Tenth Circuit Affirms District Court’s Grant of Judgment on the Pleadings in Favor of Defendant Title Insurance Company

The Tenth Circuit recently affirmed that a title insurance policy did not cover a loss caused by an assessment levied against the insured property after the policy was issued, even if the assessment was based on a Notice of Intention to levy assessments that pre-dated the policy.  See BV Jordanelle, LLC v. Old Republic National Title Insurance Company, 830 F.3d 1195 (10th Cir. 2016).  In 2008, a lender obtained a mortgage on real property located in Utah as security for a loan and acquired a title insurance policy from the defendant.  The borrowers defaulted, and the insured foreclosed on the property and obtained title in 2009.  That same year, the municipality levied assessments against a number of properties within an “improvement district,” including the insured property.  Under Utah law, such a lien is senior to all other liens.  The municipality initiated a foreclosure in 2010 and, despite the insured lender’s oppositions, completed the foreclosure and obtained title to the property in 2012.  The insured then sued the insurer in federal court, alleging that the insurer breached the title insurance policy by (1) refusing to compensate the insured for its loss of the property, and (2) failing to defend the insured in the state-court litigation.  The district court granted judgment on the pleadings in favor of the insurer, and the insured appealed.  Among the many arguments raised and addressed, the insured argued that the municipality’s 2005 “Notice of Intention” to “create an improvement district that would levy assessments against properties within the district” pre-dated the 2008 policy, and the resulting assessment and foreclosure therefore should be a covered loss under the policy.  The court disagreed, citing to a 2006 Utah Supreme Court case in which the court similarly rejected an argument that encumbrances and defects on title include not only actual assessments, but also notices of intention and creation resolutions issued in anticipation of future assessments.  See Vestin Mortg., Inc. v. First Am. Title Ins. Co., 139 P.3d 1055 (Utah 2006).  Therefore, because the defect did not arise until after the policy was issued, it was not covered under the policy.  The court further held that the insurer had no duty to defend the insured in the state-court litigation, finding that the insurer “had a duty to defend [the insured] only if one or more of the claims in the state-court proceedings could result in liability under the policy.” 

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Michael Crowley at mcrowley@riker.com