Opinion ID: 871623
Heading Depth: 2
Heading Rank: 3

Heading: The Harts' District Court Proceeding

Text: The Harts filed the instant suit against TICOR in district court for breach of contract under the Policy and bad faith on May 6, 2008. [6] On June 12, 2008, the district court entered a default judgment against TICOR and awarded the Harts $21,485.59. [7] TICOR responded with a motion to set aside entry of default and default judgment on June 20, 2008. [8] The district court granted TICOR's motion on July 9, 2008. The Harts filed a motion for partial summary judgment on October 21, 2008. The Harts' motion asserted: [d]espite conceding that escheat stated a covered claim, TICOR refused to defend the Harts. TICOR did not investigate the State's claim. Instead, to avoid its defense obligation, TICOR on its own simply recharacterized the State's claim from [t]he State reserves any interest in the property that may have escheated to the State to [t]he State has merely reserved its right to make that claim at some point in the future. Relying on its contrived distinction between the reservation of an interest that arose in the past and the reservation of the right to make a claim at some point in the future, TICOR denied coverage. Ultimately, the Harts contended that the State's assertion of a claim for escheat in its answer and answer to amended petition raised the potential for coverage under the Policy. Accordingly, Hawai`i law mandates that because a mere potential for coverage existed under the Policy, TICOR had a duty to defend the Harts until that potential was resolved. In response, TICOR filed a memorandum in opposition to the Harts' motion for partial summary judgment on October 29, 2008. [9] TICOR argued that the State failed to allege a present claim to an interest insured by TICOR[] and, therefore, TICOR was not obligated to tender the Harts a defense. TICOR explained that the Harts voluntarily filed their lot consolidation action in Land Court and this voluntary action prompted the State's reservation. [10] The State did not file a counterclaim against [the Harts]. The State's [a]nswer did not attack [the Harts'] title. Instead, the State's escheat reservation was but one of many standard reservationsthe same reservations that the State asserts in every Land Court case. TICOR also asserted that the Harts' counsel knew that the State did not claim to own a present interest by way of escheat. Nevertheless, the Harts tendered the prosecution of their voluntary Petition to TICOR. TICOR pointed out that the Harts' counsel's invoices for attorneys' fees do not indicate that any time was spent on the issue of escheat. The district court heard the motions on November 3, 2008. [11] The district court agreed with TICOR and denied the Harts' summary judgment motion from the bench. On November 13, 2008, the district court entered summary judgment against the Harts and in favor of TICOR on the Harts' claim for breach of contract for failing to defend them. [12] The district court found that the [S]tate's escheat defense was a routine reservation of a possible defense and did not trigger coverage and that the language raising the escheat defense did not create a realistic or reasonable potential for coverage under the Policy. The district court also awarded TICOR attorneys' fees and costs in the amount of $5,281.49. The Harts appealed. The ICA affirmed the district court's judgment, noting [t]he State's reservation of possible rights did not amount to a claim of an escheated interest[] in part because the State did not follow the statutory requirements for making an escheat claim. Hart v. Ticor Title Ins. Co., No. 29467, 125 Hawai`i 247, 2011 WL 2938210, at  (Haw.App. July 21, 2011). Specifically, a claim of escheat may be raised only in accordance with Hawaii Revised Statutes § 665-1 (1993)[,] [13] which requires the State to file an action in the first circuit court setting forth the factual basis for escheat in order to assert such a claim. Id. According to the ICA, the State failed to assert any facts supporting a claim of escheat and made no demand for an escheated interest in its answer. Id. Additionally, in a footnote, the ICA explained that [l]ater in the consolidation proceeding, the State expressly clarified that it had no escheat claim. Id. at  n. 2. As such, the [d]istrict [c]ourt did not err in concluding that [TICOR] had no duty to defend the Harts under the subject title insurance policy. Id. at . Furthermore, [g]iven [the ICA's] disposition of the Harts' underlying claim, there is no basis for disturbing the award [of attorneys' fees]. Id. The Harts filed a timely Application on December 20, 2011. United Policyholders submitted a motion for leave to file an amicus brief in support of the Harts' Application also on December 20, 2011. On December 23, 2011, TICOR filed an opposition to United Policyholder's motion. This court granted United Policyholders' motion on December 29, 2011 and United Policyholders filed its amicus brief on January 4, 2012. TICOR submitted a response to the Harts' Application on January 4, 2012. On January 9, 2012, TICOR filed a response to United Policyholders' amicus brief. We accepted the Harts' Application on January 24, 2012 and held oral argument on February 22, 2012.