Misrepresentation and Title Insurance (10th Cir., Colorado)

In Stewart Title v. Dude (nominated for a great case name of the day salute) Mr. Dude failed to disclose a $1.9M mortgage when trying to get another $500k mortgage on the property.  The first mortgage had not been properly recorded, and did not show up in a title search.  Later, the house was sold and the $1.9M that should have been paid to the bank was paid to Mr. Dude.  When the bank threatened the new owner with foreclosure, Stewart Title stepped up and paid off the bank.  Stewart Title then went after Mr. Dude to get its money back. 

The jury found for Stewart Title and awarded actual and punitive damages.  On appeal, Dude argued that the verdict should be overturned because any reliance on Dude's misrepresentation was not "justifiable":

The precise work performed by the adjectival epithet “justifiable” when it comes to the reliance element in fraud is more than a little elusive. Everyone agrees it operates to allocate the risk of loss to an actually deceived plaintiff in some circumstances. But that may be where the agreement ends. See W. Page Keeton et al., Prosser and Keeton on the Law of Torts § 108, at 750 (5th ed. 1984). Some understand the law as requiring the plaintiff to ferret out the facts from even the vaguest intimations or else bear the risk of loss. Id. Others read it as imposing no duty to investigate at all and allocating the risk of loss only to the most foolish of plaintiffs. Id. Happily, to decide this case we don’t have to decide this debate. Mr. Dude presents two discrete theories of justifiable reliance and we can limit our discussion in this appeal to their terms without touching broader and more difficult questions.

First Mr. Dude said there was no justifiable reliance because Stewart Title knew I was lying.  Second, Mr. Dude argued that Stewart Title had constructive notice of the lien. 

This is a fraud dispute on appeal after a trial where the jury was properly instructed and Mr. Dude is left to argue only the insufficiency of the evidence to support its verdict. To prevail in these circumstances, Mr. Dude faces the daunting job of having to show that “the evidence points but one way [his way] and is susceptible to no reasonable inferences supporting the party opposing the motion; we must construe the evidence and inferences most favorably to the non-moving party.” 

He failed to do so. There could be no constructive notice where the lien was not properly filed.  Whether the bank’s failure to properly file its lien and whether Stewart Title had an obligation to pay the lien was not raised below. 

Another clear opinion from Judge Gorsuch.

Loss Payee not entitled to payment from insurance company

Usually, when there is a property loss, the bank that has the mortgage on the property is on the check for the damages, along with the insured.  This makes the bank a loss payee, and a third party beneficiary of the insurance contract.  In Truman Bank v. New Hampshire Insurance Company, however, the insurance company failed to include the Bank on the checks it wrote to the insured Marina after a storm damaged the property.  When the Bank found out, it demanded that the insurance company pay for the damages again, but this time, pay the Bank.  Shortly after the demand, however, the insured sold the Marina and paid off the loan to the Bank.  Still, the Bank continued to demand that the insurer pay a second time for the storm damage.

The trial court granted partial summary judgment to the Bank, as the facts were uncontroverted that the Bank was a loss payee, and its name was not included on the checks.  Thus, the Bank only had to prove to the jury that it was damaged by the insurer’s breach of contract to win at trial.  The jury was unconvinced, and found for the insurer.  The Bank appealed, claiming that the trial court should not have let the jury know the loan was paid off after the insurer paid for the storm damage. The evidence was properly admitted, since the Insurer had a right to show the Bank had no damage from being left off the insurance checks. In sum, even though the Bank was left off of the checks, it was not damaged because the loan had been paid.

Notice not required when policy lapses for non-payment

Notice not required when policy lapses for non-payment

In Bank of Oklahoma v. Monumental Life, Case No. 06-6137, the Tenth Circuit affirmed a summary judgment in favor of the insurance company.  The claim involved a mortgage life policy from Monumental that was supposed to pay off the mortgage in case the insured/homeowner died.  The insured never paid any premiums for the policy, and died three years later.  His widow sought coverage and brought claims against the bank and the insurance company.  The widow settled with the bank and assigned any right of recovery to the bank as against the insurance company.  The court held that because there were no premiums paid for the coverage, that there was simply no coverage in effect at the time the insured died. The court states, “The Policy's provision along these lines - allowing for the cessation of contractual obligations when payment is not forthcoming despite a reasonable grace period - is treated as valid, enforceable, and, indeed, essential under Oklahoma law for obvious and equitable reasons. See Gen. Am. Life Ins. Co. v. Brown, 56 P.2d 809, 812 (Okla. 1936).

"[I]t is quite generally held that the provisions of an insurance policy requiring prompt payment of the premiums, and the provision for lapse or cessation of the policy for nonprompt payment are valid, essential, and enforceable provisions of the contract." (internal quotation omitted)).”

There was nothing in the agreement between the Bank and Monumental which required Monumental to tell the Bank or the insured that it had not received any premiums or that the policy lapsed.  Thus, there could be no coverage by promissory estoppel.  While the insured may have been a third party beneficiary of the contract between the Bank and Monumental, the issue was waived on appeal.

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