First United, Inc. v. Chicago Title Insurance Company, Hot Springs Title Company

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FIRST UNITED, INC. v. CHICAGO TITLE INSURANCE  COMPANY, Hot Springs Title Company  05­796  ___ S.W.3d ___  Supreme Court of Arkansas  Opinion delivered June 1, 2006  1.  INSURANCE  –  DEFECT  IN  TITLE  –  POTENTIAL  LIABILITY  FOR  JUDGMENT  DID  NOT  CONSTITUTE DEFECT IN TITLE. – Where the appellant had the right to possess, control,  and dispose of the property, if it chose to take title to the land, and where there were  no conflicting claims to the property, the supreme court held that no defect in title  existed just because the pending judgment made the property unattractive to potential  purchasers; a loss in real estate value as a result of a purchaser’s potential liability as  a successor­in­interest under the Arkansas Time­Share Act, Ark. Code Ann. §§ 18­14­  101 – 18­14­703 (Repl. 2003), did not constitute a defect in title for purposes of title  insurance.  2.  PROPERTY  –  MARKETABILITY  OF  LAND  –  JUDGMENT  DID  NOT  MAKE  LAND  UNMARKETABLE.  –  While  it  was  possible  to  hold  perfect  title  to  land  that  was  valueless, where the appellant failed to appreciate the distinction between land that  was  unmarketable  and  title  that  was  unmarketable,  and  where  the  appellant’s ___________________________  DICKEY, J. ­ 6  FIRST UNITED, INC. v. CHICAGO TITLE INS. CO.  Cite as 36_ Ark. ___ (2006)  Page 2  arguments emphasized factors that related to the lack of the economic value of the  land itself, rather than to a title that was unmarketable, the supreme court held that the  judgment in the case did not make title to the land unmarketable.  3.  APPEAL & ERROR – ADDITIONAL QUESTIONS NOT ADDRESSED. – Because the supreme  court  concluded  that  the  judgment  was  not  covered  by  the  title  insurance  policy,  which insured against defects in title and unmarketability of title, as opposed to the  unmarketability of the property itself, the supreme court did not address the additional  questions raised by the appellant of whether specific exclusions within the policy  applied to the judgment, and the trial court’s ruling was affirmed.  4.  PRINCIPAL  & AGENT – ACTION AS AN AGENT – SUMMARY JUDGMENT WAS PROPER. –  The  evidence  was  undisputed  that  appellee  Hot  Springs  Title  Company,  which  actually issued the title insurance policy, informed appellant that it was acting as an  agent for its principal, appellee Chicago Title Insurance Company, which created the  policy,  and  there  was  no  evidence  that  appellee  Hot  Springs  Title  Company  did  anything that could be construed as being outside the scope of its agency in issuing  the title to the property to appellant; where appellant failed to meet proof with proof ___________________________  DICKEY, J. ­ 6  FIRST UNITED, INC. v. CHICAGO TITLE INS. CO.  Cite as 36_ Ark. ___ (2006)  Page 3  in  regard  to  the  agency  question  and  where  appellant  did  not  demonstrate  the  existence of a material issue of fact, the supreme court concluded that appellee Hot  Springs Title Company was acting as an agent of appellee Chicago Title Insurance  Company and affirmed the circuit court.  Appeal from Garland Circuit Court; Edward T. Smitherman, Judge; affirmed.  Coplin and Heuer, by: Sam T. Heuer, for appellant.  Rose  Law  Firm,  by:  Garland  J.  Garrett,  for  appellee  Chicago  Title  Insurance  Company.  James  M.  Duckett  and  Hal  Joseph  Kemp,  P.A.,  for  appellee  Hot  Springs  Title  Company.  BETTY C. DICKEY, Justice. First United, Inc., appeals the order of the Garland County  Circuit  Court  granting  the  motion  for  summary  judgment  by  appellees,  Chicago  Title  Insurance Company and Hot Springs Title Company, on the grounds that a title insurance  policy written and issued by the appellees did not cover First United’s potential liability as  a successor­in­interest under the Arkansas Time Share Development Act. Jurisdiction in this  case is pursuant to Ark. Sup. Ct. R. 1­2(b)(1). We find no error and affirm. ___________________________  DICKEY, J. ­ 6  FIRST UNITED, INC. v. CHICAGO TITLE INS. CO.  Cite as 36_ Ark. ___ (2006)  Page 4  The appellant, First United, Inc., owns a mortgage on a parcel of land in Garland  County that is insured by a title insurance policy written by appellee Chicago Title Insurance  Company. The policy was issued by appellee Hot Springs Title Company. A time  share  development  sits  on  the  land,  which  is  surrounded  by  the  Lake  Hamilton  Resort  and  is  adjacent to a hotel. The time share development has been the subject of extensive litigation  over a period of years, which is chronicled in our decisions of National Enterprises, Inc. v.  Kessler, 363 Ark. 167, ____ S.W.3d ____ (2005), and National Enterprises, Inc. v. Lake  Hamilton Resort, Inc., 355 Ark. 578, 142 S.W.3d 608 (2004). There was a license agreement  between the original developer of the time share development and the ownership of the hotel,  whereby purchasers of time share interests were entitled to use the amenities of the hotel.  The time share developer sold the time share interests to purchasers with the promise that  they would be able to continue to use the amenities of the hotel. Eventually, both the time  share development and the hotel were sold at foreclosure. Litigation ensued, and on August  30, 1994, the Garland County Circuit Court ruled that the foreclosures had terminated the  license agreement. No longer able to use the amenities, the time share purchasers filed a  class­action suit against the time share developer’s successors­in­interest for fraud. After a  long and tortured litigation, the Garland County Circuit Court ruled that the successors­in­  interest, pursuant to the Arkansas Time­Share Act, Ark. Code Ann. § 18­14­101 – 18­14­703 ___________________________  DICKEY, J. ­ 6  FIRST UNITED, INC. v. CHICAGO TITLE INS. CO.  Cite as 36_ Ark. ___ (2006)  Page 5  (Repl. 2003), owed damages of approximately $1.6 million, due to the fraud of the original  developer. That judgment was affirmed by this court in National Enterprises, Inc. v. Kessler,  supra. First United is a potential successor­in­interest to the original developer, although it  has not taken title to the property. If First United should take title, it would be exposed to  liability for the judgment, pursuant to our interpretation of the Time­Share Act.  On November 18, 2004, First United filed a complaint in the Garland County Circuit  Court,  alleging that  the  appellees  had  breached  the  title  insurance  policy.  The  appellees  moved  for  summary  judgment,  and  on  June  10,  2005,  the  court  granted  the  motion  for  summary judgment, and dismissed the appellant’s claim with prejudice. First United appeals  that ruling.  The first point on appeal is: The trial court erred in granting summary judgment to  Chicago Title Company.  Summary judgment should be granted only when it is clear that there are no genuine  issues of material fact to be litigated, and the party is entitled to judgment as a matter of law.  Riverdale Dev. Co. v. Ruffin Bldg. Sys., Inc., 356 Ark. 90, 146 S.W.3d 852 (2004). When  reviewing a grant of summary  judgment, this court views the evidence in the light most  favorable to the non­moving party, resolving all doubts and inferences against the moving  party.  Adams  v.  Arthur,  333  Ark.  53,  969  S.W.2d  598  (1998).  Any  ambiguities  in  an ___________________________  DICKEY, J. ­ 6  FIRST UNITED, INC. v. CHICAGO TITLE INS. CO.  Cite as 36_ Ark. ___ (2006)  Page 6  insurance policy are construed liberally in favor of the insured. Lewis v. Mid­Century Ins.  Co., 362 Ark. 591, ___ S.W.3d ___ (2005).  The issue to be resolved in this case is whether the policy contractually obligates  Chicago Title to reimburse First United in the event that First United takes title to the land  and therefore becomes liable for the judgment. Thus, the decisive question is whether the  policy covers the judgment. The policy, in pertinent part, provides:  Subject  To  The  Exclusions  From  Coverage,  The  Exceptions  From  Coverage Contained In Schedule B And The Conditions And Stipulations,  Chicago Title Insurance Company, a Missouri corporation, herein called the  Company, insures, as of the Date of Policy shown in Schedule A, against loss  or  damage,  not  exceeding  the  amount  of  insurance  stated  in  schedule  A,  sustained or incurred by reason of:  2. Any defect in or lien or encumbrance on the title.  3. Unmarketability of title. . . .  The appellant asserts that the liability for the judgment that it would assume, upon  taking title to  the  land,  constitutes a defect in title, which is covered by the policy. The  appellees contend that statutory liability or loss arising from ownership is not a “defect”  covered by the policy. Defective title is defined as “a title that cannot legally convey the  property to which it applies, usually because of a conflicting claim.” Black’s Law Dictionary  1492 (7th ed. 1999).  In support of their argument, the appellees cite Chicago Title Insurance Co. v. Kumar, ___________________________  DICKEY, J. ­ 6  FIRST UNITED, INC. v. CHICAGO TITLE INS. CO.  Cite as 36_ Ark. ___ (2006)  Page 7  24 Mass. App. Ct. 53, 506 N.E.2d 154 (1987). There, a purchaser bought a tract of land  which harbored an ongoing, unknown, and illegal environmental hazard, and the court held  that the purchaser’s statutory liability for the hazard did not amount to a “defect in, or lien  or encumbrance on title.” Kumar, 24 Mass. App. Ct. at 56, 506 N.E.2d at 156. The appellees  also direct us to  Hocking  v. Title Insurance & Trust Co., 37 Cal. 2d 644, 234 P.2d 625  (1951),  where the court held that the fact that the land purchased was in a state of non­  compliance with existing statutes did not constitute a defect in title, even though that fact had  an adverse effect on the economic value of the land. In Hocking, the court noted, “One can  hold perfect title to land that is valueless; one can have marketable title to land while the land  itself is unmarketable.” Hocking, 37 Cal. 2d at 651, 234 P.2d at 629.  In the present case, the appellant does not dispute that, should it choose to take title  to the land, it would have the right to possess, control, and dispose of the property. There are  no conflicting claims to the property. Instead, the appellant is simply asserting that because  the pending judgment makes the property unattractive to potential purchasers, a defect in title  exists. We do not agree, and for the foregoing reasons, we hold that the loss in real estate  value as a result of a purchaser’s potential liability as a successor­in­interest under the Time­  Share Act does not constitute a “defect” in title for purposes of title insurance.  The appellant also contends that the title is unmarketable, while the appellee argues ___________________________  DICKEY, J. ­ 6  FIRST UNITED, INC. v. CHICAGO TITLE INS. CO.  Cite as 36_ Ark. ___ (2006)  Page 8  that the appellant is confusing the marketability of the title with the marketability of the land  itself.  In  support  of  its  argument,  the  appellees  direct  us  to  a  treatise,  Powell  on  Real  Property,  § 92.05, which states that, “[M]odern cases emphasize the differences between  marketability of title and marketability of land.”  In further support of the distinction, the  appellant cites Kumar, supra, where the court  noted that marketability of title related to  “defects affecting legally recognized rights and incidents of ownership” and was distinct  from the lack of economic marketability of the land itself. The court in Hocking, supra, also  emphasized the distinction, stating,  Although it is unfortunate that plaintiff has been unable to use her lots for the  building purposes she contemplated, it is our view that the facts which she  pleads do not affect marketability of her title to the land, but merely impair the  market value of the property. She appears to possess fee simple title to the  property for whatever it may be worth. . . .  Hocking, 37 Cal. 2d at 652, 234 P.2d at 629­30. The appellees also cite Lick Mill Creek  Apartments v. Chicago Title Insurance Co., 231 Cal.  App.  3d 1654, 283 Cal. Rptr. 231  (1991),  which  relied  on  Kumar  and  Hocking  to  illustrate  the  distinction  between  the  marketability of land, as opposed to marketability of title.  Similarly, the appellant here appears to possess fee simple title to the land, whatever  it  might  be  worth,  and  we  agree  that  it  is  possible  to  hold  perfect  title  to  land  that  is  valueless.  The  appellant  has  failed  to  appreciate  the  distinction  between  land  that  is ___________________________  DICKEY, J. ­ 6  FIRST UNITED, INC. v. CHICAGO TITLE INS. CO.  Cite as 36_ Ark. ___ (2006)  Page 9  unmarketable and title that is unmarketable, and its arguments emphasize factors that relate  to the lack of economic value of the land itself, rather than to a title that is unmarketable. The  appellant is free to possess and control the land, or to sell it to whatever purchaser desires  to buy it. Accordingly, we hold that the judgment in this case does not make title to the land  unmarketable. Because we conclude that the judgment is not covered by the policy, which  insures against defects in title and unmarketability of title, as opposed to the unmarketability  of the property itself, we need not address the additional questions raised by the appellant  of whether specific exclusions within the policy apply to the judgment. The trial court’s  ruling on this point is affirmed.  The appellant’s second point on appeal is: The trial court erred in granting summary  judgment to Hot Springs Title Company  First United argues that Hot Springs Title, which actually issued the policy, was not  acting as an agent of Chicago Title, which created the policy. There is undisputed evidence  that Hot Springs Title informed First United that it was acting as an agent for its principal,  Chicago Title, and no evidence that Hot Springs Title did anything that could be construed  as being outside the scope of its agency in issuing the title to First United. An agent that acts  within  the  scope  of  its  authority  for  a  disclosed  principal  is  not  liable  on  an  insurance  contract. McCullough v. Johnson, 307 Ark. 9, 816 S.W.2d 886 (1991). Once a moving party ___________________________  DICKEY, J. ­ 6  FIRST UNITED, INC. v. CHICAGO TITLE INS. CO.  Cite as 36_ Ark. ___ (2006)  Page 10  has established a prima facie entitlement to summary judgment, the opposing party must  meet proof with proof and demonstrate the existence of a material issue of fact. Wallace v.  Broyles, 331 Ark. 58, 961 S.W.2d 712 (1998). First United has not met proof with proof in  regard to the agency question, and has not demonstrated the existence of a material issue of  fact. Thus, we conclude that Hot Springs Title was acting as an agent of Chicago Title and,  accordingly, we affirm this point on appeal.  Affirmed. ___________________________  DICKEY, J. ­ 6 

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