Policyholder Pulse
In the recently published case Bartel v. Chicago Title Insurance Company, a California appellate court reaffirmed longstanding California law on insurers’ broad duty to defend even in the face of complicated underlying facts, finding that failure to investigate all potential avenues for coverage amounted to bad faith as a matter of law.
A Brief and Complicated Background
Richard Bartel purchased a quiet, rural property in Santa Cruz County, accessible only via a network of private roads. A dispute with an easterly neighbor over access rights turned contentious, with the neighbor asserting a right-of-way easement across Bartel’s property. After years of escalating litigation involving three underlying suits related to the same dispute and repeated denials of coverage by Chicago Title—Bartel’s title insurer—Bartel filed suit against the insurer for breach of contract and breach of the implied covenant of good faith and fair dealing.
The facts were highly complex, involving multiple lawsuits, deed histories and disputed road designations. Still, the court delivered clear conclusions on the insurer’s legal obligations.
Duty to Defend: It’s About the Potential for Coverage
The Bartel court reaffirmed that an insurer’s duty to defend arises when there is any potential for coverage—not just when coverage is certain.
The underlying complaints between Bartel and his neighbor expressly disclaimed the existence of the type of easement covered by Chicago Title’s policy (deeded easements) and instead claimed only a type of easement expressly excluded from coverage. Chicago Title therefore denied coverage on the grounds that the underlying complaints only alleged easements excluded under the policy.
But the underlying complaints also attached a recorded deed—the Boyd-Sluyter deed—that, when properly analyzed, raised the possibility that the easement at issue was, in fact, a deeded easement that fell within coverage. The court held that this was enough, confirming that “[t]he mere possibility that facts extrinsic to the complaint might reveal a claim that could be covered by the policy is sufficient to trigger the duty to defend.” Therefore, Chicago Title was required to go beyond the allegations in the complaint “to investigate whether the extrinsic facts known to it at tender raised a possibility of liability within the scope of the policy’s coverage.”
In finding that the underlying complaints triggered Chicago Title’s duty to defend, the court acknowledged that determining whether the underlying complaints involved a covered deeded easement was complicated by inartful pleading and “general confusion surrounding the location of unnamed, private roads,” but held “[t]he complexity of the underlying facts does not shield the insurer from the risk of erroneously denying the tender of defense.”
Investigation Limited to the Allegations in a Complaint—Even if Thorough—Is Bad Faith as a Matter of Law
Perhaps the most significant aspect of the opinion is the appellate court’s reversal of the trial court’s finding on bad faith. The appellate court held that Chicago Title’s refusal to defend was not just wrong—it was objectively unreasonable and thus constituted bad faith as a matter of law.
The court highlighted that while the insurer did conduct an investigation beyond the complaint itself—including “obtaining additional maps and records, speaking with the local title office, and attempting to determine the location of the roads”—it improperly focused only on whether the allegations matched the policy exclusions. Critically, Chicago Title did not analyze whether the exhibits—specifically the Boyd-Sluyter deed—raised a possibility of coverage. This narrow approach ignored well-established law requiring insurers to investigate all known facts that might trigger coverage.
In the court’s view, even if Chicago Title did not subjectively intend harm, its persistent misapplication of the law and rigid interpretation of coverage obligations violated its duty of good faith and fair dealing.
Practical Takeaways
The Bartel decision reinforces several key principles for policyholders:
- The duty to defend is broad and triggered by any facts suggesting the potential for coverage—not just by what’s pled in the complaint.
- Insurers must consider the full record (including exhibits and extrinsic evidence) and not simply rely on boilerplate exclusions, even when the underlying case is complex or coverage is uncertain.
- A narrow or biased investigation can amount to bad faith as a matter of law, especially if the insurer disregards obvious indicators of potential coverage.
Bartel also underscores the importance of early legal counsel and a well-documented record of your communications with your insurers.