BV Jordanelle, LLC v. Old Republic Nat'l Title Ins. Co.

• Decision Date: 26 July 2016
• Docket Number: No. 15-4127,15-4127
• Parties: BV Jordanelle, LLC, an Idaho limited liability company; BV Lending, LLC, an Idaho limited liability company, Plaintiffs–Appellants, v. Old Republic National Title Insurance Company, a Minnesota corporation, Defendant–Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

830 F.3d 1195

BV Jordanelle, LLC, an Idaho limited liability company; BV Lending, LLC, an Idaho limited liability company, Plaintiffs–Appellants

v.Old Republic National Title Insurance Company, a Minnesota corporation, Defendant–Appellee.

No. 15-4127

United States Court of Appeals, Tenth Circuit.

July 26, 2016

Matthew M. Cannon (Michael R. Johnson, and Douglas M. Monson, with him on the briefs), Ray Quinney & Nebeker, P.C., Salt Lake City, Utah, for Plaintiffs-Appellants.

Alexander Dushku (Peter C. Schofield, and Justin W. Starr, with him on the brief), Kirton McConkie, Salt Lake City, Utah, for Defendant-Appellee.

Before HOLMES , MU RPHY, and BACH ARACH, Circuit Judges.

BACHARACH

, Circuit Judge.

This appeal involves a dispute over the scope of an insurance policy. The insureds, which we collectively identify as “BV,” obtained a mortgage on real property as security for a loan and acquired a title-insurance policy from Old Republic National Title Insurance Company. When the borrower defaulted, BV foreclosed on the property. But when a municipal assessment went unpaid, the municipality foreclosed, too. BV and the municipality litigated in state court; the municipality prevailed and obtained title to the property.

After losing title to the property, BV sued Old Republic in federal district court. There BV alleged that Old Republic had breached the title-insurance policy by (1) refusing to compensate BV for its loss of the property and (2) failing to defend BV in the state-court litigation.¹ The district court granted judgment on the pleadings to Old Republic, concluding that the policy did not entitle BV to either payment for its loss of the property or a defense in the state-court suit. BV appeals, and we affirm.

I. The parties dispute whether the title-insurance policy covers BV's loss.

In this appeal, BV contends that the title-insurance policy covers the loss sustained when the municipality foreclosed on the property.²

A. BV foreclosed on the insured property after the borrower had defaulted on its loans.

In 2008, BV loaned approximately $6.3 million to a firm, PWJ Holdings. PWJ Holdings owned the Aspens Property, a tract of land located in Wasatch County, Utah. As security for the loans, BV obtained a mortgage on a specific parcel within the Aspens Property. BV then acquired a title-insurance policy from Old Republic to cover loss caused by defects in title to this parcel. (We refer to this parcel as the “insured property.”)

PWJ Holdings defaulted on the loans, and BV foreclosed on the property in 2009.

BV then acquired title to the property at a trustee's sale.

B. After the borrower failed to pay a municipal assessment, the municipality foreclosed on the property, terminating BV's ownership interest.

Utah law authorizes local governments to establish improvement districts for the purpose of constructing improvements to benefit properties within those districts. Utah Code Ann. §§ 17B-1-202(1)(a)

, 17B-2a-401 to -406. To fund these improvements, the districts may levy assessments against the properties located within those districts. Utah Code Ann. §§ 17B-1-103(g), 17B-2a-402(1)(b).

The Aspens Property—and, therefore, the insured property—is located within the “Jordanelle Special Service District, Utah Special Improvement District No. 2005-2,” an improvement district established by Wasatch County.

The improvement district was created through a sequence of events beginning in 2005. At that time, the Wasatch County Council adopted a “Notice of Intention,” which announced an intention to create an improvement district that would levy assessments against properties within the district; the assessments would be used to fund improvements. In 2006, the Wasatch County Council issued the “Creation Resolution,” which formally created the improvement district. By 2008, BV alleges, the improvement district had already begun installing improvements, including some extending onto the insured property.

In 2009, the improvement district issued an “Assessment Ordinance,” which levied assessments against properties within the district, including the Aspens Property. Under Utah law, an improvement district's assessment constitutes a lien against the assessed property that is senior to all other liens. See Utah Code Ann. §§ 17B-1-114

, 17B-2a-402(1)(b) ; see also Appellants' App'x at 100 (Assessment Ordinance provision stating that an assessment lien “shall be superior to the lien of any trust deed [or] mortgage”). Consequently, the improvement district's lien had priority even though BV's mortgage was older.

PWJ Holdings never made any payments toward the assessment. As a result, the improvement district began foreclosure proceedings in 2010. BV sued the improvement district in state court, seeking to stop the foreclosure and retain title. But in 2012, the state district court issued a decree allowing the improvement district to complete the foreclosure. As a result, the improvement district acquired title to the insured property, extinguishing BV's interest.

BV did not learn about the improvement district's lien on the insured property until 2010, after BV had already acquired the property. After learning about the lien, BV sought compensation from Old Republic under the title-insurance policy, contending that it covered BV's loss of the insured property. Old Republic disagreed, maintaining that the policy did not cover BV's loss. This litigation followed.

II. Our standard of review is de novo, and we apply Utah law.

When reviewing the district court's ruling under Federal Rule of Civil Procedure 12(c)

, we apply the same standard of review used for motions to dismiss under Rule 12(b)(6). Atl. Richfield Co. v. Farm Credit Bank of Wichita , 226 F.3d 1138, 1160 (10th Cir. 2000). Under that standard, our review is de novo. Diversey v. Schmidly , 738 F.3d 1196, 1199 (10th Cir. 2013).

In applying de novo review, “[w]e accept the well-pled factual allegations in the complaint as true [and] ‘resolve all reasonable inferences in the plaintiff's favor.’ ”³ Id.

(quoting Morse v. Regents of the Univ. of Colo. , 154 F.3d 1124, 1126-27 (10th Cir. 1998) ). The resulting question is whether the complaint states a valid claim. Jackson v. Integra Inc. , 952 F.2d 1260, 1261 (10th Cir. 1991).

The validity of the claim turns on the meaning and applicability of the title-insurance policy. All parties agree that Utah law governs the interpretation of the policy. Thus, we apply Utah law. See Carolina Cas. Ins. Co. v. Nanodetex Corp. , 733 F.3d 1018, 1022 (10th Cir. 2013) (applying the state law that both parties agreed was applicable)

. Under Utah law, insurance policies are governed by the same rules governing other contracts. First Am. Title Ins. Co. v. J.B. Ranch, Inc. , 966 P.2d 834, 836 (Utah 1998). These rules provide that if the contractual language is unambiguous, the court ascertains the parties' intentions based solely on the contractual language. Bakowski v. Mountain States Steel, Inc. , 52 P.3d 1179, 1184 (Utah 2002).

III. BV is not entitled to coverage under the policy.

In entering judgment on the pleadings for Old Republic, the district court concluded in part that BV was not entitled to coverage. BV disagrees, arguing that it is entitled to compensation under six covered risks defined by the policy:

1. Risk 2, which covers loss caused by a defect in, or a lien or encumbrance on, title to the insured property,

2. Risk 2(c), which covers loss caused by encroachments that affect title,

3. Risk 3, which covers loss caused by unmarketable title,

4. Risk 5(c), which covers loss caused by enforcement of subdivision regulations,

5. Risk 8, which covers loss caused by a governmental taking, and

6. Risk 11(a), which covers loss caused by the imposition of a statutory lien for services, labor, or material used in construction.

See Appellants' App'x at 137-38. We reject BV's arguments for coverage under each of these covered risks. Accordingly, we affirm.

A. BV's argument under Risk 2 is foreclosed by the Utah Supreme Court's opinion in Vestin II .

Risk 2 covers loss caused by “[a]ny defect in or lien or encumbrance on” title to the insured property. Id. at 137. Under Utah law, this language covers only encumbrances on title that already existed when the policy was issued. Vestin Mortg., Inc. v. First Am. Title Ins. Co. (Vestin II ), 139 P.3d 1055, 1057 (Utah 2006)

. Thus, to trigger coverage under Risk 2, BV must specify some defect in, or lien or encumbrance on, title to the insured property that already existed when the policy was issued in 2008.

The actual assessments would not qualify, for the improvement district did not levy those assessments until July 2009, after the policy had been issued. Instead, BV points to actions taken by the municipality prior to issuance of the policy in 2008. These actions, BV claims, included (1) the issuance of the 2005 Notice of Intention and the 2006 Creation Resolution and (2) the installation of physical improvements on the insured property. BV contends that these actions rendered an assessment inevitable, creating an encumbrance before the policy was issued.

BV's argument is invalid under the Utah Supreme Court's opinion in Vestin II

. There, the court addressed a title-insurance policy provision virtually identical to Risk 2. See

Vestin II , 139 P.3d 1055, 1057 (Utah 2006) (quoting policy language covering loss caused by “[a]ny defect in or lien or encumbrance on the title” (alteration in original)). The insured in Vestin II argued, as BV argues here, 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 id.

The Utah Supreme Court rejected this argument, concluding that only an actual assessment creates a “claim or liability attached to the title or property.” Id.

Therefore, the court concluded, only an actual assessment can constitute an encumbrance on, or defect in, title. Id. at 1057–58. As a result, ...