Fid. Nat'l Title Co. v. First Am. Title Ins. Co.

310 P.3d 272

FIDELITY NATIONAL TITLE COMPANY, f/k/a Security Title Guaranty Company, Defendant–Appellant,

v.FIRST AMERICAN TITLE INSURANCE COMPANY, Third–Party Defendant–Appellee.

Court of Appeals No. 12CA0722

Colorado Court of Appeals, Div. V.

Announced May 23, 2013

El Paso County District Court No. 10CV1731. Honorable Gregory R. Werner, Judge.

Wells Anderson & Race, LLC, Mary A. Wells, L. Michael Brooks, Jr., Denver, Colorado, for Defendant–Appellant.

Montgomery Little & Soran, P.C., Frederick B. Skillern, Echo D. Ryan, Greenwood Village, Colorado, for Third–Party Defendant–Appellee.

Opinion by JUDGE TERRY

¶ 1 This action involves title insurance and the contractual duties of a real estate closer. Defendant, Fidelity National Title Company, formerly known as Security Title Guaranty Company (Agent), appeals the trial court's judgment in favor of third-party defendant, First American Title Insurance Company (Underwriter). We affirm.

¶ 2 As issues of first impression, we

? construe the meaning of “handling funds in connection with any escrow” in the parties' contract;

? construe the meaning of the phrase “payoff statement” in section 38–35–124.5, C.R.S. 2012; and

? construe the meaning of the phrase “actual prejudice” in the parties' contract.

I. Background

¶ 3 During the period pertinent to this action, Agent, a title insurance agent, issued title insurance policies that were underwritten by Underwriter pursuant to an underwriting agreement (the contract). Under the contract, Agent was to perform title services and closing services. The contract also contained several provisions apportioning liability between Underwriter and Agent in the event of a claim by an insured.

¶ 4 This lawsuit arose from a series of events toward the end of 2007, when Agent wrote two title insurance commitments underwritten by Underwriter, each of which committed to insure a different bank as the first position lienholder for the same parcels of real estate. The title insurance policies based on these commitments were ultimately issued in 2008.

¶ 5 The first title commitment was issued with respect to Brown Financial, LLC (Brown), which loaned money to the developer of the parcels (Developer). Brown assigned its deed of trust to Academy Bank (Academy), and Brown serviced the loan by collecting money from Developer and forwarding it to Academy. The policy based on this commitment ultimately insured Academy as the first position lienholder.

¶ 6 Two months after Agent had issued the commitment for the Brown title policy, Agent issued a title commitment to insure the interest of Colorado East Bank & Trust (CEB&T) as first position lienholder on the same parcels, in connection with a new loan from CEB&T to Developer. In preparation for issuance of this new title commitment, Agent performed a title search, which indicated that Agent had recently performed a previous title search on the same property in connection with the earlier Brown transaction. The CEB&T title commitment stated a requirement that the previous deed of trust be released, and noted that the deed of trust had been assigned to Academy.

¶ 7 Agent conducted the closings of both loans within a two-month period. Agent failed to pay Academy from the closing proceeds of the CEB&T loan, and failed to obtain a release of Academy's deed of trust on the parcels.

¶ 8 When the title policies were issued in 2008, both Academy and CEB&T were insured as first position lienholders for the same parcels. Agent did not notify Underwriter of this fact.

¶ 9 After Academy began foreclosure proceedings on the parcels in 2009, CEB&T sought to enjoin the foreclosure. Because the Academy lien had not been paid or released, Academy asserted a claim against Underwriter under the Brown title policy, and CEB&T asserted a claim against Underwriter under CEB&T's title policy. Underwriter paid CEB&T $986,000 to resolve the latter's claims in the foreclosure, and $55,000 to reimburse CEB&T for its attorney fees.

¶ 10 The claims at issue in this appeal are by Underwriter against Agent under the terms of the contract. After a bench trial, the trial court issued a thorough and well-reasoned opinion finding in favor of Underwriter. This appeal follows.

II. Discussion

¶ 11 Agent contends that the trial court erred by misinterpreting sections 7.2, 7.3, and 7.4 of the contract. According to Agent, under those provisions, it has no liability to Underwriter, or, if it is liable, its liability is contractually limited to $500. We discern no reversible error.

A. Standard of Review

¶ 12 We interpret contractual terms de novo. Mountain States Mut. Cas. Co. v. Roinestad, 2013 CO 14, ¶13, 296 P.3d 1020. “Written contracts that are complete and free from ambiguity will be found to express the intention of the parties and will be enforced according to their plain language.” Ad Two, Inc. v. City & County of Denver, 9 P.3d 373, 376 (Colo.2000). We also determine de novo whether a contract's terms are ambiguous. Hamill v. Cheley Colorado Camps, Inc., 262 P.3d 945, 950 (Colo.App.2011). However, “[t]he parties' disagreement over the meaning does not in and of itself create an ambiguity in the contract.” Id. (citing Kuta v. Joint Dist. No. 50(J), 799 P.2d 379, 382 (Colo.1990)).

¶ 13 To the extent that Agent challenges the trial court's factual findings, we review those findings for clear error. See Saturn Sys., Inc. v. Militare, 252 P.3d 516, 521 (Colo.App.2011). Because the credibility of the witnesses and the sufficiency, probative effect, and weight of all the evidence, as well as the inferences and conclusions to be drawn therefrom, are all within the province of the trial court, we will not disturb the court's findings of fact unless they are so clearly erroneous as to find no support in the record. Id.

B. Analysis

1. “Handling Funds” in Connection with “Escrow”

¶ 14 Agent first maintains that the trial court misconstrued section 7.3 of the contract and erroneously found Agent liable for committing “[an] error, fault, or negligence in handling funds in connection with [an] escrow.” We disagree.

¶ 15 We begin our analysis by examining more closely the title commitment requirements prepared by Agent's title department. Agent's loan closer, Shirley Seib, testified that the title commitment requirements are the “bible” that specifies all of the “particular items that need to be ... met before” the closer can disburse funds at closing.

¶ 16 Here, Requirement G. of the title commitment required that the deed of trust on the property be released. It showed that the original beneficiary of the deed of trust was Brown, but that the deed of trust had been assigned to Academy. Thus, it indicated that Academy would need to release the deed of trust.

¶ 17 As Agent was preparing for the closing, it received a letter from Brown. The letter stated that Brown was not owed any funds from the closing, and that Brown would provide a release of deed of trust and the original promissory note, marked “paid in full,” “within fourteen days of the closing.” The letter made no mention of Academy, and gave no indication that Academy would release the deed of trust at or before the closing. This omission raised the distinct possibility that, if the letter were relied on, Agent might proceed to closing and disburse funds at closing before the Academy deed of trust was released, thus failing to fulfill Requirement G. (As we now know in hindsight, this possibility became reality.)

¶ 18 Seib, who was in charge of the file with respect to closing the CEB&T loan, testified that she was “not happy” with the Brown letter, because it made no mention of Academy. She took the letter to Agent's Branch Manager, Greg Wolff, who approved the transaction to proceed to closing.

¶ 19 Section 7.3 of the contract makes Agent liable to Underwriter “for any loss or damage suffered by [Underwriter] arising from any error, fault, or negligence by Agent in handling funds in connection with any escrow whether or not such loss or damage is covered by any policy of title insurance issued through or in connection with such escrow.” The trial court found that Agent negligently handled funds in connection with an escrow, in violation of section 7.3.

¶ 20 Agent contends that the trial court misinterpreted the contract in two ways: (1) it essentially wrote the term “handling funds” out of the contract, and (2) it erroneously equated escrow services with closing services. On the first point, Agent argues that its conduct involved performing a title search and completing a closing in reliance on the Brown letter, and that any error in the performance of these tasks did not arise from “handling funds.” On the second point, Agent argues that any errors occurred in the context of a real estate closing, and that its closing services do not fall within the meaning of “escrow” as used in section 7.3.

¶ 21 We conclude that the trial court's findings on these issues are supported by the record and by the plain meaning of the terms of the contract.

¶ 22 To “handle” means “to deal with; act upon; dispose of; perform some function with regard to.” Webster's Third New International Dictionary Unabridged 1027 (2002) (emphasis added).

¶ 23 Agent proceeded with the closing and disbursed funds to Developer in reliance on the Brown letter. The record reflects that Agent had no basis to rely on the letter because, as the trial court found, Agent “clearly knew that [Brown] did not have authorityto release a promissory note or deed of trust without [Academy's] written consent.” Nevertheless, Agent's Branch Manager erroneously considered the Brown letter as sufficient to allow the transaction to close.

¶ 24 Because, under Requirement G., obtaining the release of the Brown–Academy deed of trust was a necessary prerequisite to disbursing funds at the CEB&T loan closing, Agent's error in relying on the Brown letter caused it to disburse more than $1 million to Developer that it should not have...