Bank of Sacramento v. Stewart Title Guaranty Company

MEMORANDUM

The Bank of Sacramento appeals the district court’s dismissal of its action against Stewart Title Guaranty Company for breach of contract and breach of the implied covenant of good faith and fair dealing. Because the parties are familiar with the facts, we do not recount them here. We vacate the dismissal and remand for further proceedings.

The Bank’s allegations in the Second Amended Complaint regarding a lack of reasonable diligence by Stewart were sufficient to state a breach of contract claim. The Bank alleged that Stewart failed to properly investigate the third party action, failed to pursue the litigation against the adverse claimant, and delayed consenting to mediation. In addition, the Bank alleged that Stewart knew of the third party interest at issue, insured it as subordinate to the Bank’s interest, later tried unilaterally to change the policy, and improperly delayed the ultimate resolution by disclaiming coverage on grounds that could not have succeeded. Taking these allegations as true, Stewart could be found to have failed to act in “a reasonably diligent manner,” as required by section 8(a) of the policy.

Section 8(b) of the policy authorized Stewart…