New South Federal Savings Bank v. Commonwealth Land Title Ins. Co.

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

06-477

NEW SOUTH FEDERAL SAVINGS BANK

VERSUS

COMMONWEALTH LAND TITLE INSURANCE
COMPANY, ET AL.

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APPEAL FROM THE
NINTH JUDICIAL DISTRICT COURT
PARISH OF RAPIDES, NO. 219,999
HONORABLE HARRY RANDOW, DISTRICT JUDGE

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MARC T. AMY
JUDGE

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Court composed of Oswald A. Decuir, Marc T. Amy, and Billy Howard Ezell, Judges.

AFFIRMED.

William M. Ford
Post Office Box 12424
Alexandria, LA 71315-2424
(318) 442-8899
COUNSEL FOR DEFENDANT/APPELLEE:
Commonwealth Land Title Insurance Company

James B. Reichman
Reichman & Armour
Post Office Box 210
Alexandria, LA 71309
(318) 442-3251
COUNSEL FOR PLAINTIFF/APPELLANT:
New South Federal Savings Bank

AMY, Judge.

The plaintiff bank purchased a mortgage from the original lender. The

mortgage had an error, in that it contained the physical address of one location and

the legal description of another. The defendant title insurance company issued a

policy for the mortgaged property. The plaintiff learned of the error when it

attempted to foreclose on the property. Thereafter, it commenced this proceeding to

recover under the title insurance policy. The trial court ruled in favor of the

defendant, finding that, although the lender did not issue a mortgage on the property

for which the physical address was provided, it issued a valid mortgage on the

property for which the legal description was provided. The court found no title

irregularities on the mortgaged property and, thus, no recovery under the title

insurance policy. The plaintiff bank appeals. For the following reasons, we affirm.

Factual and Procedural Background

The record indicates that in October 2000, Memphis and Dorothy Willis

applied to Southern Equity Lenders for a property mortgage. According to Bill

Nichols, who then served as Southern Equity’s Secretary Treasurer, it was assumed

that the mortgage was to be taken on the Willises’ residence, a house located at 351

Willis Flat Road, Glenmora, Louisiana.

Southern Equity contacted one of its approved attorneys for the purpose of

closing the loan. The attorney, also an agent for Commonwealth Land Title Insurance

Company, issued a short form title insurance policy on the property. According to

Mr. Nichols, the decision as to whether to have a survey performed on the subject

property was left to the discretion of the closing attorney. At trial, the attorney

pointed out that Southern Equity’s instructions as to closing did not indicate that a

survey was requested. In any event, no survey was performed.

The mortgage was sold to the plaintiff, New South Federal Savings Bank, upon

completion. After Mr. Willis’s death and following default, New South commenced

foreclosure proceedings. A survey completed as part of the foreclosure proceedings

revealed that the physical address listed on the mortgage and the legal description of

the property provided within the mortgage differed. Although the physical address

was the Willis residence and it was the one supplied to Southern Equity through the

mortgage application, the property at that address was not owned by Mr. and Mrs.

Willis. Rather, it was owned by their son. The property for which the legal

description was provided was owned by Mr. and Mrs. Willis, but it was an

unimproved parcel of land located on Monk Road. Foreclosure proceedings on the

Willis Flat Road property were suspended. There is no indication that foreclosure

proceeded against the Monk Road property.

New South filed the instant matter, naming both the closing attorney and

Commonwealth Land Title Insurance Company as defendants. While the closing

attorney was dismissed on a successful exception of prescription/peremption, New

South pursued Commonwealth for coverage under the title insurance policy issued

in conjunction with the mortgage. New South sought recovery for losses stemming

from what it alleged was a lack of clear title on the Willis Flat Road property.

Commonwealth denied recovery. Prior to trial, Southern Equity repurchased the

mortgage from New South.

The trial court found in favor of the insurer, concluding that recovery was not

possible as the title to the property was not defective and, furthermore, a valid

mortgage existed on the Monk Road property.1 The validity of the mortgage is not

1
In reasons for ruling, the trial court explained:

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an issue before the court and, therefore, is not considered herein. However, New

South has appealed the trial court’s determination that the title insurance policy does

not provide coverage for its inability to foreclose on the Willis Flat Road property and

presents the following issues for review:

A. Did the variance between the erroneous property description and
the correct municipal address; the acreage described and the
actual acreage; and/or the absence of improvements on the
described property constitute “adverse circumstances affecting the
title” which would have been disclosed by an accurate survey,
thus resulting in coverage under the title policy?

B. Should Commonwealth’s policy be reformed to reflect insurance
of title on the intended property?

In its argument for coverage Plaintiff relies on the language of the survey
endorsement quoted above. Plaintiff argues that insuring the wrong property is an
adverse circumstance which would have been disclosed by an accurate survey. The
Court has found no Louisiana jurisprudence directly on point as to the interpretation
of the survey endorsement. Furthermore, a search of the jurisprudence of other states
has yielded no explanation. Therefore, the Court believes that this policy must be
interpreted by looking at the plain meaning of the words used in the policy.

An insurance policy is to be enforced as written if the language in the policy
is clear and unambiguous. Furthermore, if a policy is clear and unambiguous the
courts have no authority to alter the terms of the policy. Pareti v. Sentry Indemnity
Company, 536 So.2d 417 (La. 1988). When interpreting insurance contracts, the
court’s responsibility is to determine the parties’ common intent. Such intent is to
be determined in accordance with the general, ordinary, plain and popular meaning
of the words used in the policy, unless the words have acquired a technical meaning.
Johnson v. Evan Hill Sugar Cooperative, Inc., 2001-2956 (La.App. 1 Cir. 12/30/02),
836 So.2d 484.

The Court does not find the wording of the survey endorsement to be
ambiguous. The endorsement provides that New South will be insured for an
“adverse circumstance” affecting the title which would have been detected by an
accurate survey. The Court does not believe that insuring the wrong property is an
adverse circumstance which affected the title in this situation. Furthermore, the
Court does not believe that a survey would have revealed any problem with the title
in this case. Mortgagee’s title insurance is to ensure that the lender has a valid first
mortgage over the property mortgaged. In this case, the mortgage and title insurance
may not cover the property the lender intended them to cover, however, there is no
problem with the title to the property actually mortgaged to the lender and insured by
the title insurance policy. The lender still has a valid first mortgage over the property
that was actually mortgaged. Therefore, the Court must disagree with Plaintiff’s
argument that the survey endorsement covers this situation.

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C. Did Commonwealth’s erroneous inclusion of two different
properties (one by municipal address and the other by legal
description) as those whose title insured render the insurance
contract ambiguous so as to mandate an interpretation of title
coverage for the one intended by the insured?

Discussion

Variance as to Property

New South focuses on the difference in the property intended to be insured and

that for which the legal description was provided in both the mortgage and the title

insurance policy. In arguing that the Commonwealth policy provides coverage for

failure to obtain clear title to the Willis Flat Road property, it relies upon the

Commonwealth insurance provision indicating, in part, that the “policy insures

against loss or damage by reason of any violation, variation, encroachment or adverse

circumstances affecting the title that would have been disclosed by an accurate

survey.” New South argues that because an accurate survey would have revealed the

discrepancy between the physical address of the Willis Flat Road property and the

legal description provided for the Monk Road property, the policy should afford

insurance of title on the intended property. As the question of the validity of the

mortgage itself2 is not at issue, we turn to the wording of the title insurance policy to

consider New South’s claim.

2
The Mortgage indicates that:

Borrower does hereby mortgage and hypothecate to Lender the following described
property located in RAPIDES Parish, Louisiana:

SEE LEGAL DESCRIPTION ATTACHED HERETO AND MADE A PART
HEREOF AS EXHIBIT “A”.

which has the address of 351 WILLIS FLAT RD. GLENMORA Louisiana 71433
(“Property address”)[.]

Exhibit “A” to the mortgage document reveals the same legal description provided in the title
insurance, that of the unimproved property on Monk Rd.

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The Commitment for Title Insurance indicates that the land referred to therein

is that attached as “Exhibit ‘A’.” Exhibit A to the Commitment provides the

following descriptions which the parties now agree is that of the unimproved parcel

on Monk Road:

Exhibit “A”

A certain tract of land containing one (1.0) acres, more or less, situated
in the South half (S/2) of the Northeast Quarter (NE/4) of the Northwest
Quarter (NW/4) of Section 36, Township One (1) South, Range Four (4)
West, and being more particularly described as follows:

The South half (S/2) of the Northeast Quarter of the Northwest Quarter
of Section 36, Township One South, Range 4 West LESS AND
EXCEPT Tracts #1 through 10 on Exhibit attached hereto:

Tract 1: 1.0 acre sold by Memphis Willis to Poley Buxton at
Conveyance Book 484, page 452;

Tract 2: 2.1 acres sold by Memphis Willis to Mason Willis at
Conveyance Book 1299, page 584;

Tract 3: 0.14 acre sold by Memphis Willis to Burton Ashworth at
Conveyance Book 565, page 344;

Tract 4: one-fourth (1/4) acre sold by Memphis Willis to Mason
Willis at Conveyance Book 721, page 667;

Tract 5: one-half (½) acre sold by Memphis Willis to Mason Willis
at Conveyance Book 721, page 669;

Tract 6: 2.28 acres sold by Memphis Willis to Mason Willis at
Conveyance Book 1204, page 166;

Tract 7: 1.00 acre sold by Memphis Willis to Wanda Glen Lockhart
at Conveyance Book 1239, page 613 and Corrected at
Conveyance Book 1306, page 210;

Tract 8: 4.0 acres sold by Memphis Willis at Mason Willis at
Conveyance Book 1539, page 282;

Tract 9: 2.84 acres sold by Memphis Willis to Michael N. Willis at
Conveyance Book 1555, page 242;

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Tract 10: 5.7 acres sold by Memphis Willis to Geraldine Johnson at
Conveyance Book 1555, page 919[.]

The “Short Form Residential Loan Policy One-to-Four Family” issued by

Commonwealth lists the “property address” as “351 Willis Flat Road, Glenmora, LA

71433.” As far as identification, it further provides that:

The estate or interest in the land identified in this Schedule A and
which is encumbered by the insured mortgage is fee simple and is at
Date of Policy vested in the borrower(s) shown in the insured mortgage
and named above.

The land referred to in this policy is described as set forth in the
insured mortgage and is identified as the property address shown
above.

(Emphasis added.) Schedule B to the policy is entitled: “Exceptions From Coverage

And Affirmative Assurances.” It indicates, in pertinent part, that:

This policy does not insure against loss or damage (and the
Company will not pay costs, attorneys’ fees or expenses) which arise by
reason of the matters set forth below, except to the extent that the
Company does insure in accordance with and subject to its terms against
loss or damage which the insured shall sustain by reason of any
inaccuracies in the affirmative assurances set forth below, except as
limited in any addendum attached hereto:

....

5. This policy insures against loss or damage by reason of any
violation, variation, encroachment or adverse circumstances
affecting the title that would have been disclosed by an accurate
survey. The term “encroachment” includes encroachments of
existing improvements located on the land onto adjoining land,
and encroachments onto the land of existing improvements
located on adjoining land.

(Emphasis added.) New South argues that the above assurance provides coverage in

this instance as the complained of “variation” or “adverse circumstances affecting the

title” would have been disclosed if an accurate survey had been performed.

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As insurance policies are contracts between the parties, they are to be construed

in light of the general rules of contract interpretation provided by the Louisiana Civil

Code. Bonin v. Westport Ins. Corp., 05-0886 (La. 5/17/06), 930 So.2d 904. Relevant

to this review are Articles 2045 through 2049, which provide:

Art. 2045. Determination of the intent of the parties
Interpretation of a contract is the determination of the common
intent of the parties.

Art. 2046. No further interpretation when the intent is clear
When the words of a contract are clear and explicit and lead to no
absurd consequences, no further interpretation may be made in search
of the parties’ intent.

Art. 2047. Meaning of words
The words of a contract must be given their generally prevailing
meaning.

Words of art and technical terms must be given their technical
meaning when the contract involves a technical matter.

Art. 2048. Words susceptible of different meaning
Words susceptible of different meanings must be interpreted as having
the meaning that best conforms to the object of the contract.

Art. 2049. Provision susceptible of different meanings
A provision susceptible of different meanings must be interpreted
with a meaning that renders it effective and not with one that renders it
ineffective.

Notwithstanding the discrepancies regarding the location of the mortgaged

property in this case, our review of the wording of the contract itself reveals no

support for the argument that the affirmative assurance regarding an accurate survey

provides coverage as urged by New South. A survey likely would have revealed the

errors in both the mortgage and the insurance. In fact, it was a survey that ultimately

revealed the error. However, the applicable affirmative assurance provides that the

policy provides coverage losses/damages stemming from “any violation, variation,

encroachment, or adverse circumstances affecting the title” that would have been

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disclosed through a survey. (Emphasis added.) While the course of events in this

case is not fully explained in the record, the problems associated with the varying

property descriptions do not affect the “title” of either parcel of property. Thus, per

the terms of the contract, there is no coverage for the inability to foreclose on the

Willis Flat Road property.

Neither do we find relevant the jurisprudence from other states referenced by

New South. Whereas those cases relate to the question of whether an

encroachment/adverse circumstance would have been disclosed through an accurate

survey and the scope of any such survey exception/assurance, this case is factually

dissimilar in that its resolution lies with consideration of whether any such situation

affected the title.

Reformation of the Contract

New South also contends that, due to the parties’ mutual mistake as to which

property was being insured, the policy must be reformed to provide coverage of the

title of what it asserts was the property the parties intended to mortgage, i.e., the

Willis Flat Road property. Alternatively, it argues that the conflicting descriptions

render the insurance contract ambiguous and, according to La.Civ.Code art. 20563,

it must be construed in favor of coverage.

Here, with the same agent working for both, the parties entered into a contract

with a discrepancy between the physical address and the property described. Any

error initially occurred at the time of the mortgage and prior to the contract of

3
Entitled “Standard-form contracts,” Article 2056 provides:

In case of doubt that cannot be otherwise resolved, a provision in a contract
must be interpreted against the party who furnished its text.

A contract executed in a standard form of one party must be interpreted, in
case of doubt, in favor of the other party.

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insurance. Certainly it must have been the intention of the parties to insure the title

of the property actually mortgaged. Thus, the trial court did not err in its observation

that the insurance policy issued “did exactly what it was intended to do. It insured

that plaintiff had a valid first mortgage over the property described in the insurance

policy.” These assignments lack merit.

DECREE

For the foregoing reasons, the judgment of the trial court is affirmed. All costs

of this appeal are assigned to the appellant, New South Federal Savings Bank.

AFFIRMED.

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