November 22, 2013
BCP HOLDINGS (USA), INC. f/k/a MILLENNIUM BCPBANK, N.A., Plaintiff-Appellant,
FIRST AMERICAN TITLE INSURANCE COMPANY, Defendant-Respondent, and SOCIETY HILL TITLE AGENCY, INC., Defendant.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued October 9, 2013
On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-7324-08.
Daniel J. Cohen argued the cause for appellant (Newman & Simpson, LLP, attorneys; Mr. Cohen and Sabina P. McKinney, of counsel and on the briefs).
William C. Sandelands argued the cause for respondent (Sandelands Eyet LLP, attorneys; Mr. Sandelands, of counsel and on the brief; Maria A. Kershaw, on the brief).
Before Judges Grall, Waugh, and Nugent.
Plaintiff Millennium bcpbank, N.A. (Millennium), appeals the Law Division's October 2, 2012 order granting summary judgment to defendant First American Title Insurance Company (First American). We reverse.
We discern the following facts and procedural history from the record on appeal.
Millennium is a mortgage lender. In December 2005, it made a $400, 000 construction loan to Antonio Pinto and his wife Ana. Vouga Builders, LLC (Vouga), of which Antonio was the principal, guaranteed the loan. As security for the loan, Millennium received mortgages on two parcels of real property located in Newark, one owned by Vouga and the other by Antonio. At the time it was making the loan, Millennium ordered a title policy from First American, through its agent, co-defendant Society Hill Title Agency, Inc. (Society Hill), to cover the mortgages on both parcels effective December 30, 2005.
Millennium's credit administrator prepared the mortgages and supporting documentation. In drafting the mortgages, she switched the owners' names. As a result, the mortgage on the property owned by Vouga identified Antonio as the owner, and the mortgage on the property owned by Antonio identified Vouga as the owner. The names of the property owners were transposed on several additional documents.
The errors were not discovered during the closing on December 30, the date on which the title policy was issued. Millennium sent the defective mortgages to the county clerk for recordation. On February 28, 2006, Millennium forwarded copies of the closing documents, including the two defective mortgages, to Society Hill.
In September 2006, Vouga conveyed title of its property to Ana. In November, Ana conveyed title of the property to third parties. The title search performed by the purchasers did not disclose Millennium's mortgage, which had been indexed under the incorrect name due to the drafting error.
In 2008, the third-party purchasers discovered the existence of the Millennium mortgage involving their property. They instituted a quiet-title action against the Pintos, Vouga, and Millennium. Millennium learned of the drafting error and problems with the mortgages when it was served with the complaint in that action.
In July 2008, Millennium notified First American of the quiet-title complaint. It subsequently filed a proof of claim, seeking coverage under the title policy and requesting First American to defend the quiet-title action and indemnify it for any loss. First American denied coverage in August.
First American acknowledged that Millennium's claim was covered under coverage clause five of the title policy, subject to the policy's exclusions. However, it denied coverage based upon exclusion clause 3(a), which states:
The following matters are expressly excluded from the coverage of this policy and the Company will not pay loss or damage, costs, attorneys' fees or expenses by reason of:
3. Defects, liens, encumbrances, adverse claims or other matters:
a) created, suffered, assumed or agreed to by the insured claimant[.]
First American asserted that Millennium's claim was excluded because it had itself created the defect by switching the names when drafting the mortgages. First American did not assert any other basis for denying coverage.
In the interim, the Pintos had defaulted on the Millennium loan. Millennium filed suit seeking to recover the amounts due on the loan and for other relief. It also filed a foreclosure action on the mortgages. It subsequently amended that complaint to state additional causes of action, including fraud, against the Pintos.
After First American disclaimed coverage with respect to the quiet-title action, Millennium filed its complaint in this action against First American and its agent Society Hill, seeking to enforce the title policy. The action was dismissed on the basis of the entire-controversy doctrine. Millenium appealed. We found the doctrine to be inapplicable and remanded. Millennium bcpbank, N.A. v. First Am. Title Ins. Co., Docket No. A-1172-10 (App. Div. Dec. 22, 2011).
Following the remand and discovery, the parties filed competing motions for summary judgment. Millennium argued that First American was obligated to defend and indemnify it under the policy because the word "created" in exclusion clause 3(a) applies only to defects that arose as a result of deliberate or intentional affirmative conduct, whereas the switching of the names on the mortgages resulted from an inadvertent act. First American argued that the switching of the names was the result of an affirmative act on the part of Millennium, thereby precluding coverage.
In a written statement of reasons annexed to the order granting summary judgment in favor of First American, the motion judge concluded:
[T]hat the defect was in fact "created" by Millennium when it inadvertently switched the names of the mortgagors on the respective mortgages, thus falling within the exclusion of the Title Policy. This Court finds that to "create" does not imply that the act must be deliberate or with intent . . . . This Court finds that regardless of Millennium's intent, a defect was created by Millennium when the names were switched, thus making the mortgages fall within the exclusions named in the Title Policy. . . . Additionally, and based on the foregoing, this Court finds that First American does not owe a duty to defend or indemnify Millennium in the instant action . . . .
This appeal followed.
On appeal, Millennium argues that the motion judge erred as a matter of law because he failed to follow New Jersey precedent interpreting the word "create" in title insurance policies. It also contends that First American is precluded from raising others grounds for excluding coverage because it did not file a cross-appeal.
We review a grant of summary judgment under the same standard as the motion judge. Rowe v. Mazel Thirty, LLC, 209 N.J. 35, 41 (2012). We must determine whether there are any genuine issues of material fact when the evidence is viewed in the light most favorable to the non-moving party. Id. at 38, 41. "The inquiry is 'whether the evidence presents a sufficient disagreement to require submission to a [finder of fact] or whether it is so one-sided that one party must prevail as a matter of law.'" Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-46 (2007) (quoting Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 536 (1995)). "[T]he legal conclusions undergirding the summary judgment motion itself" are reviewed "on a plenary de novo basis." Estate of Hanges v. Metro. Prop. & Cas. Ins. Co., 202 N.J. 369, 385 (2010).
The interpretation of an insurance contract typically raises questions of law. Consequently, it is generally appropriate to resolve such questions on summary judgment. Adron, Inc. v. Home Ins. Co., 292 N.J.Super. 463, 473 (App. Div. 1996) (citing Weedo v. Stone-E-Brick, Inc., 155 N.J.Super. 474, 479 (App. Div. 1977), rev'd on other grounds, 81 N.J. 233 (1979)).
When reviewing an insurance policy, a court "should give the policy's words 'their plain, ordinary meaning.'" President v. Jenkins, 180 N.J. 550, 562 (2004) (quoting Zacarias v. Allstate Ins. Co., 168 N.J. 590, 595 (2001)). If the terms of the insurance policy are clear and unambiguous, the court "should interpret the policy as written and avoid writing a better insurance policy than the one purchased." Ibid. (citing Gibson v. Callaghan, 158 N.J. 662, 670 (1999)). If the insurance contract is ambiguous, the policy should be construed in favor of providing coverage for the insured. Id. at 563 (citing Doto v. Russo, 140 N.J. 544, 556 (1995)).
Ambiguity only occurs "where the phrasing of the policy is so confusing that the average policyholder cannot make out the boundaries of coverage." Weedo, supra, 81 N.J. at 247; see also Powell v. Alemaz, Inc., 335 N.J.Super. 33, 44 (App. Div. 2000) ("An insurance policy is not ambiguous merely because two conflicting interpretations of it are suggested by the litigants."). A court should not strain the language of the insurance policy to create ambiguity. Stiefel v. Bayly, Martin & Fay of Conn., Inc., 242 N.J.Super. 643, 651 (App. Div. 1990). "'[T]he duty to defend [an insured] comes into being when the complaint states a claim constituting a risk insured against.'" Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 173 (1992) (first alteration in original) (quoting Danek v. Hommer, 28 N.J.Super. 68, 77 (App. Div. 1953), aff'd o.b., 15 N.J. 573 (1954)). "Whether an insurer has a duty to defend is determined by comparing the allegations in the complaint with the language of the policy." Ibid. at 173. "The duty to defend arises when the comparison reveals that if the allegations of the complaint are sustained, the insurer will be required to pay any resulting judgment. Any doubts are resolved in favor of the insured." Sears Roebuck & Co. v. Nat'l Union Fire Ins. Co., 340 N.J.Super. 223, 241 (App. Div.) (citing Voorhees, supra, 128 N.J. at 173), certif. denied, 169 N.J. 608 (2001).
"In general, insurance policy exclusions must be narrowly construed; the burden is on the insurer to bring the case within the exclusion." Princeton Ins. Co. v. Chunmuang, 151 N.J. 80, 95 (1997) (citing Burd v. Sussex Mut. Ins. Co., 56 N.J. 383, 399 (1970)). Once an insurer meets the exclusion's threshold, the exclusion is given effect if it is "specific, plain, clear, prominent, and not contrary to public policy." Doto, supra, 140 N.J. at 559 (citing Catton v. N.J. Full Ins. Underwriting Ass'n, 242 N.J.Super. 5, 10-11 (App. Div. 1990)).
The "'created or suffered'" exclusion involved in this case is "a standard one in title insurance contracts" and is "apparently '[o]ne of the most litigated' clauses in the field." Home Fed. Sav. Bank v. Ticor Title Ins. Co., 695 F.3d 725, 732 (7th Cir. 2012) (quoting Palomar, Title Insurance Law § 6:10). Although the language of the exclusion has been interpreted otherwise, the Seventh Circuit determined that the "clear majority view among courts of other jurisdictions is that the exclusion applies only to intentional misconduct, breach of duty, or otherwise inequitable dealings by the insured." Id. at 733. In that regard, the Eighth Circuit has observed that
[t]he cases discussing the applicability of the "created or suffered" exclusion generally have stated that the insurer can escape liability only if it is established that the defect, lien or encumbrance resulted from some intentional misconduct or inequitable dealings by the insured or the insured either expressly or impliedly assumed or agreed to the defects or encumbrances in the course of purchasing the property involved. The courts have not permitted the insurer to avoid liability if the insured was innocent of any conduct causing the loss or was simply negligent in bringing about the loss.
[Brown v. St. Paul Title Ins. Corp., 634 F.2d 1103, 1107-08 n. 8 (8th Cir. 1980) (emphasis added).]
New Jersey case law is consistent with the majority view. Keown v. W. Jersey Title & Guar. Co., 161 N.J.Super. 19, 25-27 (App. Div.), certif. denied, 78 N.J. 405 (1978); Feldman v. Urban Commercial, Inc., 87 N.J.Super. 391, 401 (App. Div. 1965); Title Ins. Corp. of Pa. v. Wagner, 179 N.J.Super. 234, 238-40 (Ch. Div. 1981). Those cases required the construction of the word "create" in exclusionary clauses similar to exclusion clause 3(a) in the policy at issue here.
In Feldman, the plaintiff sued the title insurer after it declaimed coverage based on an exclusion for defects created or suffered by the insured. 87 N.J.Super. at 401-02. We interpreted the word "create" to "connote the idea of knowledge, the performance of some affirmative act by the insured, a conscious and deliberate causation." Id. at 404. Because we concluded that the defect at issue was the result of the plaintiff's "deliberate, affirmative action, in pursuance of [an] unconscionable scheme, " we affirmed the dismissal of his claim. Id. at 408.
In Keown, the Law Division had held, in a reported decision, that a trustee who purchased real property without authority to do so did not receive good title and that he could recover from the title insurer on that basis. 147 N.J.Super. 427 (Law Div. 1977). In reaching that decision, the judge considered Feldman and cases from other jurisdictions, and concluded that,
[i]f there is any rule which can be drawn from the few cases involving the particular words "created or suffered by the Insured, " it is that if the defect in title is the result of some deliberate dishonest, illegal or inequitable dealings by the insured, there is no coverage, but this is not the case if the defect is brought about by some accidental or innocent conduct of the insured.
[Id. at 439.]
The judge concluded that the "suffered or created" exclusion was not applicable because the trustee had been negligent. Id. at 443.
The defendant appealed and we reversed, finding that the trustee's title was not defective. Keown, supra, 161 N.J.Super. at 25. Nevertheless, we also considered the issue of the "created or suffered" exclusion, and concluded that the negligent causation of a defect in the title does not constitute "creation" within the meaning of the exclusionary clause. Id. at 27. In reaching that determination, we relied on the language in Feldman "that the word 'create' connotes the idea of knowledge, the performance of some affirmative act by the insured, a conscious [and] deliberate causation." Id. at 25 (quoting Feldman, supra, 87 N.J.Super. at 404). We also observed that
a determination that a negligent causation of the defect does not constitute "creation" within the meaning of the exclusionary clause would be consistent with the general rules for interpreting insurance contracts. The language of the policy should be liberally construed in favor of the insured and strictly construed against the insurer.
[Id. at 26-27.]
In Wagner, the insured had changed the description of the property in the deed prior to its recordation and a title defect resulted from the change. Wagner, supra, 179 N.J.Super. at 236-37. The insurer denied coverage, asserting that coverage was excluded because the insured either made a mistake or engaged in fraud. Ibid. The insured alleged that she made the change because she thought the original description was inaccurate. Id. at 241. Judge Haines held that an exclusionary clause barring recovery for defects created by the insured did not apply to defects resulting from a mistake committed by the insured. Ibid. He relied on Keown, supra, 161 N.J.Super. at 25, for the proposition that "create" requires some form of affirmative conduct or wrongdoing and concluded that a "'mistake' does not connote affirmative wrongdoing." Wagner, supra, 179 N.J.Super. at 240-41. As a result, the judge concluded that the insurer would not be responsible for coverage if the defect arose from fraud perpetrated by the insured, but would be if the defect was merely the product of the insured's mistake. Id. at 241-42.
Although Millennium is a significantly less sympathetic litigant than the successful plaintiffs in New Jersey cases discussed above, it did not engage in misconduct, as did the plaintiff in Feldman. In addition, the defective mortgages were sent to Society Hill, First American's agent, shortly after the closing and at least five months prior to the transaction that gave rise to the loss resulting from the title defect. Consequently, this is not a case in which the insurer had no opportunity to detect and remedy the problem. See Hansen v. W. Title Ins. Co., 33 Cal.Rptr. 668 (Cal.Ct.App. 1963).
Having reviewed First American's other arguments suggesting alternate grounds on which to affirm the order on appeal, we find them to be without merit and not requiring discussion in a written opinion. R. 2:11-3(e)(1)(E).
Consequently, we reverse the order on appeal and remand for additional proceedings consistent with this opinion.
Reversed and remanded.