, and continues until the underlying lawsuit is concluded. [Citation.]’.[]” 

(Ibid.) We further observe that the lawsuit, here the Royce Partners Adversary 

Proceeding, was dismissed with prejudice on July 6, 2007.

In its opposition to the motion for summary judgment, San Jacinto Z said 

Stewart Title had a duty to defend all of the lawsuits at issue because they arose out of 

deeds of trust recorded prior to the issuance date of the title policy and because title 

policy exclusion 3(a) was inapplicable. It did not, however, respond to the argument that 

Stewart Title had no duty to defend the Royce Partners Adversary Proceeding because 

San Jacinto Z had never tendered the defense of that matter.
22

San Jacinto Z only tangentially touched upon the issue in its discussion of 

the statute of limitations. It said Stewart Title’s argument that the statute of limitations 

had run was predicated on the notion that the June 1, 2007 letter did not constitute a 

tender of defense. San Jacinto Z then cited OneBeacon America Ins. Co. v. Fireman’s 

Fund Ins. Co., supra, 175 Cal.App.4th 183 for the proposition that a duty to defend can

arise upon constructive notice and that an insurer’s obligation for defense costs arises 

where the insurer’s diligent investigation would have revealed potential exposure and 

provided the insurer an opportunity to participate in the defense of the litigation.

San Jacinto Z continued its discussion of the statute of limitations by stating 

that, under OneBeacon America Ins. Co. v. Fireman’s Fund Ins. Co., supra, 175 

Cal.App.4th 183, the June 1, 2007 letter constituted constructive notice of the litigation 

and the statute of limitations was thereafter tolled (impliedly indefinitely) because 

Stewart Title did not respond to the portion of the June 1, 2007 letter addressing the 

Royce Partners Adversary Proceeding.

10 In concluding its argument on the statute of 

limitations, San Jacinto Z stated: “By denying liability on other grounds, Stewart Title 

has waived any claim that San Jacinto forfeited its right to defense or indemnity by 

failing to provide earlier notice of the litigation.”

There are a couple of reasons why this statement did not serve to raise a 

triable issue of material fact as to whether or not Stewart Title had a duty to defend the 

Royce Partners Adversary Proceeding. First, the statement about Stewart Title’s denial 

of liability is contradictory to the parties’ undisputed material facts. In their undisputed 

material facts, San Jacinto Z and Stewart Title agreed that Stewart Title had denied the 

 

10 In its first amended complaint, to which the motion for summary judgment 

pertains, San Jacinto Z alleged that Stewart Title, in its August 22, 2007 coverage letter, 

denied the tender not only of the Pacific Horizon Action but also of the Royce Partners 

Adversary Proceeding. However, after Stewart Title filed is motion for summary 

judgment, San Jacinto Z changed its tune and alleged in its opposition and in its second 

amended complaint that Stewart Title never denied the tender.
23

tender with respect to the Pacific Horizon Action but had not opined as to coverage with 

respect to the Royce Partners Adversary Proceeding. Indeed, in its additional facts and 

evidence in opposition to summary judgment, San Jacinto Z, as its material fact No. 47, 

stated: “On August [22], 2007 Stewart Title responded with a letter denying the tender of 

the PHF Action, but it did not address the Royce Action.” 

Second, the two cases San Jacinto Z cited in support of its waiver argument 

were inapposite. It cited CNA Casualty of California v. Seaboard Surety Co. (1986) 176 

Cal.App.3d 598 and Clemmer v. Hartford Insurance Co. (1978) 22 Cal.3d 865. In CNA 

Casualty of California v. Seaboard Surety Co., supra, 176 Cal.App.3d 598, the insured 

tendered the defense of an amended complaint to the insurer about four months after it 

was filed and the insurer denied the tender. Judgment was entered against the insured 

nearly three years later. (Id. at p. 604.) In a subsequent lawsuit, the insurer was held 

liable to share in the posttender costs of defense, inasmuch as the insurer had adequate 

notice of the litigation and an opportunity to prevent substantial prejudice to its interests. 

(Id. at pp. 604-605, 617.) In the matter before us, in contrast, the insurer did not have 

notice of the litigation or an opportunity to prevent substantial prejudice to its interests 

and it was being asked to cover “pre-tender” costs, not posttender costs.

In Clemmer v. Hartford Insurance Co., supra, 22 Cal.3d 865, a third party 

obtained a judgment against the insured in a wrongful death action and then filed suit 

against the insurer for satisfaction of the judgment. (Id. at p. 871.) The insurer had 

learned about the case the day before the hearing on a motion for entry of default against 

the insured and it disclaimed coverage about two weeks thereafter. (Id. at p. 881.) The 

court held the insurer was liable to satisfy the judgment. It observed that the right of a 

third party to sue an insurer for satisfaction of a judgment was established by statute and 

that the insurer could not defend itself on the basis of the insured’s failure to comply with 

a notice provision unless it could demonstrate prejudice. (Id. at p. 882.) In the matter 

before us, however, we are not dealing with the rights of a third party to collect on a
24

judgment against the insured. Moreover, San Jacinto Z did not state why the rule 

regarding the insurer’s obligation to satisfy a judgment against an insured should apply to 

an insurer’s obligation to reimburse an insured for attorney fees it incurred without notice 

to the insurer and without giving the insurer an opportunity to participate in the litigation.

So, even if we construe San Jacinto Z’s June 1, 2007 letter to Stewart Title 

as constructive notice of the Royce Partners Adversary Proceeding, we conclude that San 

Jacinto Z failed to raise a triable issue of material fact as to whether Stewart Title had a 

duty to defend. “[A]lthough the duty to defend ordinarily arises after receipt of an actual 

tender of defense, it may arise upon receipt of ‘constructive notice’ of the contractual 

duty to defend. [Citation.]” (OneBeacon America Ins. Co. v. Fireman’s Fund Ins. Co.,

supra, 175 Cal.App.4th at p. 200.) After receiving notice of the litigation, whether 

formal or constructive, “an insurer’s obligation . . . for defense costs arises where . . . a 

diligent inquiry by the insurer would reveal the potential exposure to a claim . . . , thus 

providing the insurer the opportunity for investigation and participation in the defense in 

the underlying litigation.” (Id. at p. 203.) In the matter before us, had Stewart Title 

investigated the matter, it would have learned that the Royce Partners Adversary 

Proceeding had been dismissed with prejudice on July 6, 2007. 

In short, Stewart Title would have learned that there was no remaining 

opportunity to participate in the defense of the underlying action and, indeed, that there 

was no duty to defend. This is so because the duty to defend terminates when the 

underlying lawsuit is concluded. (OneBeacon America Ins. Co. v. Fireman’s Fund Ins. 

Co., supra, 175 Cal.App.4th at p. 200.) And, “when there is no duty to defend under the 

terms of an insurance policy, there can be no action for breach of the implied covenant of 

good faith and fair dealing. [Citation.]” (Liberty National Enterprises, L.P. v. Chicago 

Title Ins. Co., supra, 217 Cal.App.4th at p. 81.)
25

(4) Analysis re “Pre-tender” Attorney Fees—

On appeal, San Jacinto Z argues that even though the Royce Partners 

Adversary Proceeding had concluded by the time San Jacinto Z mentioned it to Stewart 

Title, such that Stewart Title arguably was not required to defend the litigation, it was 

nonetheless obligated to reimburse San Jacinto Z for its “pre-tender” defense costs based 

on section 4(a) of the title policy. However, San Jacinto Z did not make this argument in 

opposition to the motion for summary judgment. 

We generally do not consider arguments that were not raised in the trial 

court and this rule applies in the summary judgment context as well as any other. 

(DiCola v. White Brothers Performance Products, Inc. (2008) 158 Cal.App.4th 666, 

676.) “‘Thus, possible theories that were not fully developed or factually presented to the 

trial court cannot create a “triable issue” on appeal.’ [Citation.]” (Ibid.) However, even 

were we to consider San Jacinto Z’s new argument, as involving the construction of the 

title policy as a matter of law based on undisputed facts, we would arrive at the same 

result.

11

In arguing its point about pre-tender defense costs, San Jacinto Z cites the 

last sentence of title policy section 4(a) in isolation. We agree that section 4 (a) of the 

title policy resolves the question, but we decline to read the last sentence in isolation.

Section 4(a) provides in pertinent part: “Upon written request by an 

insured . . . , the Company, at its own cost and without unreasonable delay, shall provide 

for the defense of such insured in litigation in which any third party asserts a claim 

 

11 We will not address San Jacinto Z’s newest argument that it is seeking 

posttender attorney fees, for two reasons. First, the argument most certainly is not based 

on undisputed facts, and indeed, the suggestion that San Jacinto Z incurred fees making a 

June 22, 2007 motion for summary judgment appears to be completely inconsistent with 

both the bankruptcy court docket upon which San Jacinto Z apparently relies and the 

recitals contained in its own June 1, 2007 letter. Second, it is raised for the first time in 

its reply brief and we will not consider a matter raised for the first time in a reply brief. 

(Schubert v. Reynolds (2002) 95 Cal.App.4th 100, 108.)
26

adverse to the title or interest as insured, but only as to those stated causes of action 

alleging a defect, lien or encumbrance or other matter insured against by this policy. The 

Company shall have the right to select counsel of its choice . . . to represent the insured as 

to those stated causes of action and shall not be liable for and will not pay the fees of any 

other counsel. The Company will not pay any fees, costs or expenses incurred by an 

insured in the defense of those causes of action which allege matters not insured against 

by this policy.” (Italics added.)

San Jacinto Z cites the last sentence alone and says it excludes only liability 

for costs incurred in defending uncovered causes of action and therefore includes liability 

for all costs incurred in defending covered causes of action, whether arising from the 

services of counsel the insurer chose or not. This construction would render meaningless 

the two preceding sentences of the title policy. They provide that after the insured has 

given the insurer a written request to provide a defense with respect to a covered claim, 

the insurer shall provide the defense and shall have the right to choose the counsel to 

defend the litigation. They further make perfectly clear that the insurer shall not be liable 

for the fees of any other counsel, i.e., counsel it has not chosen to defend a covered claim. 

The final sentence, upon which San Jacinto Z relies, does not contradict the preceding 

sentences by making the insurer liable for fees incurred by counsel it has not chosen and 

has had no opportunity to choose, but only clarifies that if the insured incurs fees 

defending causes of action that are not covered by the title policy, the insurer shall not be 

liable for such fees.

Indeed, as Stewart Title points out, section 7(d) of the title policy 

emphasizes that “[t]he Company will pay only those costs, attorneys’ fees and expenses 

incurred in accordance with Section 4 of these Conditions and Stipulations.” In other 

words, pre-tender defense costs incurred by counsel the insurer has not chosen are not 

covered.
27

Furthermore, San Jacinto Z’s request for pre-tender attorney fees is 

contradictory to the express language of sections 4(a) and 7(d) of the title insurance 

policy.

D. EMINENT DOMAIN ACTION:

(1) Background—

On February 22, 2007, the Eastern Municipal Water District (EMWD) filed

the Eminent Domain Action, naming San Jacinto Z, Pacific Horizon and others as 

defendants. It identified San Jacinto Z as the owner of the property in question. In 

addition, it identified Pacific Horizon as the owner of beneficial interests in the property 

under deeds of trust recorded on August 1, 2003, September 30, 2003, November 7, 2003 

and March 11, 2004. EMWD requested that the identified property be condemned to its 

own use, and “[t]hat just compensation be ascertained and assessed and the amount of the 

award for said property be first determined between plaintiff and all defendants claiming 

any interest therein . . . .” On March 21, 2007, EMWD filed its first amended complaint,

in which San Jacinto Z and Pacific Horizon were again named as defendants.

In its May 31, 2007 answer to the first amended complaint, Pacific Horizon 

admitted that it claimed an interest in the property pursuant to the identified deeds of trust

securing a loan made on or about August 1, 2003. In addition, it claimed to hold a 

beneficial interest in the property arising out of the assignment of an interest in yet 

another deed of trust, also recorded in 2004. Pacific Horizon alleged that the amount of 

$7,000,000 remained due and owing and that it was “entitled to recovery of this amount 

that would otherwise be payable to any other defendant . . . claiming an interest in the 

real property, as just compensation for the plaintiff’s taking of the real property . . . .” 

Pacific Horizon further denied “that any other party defendants [had] any superior right, 

title, or interest in the real property . . . .”
28

San Jacinto Z tendered the defense of the Eminent Domain Action to 

Stewart Title in September 2007. Stewart Title denied the tender on January 11, 2008.12 

San Jacinto Z filed its action against Stewart Title on September 1, 2009.

The trial court granted summary judgment in favor of Stewart Title. It 

held: (1) the Eminent Domain Action was not covered by the title policy and was subject 

to title policy exclusion No. 2; (2) the title policy only obligated Stewart Title to defend 

against “causes of action” and Pacific Horizon’s claims were not “causes of action;” (3) 

the Eminent Domain Action was subject to title policy exclusions 3(a) and (d) and was 

excepted from coverage under title policy exception B.I.3; and (4) San Jacinto Z’s claims 

failed because it did not provide a proof of loss.

(2) Analysis—

On appeal, San Jacinto Z says the trial court erred in its ruling for two 

reasons: (1) the claim was a covered claim; and (2) the failure to file a proof of loss did 

not bar the claim. We agree the court erred in granting summary judgment with respect 

to the Eminent Domain Action, for reasons we shall show.

(a) Covered claim

In its motion for summary judgment, Stewart Title argued that the claim 

was not covered by the insuring clause of the title policy. The insuring clause provides 

coverage for damage sustained by the insured by reason of “[t]itle to the estate . . . being 

vested other than as stated” in the title policy or by reason of “[a]ny defect in or lien or 

encumbrance on the title.” Stewart Title said there was no coverage because the Eminent 

Domain Action was not a challenge to San Jacinto Z’s title. 

 

12 We note that Stewart Title characterized the property interests EMWD 

sought to condemn as consisting of three easements of record, a chlorination facility 

located within an easement of record, and a prescriptive easement. 
29

However, in its complaint, EMWD sought a determination of the amount of 

just compensation to be paid to persons claiming an interest in the property, including 

both San Jacinto Z and Pacific Horizon. The complaint specifically identified four deeds 

of trust that EMWD thought might be the basis of beneficial interests vested in Pacific 

Horizon. In this way, the complaint put in issue Pacific Horizon’s ownership interest in 

the property based upon its liens that were of record before the title policy was issued.

Furthermore, when Pacific Horizon filed its answer, it made clear that it 

was indeed claiming beneficial interests in the property, based on those four deeds of 

trust as well as an assignment of another beneficial interest in the property. Moreover, 

Pacific Horizon claimed that it was entitled to recover the first $7,000,000, because its 

interests in the property were superior to those of any other defendant. 

Without question, Pacific Horizon’s liens against the property were being 

litigated in the Eminent Domain Action. Consequently, San Jacinto Z’s claim based on 

the Eminent Domain Action fell within the insuring clause.

In its motion, Stewart Title also argued it had no duty to defend because 

title policy exclusion No. 2 specifically excluded eminent domain actions from coverage 

and because exclusion No. 3(d) excluded claims attaching after the title policy was 

issued. True, exclusion No. 2 provides there is no coverage for eminent domain actions, 

and certainly, we see no reason why a title company should have to defend against a 

public entity’s statutory right to take property. It is a different matter altogether, 

however, to suggest that, once an eminent domain action has been initiated, there is no 

coverage with respect to title claims asserted by another defendant to that action. And 

where exclusion No. 3(d) is concerned, although the Eminent Domain Action was filed 

after the title policy issuance date, the title claims being litigated were based on deeds of 

trust recorded before that date, not afterward.
30

In addition to the foregoing, Stewart Title asserted in its motion that it had 

no duty to defend based on the answer filed by Pacific Horizon, because “an answer 

cannot seek affirmative relief and therefore, by definition, cannot give rise to a duty to 

defend.” However, as we have said, EMWD’s complaint essentially placed in issue all 

defendants’ interests in the property and Pacific Horizon, through its answer, stated its 

claim to an interest in the property based on its liens of record. 

Stewart Title cited Foster-Gardner, Inc. v. National Union Fire Ins. Co. 

(1998) 18 Cal.4th 857, having to do with an insurer’s duty to defend in an administrative 

matter before an environmental protection agency, but that case is inapposite. (Id. at pp. 

860-863.) San Jacinto Z cited Schuman v. Ignatin (2010) 191 Cal.App.4th 255 and 

Vanderkous v. Conley (2010) 188 Cal.App.4th 111, cases providing persuasive authority. 

As Schuman v. Ignatin, supra, 191 Cal.App.4th 255 shows, a defense raised in a 

defendant’s trial brief can constitute an affirmative cause of action in certain 

circumstances. (Id. at pp. 257, 260, 266-267 [defense regarding validity of recorded 

CC&R’s amendment, raised in supplemental trial brief, was affirmative cause of action 

barred by statute of limitations]; see also Vanderkous v. Conley, supra, 188 Cal.App.4th 

at p. 120 [defendant in quiet title action who answered but failed to file a cross-complaint 

nonetheless “put [her] cause at issue”].) 

The trial court nonetheless was persuaded that the title policy only 

obligated Stewart Title to defend against “causes of action” and Pacific Horizon’s claims 

were not “causes of action.” Stewart Title says this is correct, based on title policy 

section 4(a). That section, as we have previously observed, states in pertinent part: 

“Upon written request by an insured . . . , the Company . . . shall provide for the defense 

of such insured in litigation in which any third party asserts a claim adverse to the title 

or interest as insured, but only as to those stated causes of action alleging a defect, lien or 

encumbrance or other matter insured against by this policy. The Company shall have the 

right to select counsel of its choice . . . to represent the insured as to those stated causes of 
31

action . . . . The Company will not pay any fees, costs or expenses incurred by an insured 

in the defense of those causes of action which allege matters not insured against by this 

policy.” (Italics added.)

We do not interpret title policy section 4(a) as does Stewart Title. As the 

italicized language shows, consistent with the insuring clause, after the insured has made 

a written request, Stewart Title shall provide a defense in litigation in which a third party 

makes a claim adverse to an interest of the insured. Here, Pacific Horizon was claiming 

in its answer that its interests in the property, based of deeds of trust of record before the 

title policy was issued, were superior to the interests of San Jacinto Z. In other words, it 

was asserting a claim alleging liens or encumbrances insured against by the policy. 

Consequently, Stewart Title had a duty to defend. Nothing in section 4(a) limits coverage 

for claims arising from alleged defects, liens or encumbrances to those claims set forth in 

complaints or cross-complaints.

Finally, in its motion, Stewart Title asserted that it had no duty to defend 

because of title policy exclusion No. 3(a) and title policy exception No. B.I.3. Exclusion 

No. 3(a) excludes claims “created, suffered, assumed or agreed to by the insured 

claimant” and exception No. B.I.3 excepts “[e]asements, liens or encumbrances, or 

claims thereof, which are not shown by the public records.” Stewart Title asserted that 

Pacific Horizon, from and after May 2007,

13 made its claims based upon the allegedly 

tortious conduct of San Jacinto Z, not upon title defects. However, it cited no filing in the 

Eminent Domain Action showing that Pacific Horizon based its claim therein on the 

allegedly tortious conduct of San Jacinto Z. Rather, in the Eminent Domain Action, 

Pacific Horizon based its claim on deeds of trust of record. Those deeds of trust were not 

“created, suffered, assumed or agreed to by” San Jacinto Z and they were of record 

 

13 Although it is not perfectly clear, it would appear that Stewart Title meant 

to refer to Pacific Horizon’s May 2007 filing of its lis pendens in the Pacific Horizon 

Action.
32

before the title policy was issued. Consequently, they were neither excluded nor 

excepted from coverage based on either title policy exclusion No. 3(a) or title policy 

exception No. B.I.3.

(b) Proof of loss

In is motion, Stewart Title also claimed that it was not required to defend 

any of the lawsuits, including the Eminent Domain Action, because San Jacinto Z had 

failed to provide a proof of loss as required by the title policy and it was prejudiced by 

that failure. In support of its claim of prejudice, Stewart Title cited its material fact No. 

126, wherein it baldly asserted that it had been prejudiced. In support of its material fact 

No. 126, Stewart Title in turn cited the declaration of Karen Storlie, its vice president, 

counsel, and custodian of records. In her declaration, Storlie said the failure to provide a 

proof of loss with respect to any of the lawsuits prejudiced Stewart Title simply “because 

loss and/or damage is relevant to, among other coverage issues, the applicability of 

Policy Exclusion 3(c), which excludes ‘[d]efects, liens, encumbrances, adverse claims, 

[and] other matters: [¶] resulting in no loss or damage to the insured claimant.’” Storlie 

thus implied that, without a proof of loss, Stewart Title had no information to indicate 

whether the adverse claim was one that would result in no damage at all to San Jacinto Z.

However, we have located on our own a couple of items of interest which 

show that Stewart Title did have information on the point. In support of its motion for 

summary judgment, Stewart Title provided the declaration of one of its attorneys, Anand 

Singh. Attached to that declaration was a copy of a letter dated September 25, 2007 from 

Attorney Robert Garrett, representing Stewart Title,

14 to Attorney Robert Muller, 

representing San Jacinto Z. In that letter, Attorney Garrett described a September 21, 

2007 meeting between himself, Attorney Muller and Zuckerman. Attorney Garrett 

 

14 Attorney Garrett refers to his client simply as “Stewart Title,” without 

differentiating between Stewart Title Guaranty Company and Stewart Title of California, 

Inc.
33

stated: “[D]uring the course of that discussion Mr. Zuckerman noted that in an eminent 

domain proceeding [Pacific Horizon] asserted that it has a $7 million claim with priority 

over San Jacinto Z’s claim to the proceeds deposited by the governmental agency into the 

eminent domain proceeding, which Mr. Zuckerman advised are in the range of $300,000. 

I understand this to constitute a tender by San Jacinto Z of its defense in connection with 

the eminent domain proceedings.”

So, on the date of tender, Stewart Title was informed that Pacific Horizon 

was asserting that it had a $7 million claim with priority over the claim of San Jacinto Z, 

vis-à-vis a mere $300,000 deposit for just compensation. Given that, it is hard to say that 

Stewart Title had no information to indicate whether San Jacinto Z could potentially 

suffer a monetary loss as a result of the adverse claim of Pacific Horizon. The 

information indicated that there was at least $300,000 in just compensation in issue and 

that Pacific Horizon was claiming all of it, and then some. 

Section 5 of the title policy provides in pertinent part: “[A] proof of loss or 

damage signed and sworn to by each insured claimant shall be furnished to the Company 

within 90 days after the insured claimant shall ascertain the facts giving rise to the loss or 

damage. . . . If the Company is prejudiced by the failure of a claimant to provide the 

required proof of loss or damage, the Company’s obligations to such insured under the 

policy shall terminate, including any liability or obligation to defend . . . .” (Italics 

added.)

By the terms of the title policy, then, Stewart Title has no obligation to 

defend if the insured fails to provide a proof of loss and Stewart Title is prejudiced by 

that failure. However, the September 25, 2007 letter in and of itself shows there was a 

factual question as to whether Stewart Title was prejudiced. Consequently, the court 

erred in granting summary judgment on the basis of San Jacinto Z’s failure to submit a 

proof of loss. 
34

III

DISPOSITION

The judgment of dismissal is reversed as to Stewart Title Guaranty 

Company and the matter is remanded to the trial court for further proceedings consistent 

with this opinion. In the interests of justice, each party shall bear its own costs on appeal.

MOORE, J.

WE CONCUR:

RYLAARSDAM, ACTING P. J.

BEDSWORTH, J.