Mortgage Exp., Inc. v. Tudor Ins. Co.

771 N.W.2d 137

278 Neb. 449

MORTGAGE EXPRESS, INC., and Jeff Rothlisberger, Appellants, v. TUDOR INSURANCE COMPANY et al., Appellees.

No. S-08-728.

Supreme Court of Nebraska.

August 28, 2009.

Larry E. Welch, Jr., and Damien J. Wright, of Welch Law Firm, P.C., Omaha, for appellants.

Thomas A. Grennan and Francie C. Riedmann, of Gross & Welch, P.C., L.L.O., Omaha, for appellee Cincinnati Insurance Company.

Gerald L. Friedrichsen and Carla Heathershaw Risko, of Fitzgerald, Schorr, Barmettler & Brennan, P.C., L.L.O., Omaha, for appellee Tudor Insurance Company.

Patrick G. Vipond and John M. Walker, of Lamson, Dugan & Murray, L.L.P., Omaha, for appellee Peterson Brothers Insurance, Inc.

HEAVICAN, C.J., WRIGHT, CONNOLLY, GERRARD, STEPHAN, McCORMACK, and MILLER-LERMAN, JJ.

McCORMACK, J.

I. NATURE OF CASE

In this declaratory judgment action, Mortgage Express, Inc., and Jeff Rothlisberger, its sole shareholder (collectively Mortgage Express), seek a declaration that Mortgage Express' liability insurers, Tudor Insurance Company (Tudor) and Cincinnati Insurance Company (Cincinnati) are obligated to defend Mortgage Express in a suit brought against it by a third party, Village Campground (Village). Alternatively, Mortgage Express brought a claim against its insurance broker, Peterson Brothers Insurance, Inc. (Peterson), for failure to obtain adequate insurance in the event the insurance policies do not provide coverage. In December 2006, the court entered summary judgment in favor of Tudor and Cincinnati, thereby dismissing Mortgage Express' action, and Mortgage Express appealed. On February 23, 2007, the Nebraska Court of Appeals dismissed that appeal, case No. A-07-009, for lack of jurisdiction, because the court's December 2006 order did not dispose of the case as to Peterson. On April 12, 2007, the court filed another order amending its December 2006 order to include a brief statement intending to certify the order as a final, appealable order pursuant to Neb.Rev.Stat. § 25-1315 (Reissue 2008). Mortgage Express appealed again on April 30, 2007, and the Court of Appeals dismissed that appeal, case No. A-07-494, on February 7, 2008, pursuant to Neb. Ct. R.App. P. § 2-107, because the court's order failed to properly certify the case for appeal. The court filed another order dismissing Peterson, properly certifying the case as a final, appealable order, and Mortgage Express filed this appeal. We affirm.

II. BACKGROUND

The underlying action in this case involves a dispute between Mortgage Express and Village regarding certain financial transactions which affect the remaining balance of a promissory note held by Mortgage Express and are secured by real property owned by Village. On August 20, 1998, Mortgage Express purchased and was assigned a promissory note and its collateralizing liens for the sum of $252,744.38. Several time-share receivables and multiple mortgages secured the note, but only two of the mortgages are relevant to this case.

One of the two relevant mortgages securing the note included certain real estate located in Washington County, Nebraska (the Nebraska property). The Nebraska property consists of a house and 12 acres and a separate but contiguous parcel of 38 acres. Shortly after Mortgage Express purchased the note, Mortgage Express bid on and purchased the Nebraska property at a trustee's sale for $195,000, subject to the first mortgage and property taxes. The record indicates that Mortgage Express purchased the Nebraska property at the trustee's sale, but that almost immediately after the sale, title to the Nebraska property was transferred to Rothlisberger.

The other mortgage securing the note included certain real estate located in Spencer County, Kentucky (the Kentucky property), which consists of a campground. The Kentucky property was foreclosed upon, and Village purchased the Kentucky property from the foreclosure sale. After acquiring the Kentucky property, Village discovered that the attorney hired to handle the foreclosure proceedings and to conduct the title search failed to find the lien held by Mortgage Express. As such, Mortgage Express was not made part of the foreclosure sale.

Following this discovery, on May 14, 2001, Village initiated a quiet title action against Mortgage Express in the Spencer County, Kentucky, circuit court (the original action). The complaint was later amended, asserting additional causes of action. In the original action, Village asked the court to quiet title in its favor, free from all liens and encumbrances that Mortgage Express holds. On July 1, 2002, the Kentucky court ruled in favor of Mortgage Express in the original action, concluding that the mortgage secured by the note was not extinguished in the foreclosure and that the mortgage remained a valid lien against the Kentucky property. Mortgage Express did not seek a defense from either of its insurers regarding the original action.

Thereafter, a dispute arose between Village and Mortgage Express regarding the amount due to satisfy Mortgage Express' mortgage. Mortgage Express initially maintained that the outstanding and unsatisfied balance due on the note was $340,153.36. Village attempted to settle the outstanding balance remaining on the note because it wished to sell the Kentucky property, but Mortgage Express refused. As a result of Mortgage Express' refusal, Village claims it could not sell the Kentucky property for its fair market value. During the ordinary course of business, Village learned that Mortgage Express bid on and won the Nebraska property but that the bid amount had not been credited to the outstanding note. Rothlisberger explained that he did not credit the sale of the Nebraska property to the note because he thought that until the property was liquidated by reselling it to a third party, he did not have to credit the note.

After Mortgage Express learned that the sale of the Nebraska property should have been credited to the note, Mortgage Express' counsel sent a letter to Village's counsel regarding the mistake. The letter indicated that after crediting the $195,000 to the note, the remaining balance was $101,565.52. Additionally, the letter stated:

I received your message that you are going to file suit against my client for sanctions. I will file our response to your suit, as well as a motion for a judgment and order of sale. Your threatened suit for slander of title is without merit since my client's lien still has a sizable balance due.

It appears that we will not be able to settle this matter, and we will need to proceed through the court in Spencer County.

This letter was sent by both U.S. mail and facsimile, and although it appears that the letter was faxed on March 4, 2003, the letter is undated.

The dispute over the balance of the note led to Village's amending its complaint in June 2003 to seek damages from Mortgage Express. In its second amended complaint, Village claimed fraudulent misrepresentation, slander of title, and abuse of judicial process, and it asserted a Kentucky statutory claim for failure to release its lien. Specifically, Village alleged that Mortgage Express misrepresented the balance remaining due on the promissory note by failing to credit Mortgage Express' bid on the Nebraska property to the balance of the promissory note. Mortgage Express maintains that this error was, at worst, a mistake and that it did not constitute fraudulent misrepresentation. Through motions for summary judgment, the Kentucky court determined that the only viable claim against Mortgage Express was for fraud.

Mortgage Express sought a defense to the above-mentioned claims brought by Village under its liability insurance policies with Tudor and Cincinnati. Tudor and Cincinnati denied that the policies required the insurance companies to defend Mortgage Express in the Village lawsuit. Mortgage Express then brought this declaratory judgment action in Douglas County District Court seeking a determination from the court that Tudor and Cincinnati are required to defend Mortgage Express against the claims Village alleged in its second amended complaint. In the event that the court determined that neither insurance policy provided coverage, Mortgage Express brought an alternative claim against Peterson alleging that Peterson was liable to Mortgage Express for failing to procure proper insurance.

Peterson, acting on behalf of Mortgage Express, obtained quotes for the insurance policies at issue. Mortgage Express requested insurance coverage for rendering professional services in "processing and closing mortgage loans for all types of residential housing, in-house loan underwriting." Peterson maintains that Mortgage Express never requested insurance coverage for transactions in which Rothlisberger had a personal financial interest as a buyer or seller of real property.

1. TUDOR POLICY

On March 4, 2003, Mortgage Express applied for errors and omissions insurance coverage by and through its insurance broker, Peterson. Consequently, Tudor issued to Mortgage Express a renewal claims-made policy referred to as "Specialty Professional Liability Policy" for the period of April 20, 2003, through April 20, 2004. The Tudor policy is a claims-made policy. A claims-made policy is defined as "[a]n agreement to indemnify against all claims made during a specified period, regardless of when the incidents that gave rise to the claims occurred."¹ The retroactive date of the policy is April 20, 1998.

The Tudor policy contains certain conditions precedent to coverage. The first section of the Tudor policy provides, in pertinent part:

I. INSURING AGREEMENTS

A. COVERAGE: CLAIMS MADE CLAUSE

The Company will pay on behalf of the Insured all sums in excess of the deductible that the Insured shall become legally obligated to pay as damages because of claims first made against the Insured and reported to the Company during the policy period. This policy applies to actual or alleged...