RCN Capital, LLC v. Chi. Title Ins. Co.

196 Conn.App. 518

230 A.3d 740

RCN CAPITAL, LLC

v.CHICAGO TITLE INSURANCE COMPANY

AC 42082

Appellate Court of Connecticut.

Argued October 25, 2019

Officially released March 17, 2020

Jon C. Leary, Bristol, for the appellant (plaintiff).

Frank B. Velardi, Jr., New Haven, for the appellee (defendant).

Elgo, Bright and Devlin, Js.

ELGO, J.

In this breach of contract action, the plaintiff, RCN Capital, LLC, appeals from the judgment of the trial court awarding it $108,000 in damages. On appeal, the plaintiff claims that the court improperly determined the amount of damages. We affirm the judgment of the trial court.

The following relevant facts are not in dispute. On June 28, 2012, Sunford Properties & Development, LLC (Sunford), executed a note in favor of the plaintiff in exchange for a commercial loan in the amount of $600,000. To secure the note, Kwok L. Sang executed and delivered a limited guarantee agreement to the plaintiff, which was secured by a commercial guarantee mortgage deed (mortgage) on certain real property located in Norwich (property).¹ On June 29, 2012, the mortgage was recorded on the Norwich land records.

Under the terms of the loan agreement, Sunford and Sang directed their attorney—an agent of the defendant, Chicago Title Insurance Company—to have the defendant issue a mortgage title insurance policy (policy), insuring the interests of the plaintiff with respect to the property. The policy was executed on June 29, 2012, and provided for up to $600,000 in coverage. The policy insured various types of losses that could be suffered by the plaintiff, including "[t]he lack of priority of the lien of the [i]nsured [m]ortgage upon the [t]itle over any other lien or encumbrance."² On November 5, 2013, the policy was modified by way of an endorsement that included, in part, an increase of coverage to $800,000 and reflected the plaintiff's name change. That same day, the note, the limited guarantee, and the commercial guarantee mortgage were also modified to increase the loan amount to $800,000.

On April 1, 2014, Sunford defaulted on the loan. On January 6, 2015, the plaintiff commenced a foreclosure action seeking a judgment of foreclosure on the property.³ During the foreclosure litigation, the plaintiff learned that its rights in the property as a mortgagee were subordinate to the interest of a mortgage held by the Mashantucket Pequot Tribal Nation (Tribal Nation). The Tribal Nation mortgage was in the principal amount of $1,400,000 and was recorded on the Norwich land records in July, 2007. The plaintiff's original complaint did not identify the Tribal Nation mortgage as an encumbrance on the property.⁴

On April 27, 2015, the property became the subject of a tax foreclosure action commenced by the city of Norwich (tax foreclosure action). Both the plaintiff's mortgage and the Tribal Nation mortgage were found to be subordinate in right to the interests of Norwich.⁵ On May 12, 2016, the court in the tax foreclosure action rendered a judgment of foreclosure by sale of the property.

On May 16, 2016, the court in the plaintiff's foreclosure action rendered a judgment of strict foreclosure and found the property to have a fair market value of $304,000.⁶ On August 19, 2016, the plaintiff purchased the property for $150,000 pursuant to the tax foreclosure by sale. As a result of the sale to the plaintiff, the Tribal Nation received $108,478.32, which represented the total purchase price of $150,000 less committee expenses and satisfaction of Norwich's tax lien. Having now acquired the property through the tax foreclosure action, the plaintiff filed a motion to open the judgment in its own foreclosure action. After the court granted that motion, the plaintiff withdrew its count seeking foreclosure of the property.⁷

On April 26, 2016, the plaintiff notified the defendant of its claim for monetary damages under the policy. After the defendant failed to pay on the claim, the plaintiff instituted this action against the defendant. In its revised complaint dated May 23, 2017, the plaintiff alleged a single count of breach of contract and sought monetary damages for the defendant's failure to pay the claim submitted under the policy. On February 20, 2018, the court, Noble, J. , denied the defendant's motion for summary judgment as to liability. In its memorandum of decision, the court found that, although "the plaintiff acquired title [to the property] free and clear of the Tribal Nation's mortgage ... it was required to satisfy the Tribal Nation's superior encumbrance to the extent of the equity remaining in the property. The partial satisfaction of the Tribal Nation's mortgage deprived the plaintiff of access to equity otherwise available to it to satisfy the debt owed it, thereby causing it to suffer actual loss."

After the defendant conceded liability at trial, the court, Moukawsher, J. , rendered judgment in favor of the plaintiff on August 27, 2018, awarding the plaintiff $108,000 in damages. In its memorandum of decision, the court rejected the plaintiff's damages valuation of $269,337.08, which represented the fair market value of the property at the time of the plaintiff's foreclosure action less the $34,662.92 in taxes paid to Norwich. Relying on Cohen v. Security Title & Guarantee Co. , 212 Conn. 436, 562 A.2d 510 (1989), the court found that, because $108,000 was the actual loss suffered by the plaintiff, "[a]ny other amount is not a reflection of the security impairment actually suffered by the [plaintiff] ...." This appeal followed.⁸

On appeal, the plaintiff challenges the court's measurement of damages. Specifically, it argues that the court improperly valued its damages at $108,000, representing the actual loss of equity it would have received if its mortgage had priority over the Tribal Nation's mortgage. The plaintiff asserts that the proper valuation of damages should have been the fair market value of the property as determined in its foreclosure action less the satisfaction of the Norwich tax lien. We disagree.

"Our standard of review applicable to challenges to damages awards is well settled.... [T]he trial court has broad discretion in determining damages. ... The determination of damages involves a question of fact that will not be overturned unless it is clearly erroneous. ... [If], however, a damages award is challenged on the basis of a question of law, our review [of that question] is plenary." (Internal quotation marks omitted.) Commerce Park Associates, LLC v. Robbins , 193 Conn. App. 697, 735, 220 A.3d 86 (2019), cert. denied sub nom. Robbins Eye Center, P.C. v. Commerce Park Associates, LLC, 334 Conn. 912, 221 A.3d 447 (2020), and cert. denied sub nom. Robbins Eye Center, P.C. v. Commerce Park Associates, LLC, 334 Conn. 912, 221 A.3d 448 (2020).

We begin by noting that "[a] title insurance policy is a contract of indemnity under which the insurer agrees to indemnify the insured in a specified amount against loss through defect of title to real estate. ... Accordingly, the relationship between an insurance company and the insured is essentially contractual." (Citation omitted.) Lee v. Duncan , 88 Conn. App. 319, 325, 870 A.2d 1, cert. denied, 274 Conn. 902, 876 A.2d 12 (2005). Because the resolution of this claim necessarily involves the interpretation of an unambiguous contract, our review is plenary. See, e.g., Joseph General Contracting, Inc. v. Couto , 317 Conn. 565, 575, 119 A.3d 570 (2015).

The title insurance contract at issue in the present case provides for coverage against loss caused, in part, by "[t]he lack of priority of the lien of the [i]nsured [m]ortgage upon the [t]itle over any other lien or encumbrance." Expressly excluded from coverage are "[d]efects, liens, encumbrances, adverse claims, or other matters ... resulting in no loss or damage to the [plaintiff]." As our Supreme Court has held, "[t]his exclusion reflects the fact that [t]itle insurance is ... an indemnity contract and as such it is to provide reimbursement for actual loss only."⁹ (Emphasis in original; internal quotation marks omitted.) Cohen v. Security Title & Guarantee Co. , supra, 212 Conn. at 439. Thus, the proper measurement of damages is limited to the actual loss suffered by the plaintiff.

As the trial court found in denying the defendant's motion for summary judgment, the plaintiff could acquire title to the property free and clear of encumbrances only by partially satisfying the Tribal Nation's superior mortgage. The record unequivocally indicates that the plaintiff would have received approximately $108,000 had its mortgage been superior to that of the Tribal Nation's mortgage. Because its mortgage was not superior, the court found that the plaintiff sustained an actual loss of approximately $108,000 upon its purchase of the property pursuant to the tax foreclosure action.

In challenging this valuation, the plaintiff submits that the correct methodology for calculating damages is the fair market value of the property determined during the plaintiff's foreclosure action ($304,000) less the amount required to satisfy Norwich's tax lien ($33,780), for a total of $270,220. It asserts that, due to the small number of bidders, the purchase price from a foreclosure by sale is an unreliable valuation for purposes of damages.¹⁰

In support of its claim that the sales price from a foreclosure sale is not reliable for the valuation of damages, the plaintiff cites to New England Savings Bank v. Lopez , 227 Conn. 270, 630 A.2d 1010 (1993). In that case, the defendants claimed that the trial court's use of the foreclosure sale price of the property—instead of the property's fair market value—to calculate a deficiency judgment violated their right to due process. Id., at 274–75, 630 A.2d 1010. In rejecting this claim, our Supreme Court stated in dicta that, unlike a foreclosure by sale, "[f]air market value is generally said to be the value that would be fixed in fair negotiations between a desirous...