Resubmitted In Banc April 4, 1985.
Plaintiffs brought this action to recover costs and attorney fees from their title
In September, 1979, plaintiffs filed an action for trespass against their neighbors, Peter and Susan Nydam, who counterclaimed, alleging, in pertinent part:
In April, 1981, plaintiffs tendered defense of that counterclaim to defendants, who rejected it, reasoning that the counterclaim was for adverse possession and fell within the exclusionary clauses of the insurance policy. Plaintiffs thereafter successfully defended the counterclaim, incurring costs and attorney fees of $12,229.15. This action followed.
The sole question on appeal is whether the language of the Nydams' counterclaim, incorporated in plaintiffs' amended complaint, states a claim which defendant had a contractual duty to defend. Section 3 of the insurance policy provides, in part:
Coverage is limited by Schedule B of the insurance policy, which provides, in part:
An insurance company's duty to defend is determined by comparing the terms of the insurance policy with the allegations of the underlying pleading. If the pleading, without amendment, contains allegations which, if true, would impose liability for conduct covered by the policy, the insurer is put on notice of the possibility of liability and has a duty to defend. Riedel v. First National Bank, 287 Or. 285, 294, 598 P.2d 302 (1979); Oakridge Comm. Ambulance v. U.S. Fidelity, 278 Or. 21, 24, 563 P.2d 164 (1977). If the allegations of the complaint are ambiguous or unclear but may reasonably be interpreted to include an incident within the coverage of the policy, there also is a duty to defend. Blohm et al v. Glens Falls Ins. Co., 231 Or. 410, 416, 373 P.2d 412 (1962). That is true, even when the pleading on its face alleges facts bringing it within a policy exclusion. Ferguson v. Birmingham Fire Ins., 254 Or. 496, 506-07, 460 P.2d 342 (1969).
Defendants contend that paragraph II of the Nydams' counterclaim states a cause of action for adverse possession, which is excluded from coverage, because it is a claim "not shown by the public records." They apparently dismiss the allegation that the
The court similarly categorized the terms "claim of right" and "claim of ownership" but did not so categorize the term "pursuant to deed." Here, the Nydams alleged possession "under claim of right and pursuant to a deed." (Emphasis supplied.) The allegations concerning adverse possession would be sufficient without the language about the deed. In the absence of the language about the deed, there would be no duty to defend, because that duty only arises when there is some claim shown of record. The allegations of the counterclaim were broad enough to allow proof by the Nydams that they were not trespassers, because either they owned the land by adverse possession or they held the land pursuant to a deed. It would also permit evidence that the deed was recorded. If that were the evidence, defendants' policy would clearly provide coverage.
In evaluating whether the complaint is vulnerable to a motion to dismiss for failure to state ultimate facts sufficient to constitute a claim for relief,
Defendants appear to argue, however, that, because the allegations of adverse possession are sufficient without the deed language, that language is surplusage and may be disregarded in determining whether a defense must be provided under the policy. They are mistaken. No motion was made to require a separate statement of those two possible defenses. On the face of the complaint, it cannot be determined whether the allegations about the deed or the allegation about adverse possession are surplusage. Either proof the Nydams had adversely possessed the property or that they were owners by deed would have been a full defense to plaintiffs' claim that they were trespassers.
The motion to dismiss the amended complaint was improperly granted.
Reversed and remanded.
BUTTLER, Judge, dissenting.
Because I agree with the trial court that the counterclaim in the earlier action alleged title by adverse possession only, against which the title insurer was not obligated to defend, I dissent.
Defendants contend that paragraph II of the Nydams' counterclaim in the prior action states a cause of action for adverse possession, which is excluded from coverage because it is a claim "not shown by the public records." Plaintiffs, on the other hand, emphasize the Nydams' allegation that they possessed the property "pursuant to deed," which plaintiffs claim asserts a defect in their record title and is a defect against which defendants insured. That phrase is included in the paragraph of the counterclaim that clearly alleges the elements of adverse possession. It is so included, I believe, because the Nydams were claiming adverse possession under color of title, or "paper title," about which the court in Swift v. Mulkey, 17 Or. 532, 535, 21 P. 871 (1889), said:
One may claim title to property through adverse possession under claim of right without its being under color of title or pursuant to a deed. If there is no instrument describing the metes and bounds of the property claimed, the adverse possessor can only gain title to that portion which is actually occupied. Parker v. Kelsey, 82 Or. 334, 161 P. 694 (1916); Note, "Adverse Possession — Color of Title — Origin of Doctrine," 22 Or L Rev 188 (1943). The Nydams attached to their counterclaim a metes and bounds description of the property they claimed the right to possess.
The majority states:
The majority thus concedes that the duty to defend arises only when there is some claim shown of record. The Nydams did not allege that the deed under which they claimed was of record or, more importantly, that it was recorded prior to plaintiffs' deed. That is the fundamental problem with plaintiffs' argument. The majority attempts to cure that defect by stating that the allegation would permit evidence that the deed was recorded. Although that is true, even if the allegation had been that the Nydams were in possession "under claim of right," and had omitted "and pursuant to a deed," evidence of a recorded deed would have been admissible. Accordingly, given the majority's analysis, the pleading could be reasonably interpreted to include an incident within the coverage of the policy, and defendants would have had a duty to defend. Yet the majority concedes that if the allegation had omitted the deed language, there would have been no duty to defend.
In my opinion, the counterclaim did not allege a defect in plaintiffs' record title, which defendants insured. The title policy excluded "claims which are not shown by the public records." I conclude that the Nydams' counterclaim unambiguously alleged a claim of title by adverse possession under color of title, a claim that defendants did not insure against and were not required to defend. The motion to dismiss was properly granted; accordingly, I would affirm.
ROSSMAN and NEWMAN, JJ., join in this dissent.