Evelyn I. Rechtzigel v. Fidelity Nat., No. A07-0645.

• Decision Date: 06 May 2008
• Docket Number: No. A07-0645.
• Citation: 748 N.W.2d 312
• Parties: EVELYN I. RECHTZIGEL TRUST, by its Trustees Frank RECHTZIGEL and Gene Rechtzigel, Appellant, v. FIDELITY NATIONAL TITLE INSURANCE COMPANY OF NEW YORK, Respondent, Pulte Title Agency of Minnesota, LLC, Respondent.
• Court: Minnesota Court of Appeals

748 N.W.2d 312

EVELYN I. RECHTZIGEL TRUST, by its Trustees Frank RECHTZIGEL and Gene Rechtzigel, Appellant, v. FIDELITY NATIONAL TITLE INSURANCE COMPANY OF NEW YORK, Respondent, Pulte Title Agency of Minnesota, LLC, Respondent.

No. A07-0645.

Court of Appeals of Minnesota.

May 6, 2008.

Erick G. Kaardal, Mohrman & Kaardal, P.A., Minneapolis, MN, for appellant.

Ryan R. Dreyer, Eric Nasstrom, Morrison Fenske & Sund, P.A., Minnetonka, MN, for respondent Fidelity National Title.

Charles W. Arndt, Kyle J. Hegna, Wilkerson & Hegna, P.L.L.P., Edina, MN, for respondent Pulte Title Agency.

Considered and decided by MINGE, Presiding Judge; KALITOWSKI, Judge; and CONNOLLY, Judge.

OPINION

MINGE, Judge.

Appellant purchaser of real property challenges summary judgment dismissal of its claims that respondent title insurer and respondent title insurance agency (1) were liable to cover damages arising out of a preference claim by a bankruptcy trustee; (2) had a duty to defend against that claim; (3) breached their contract; and (4) made negligent misrepresentations. Because we conclude that the district court did not err, we affirm.

FACTS

On February 15, 2000, appellant Evelyn I. Rechtzigel Trust (Rechtzigel) agreed to transfer property in Apple Valley to Pulte Homes Minnesota Corporation (Pulte Homes). In return, Rechtzigel was to receive farmland in Jackson County owned by yet other persons. The transaction was structured as a "like-kind" land exchange pursuant to 26 U.S.C. § 1031 (2000) (1031 exchange). To the extent there is a qualified 1031 exchange, Rechtzigel as a seller does not have to recognize gain on the sale of its land.

Rechtzigel contracted with Like-Kind Exchange Services (Like-Kind), a qualified intermediary for 1031 exchanges, to handle the transaction. In accordance with the contract, Rechtzigel deeded the Apple Valley property to Like-Kind, which in turn deeded the property to Pulte Homes. Pulte Homes paid over $600,000 to Like-Kind. On February 15, 2000, Like-Kind transferred that money to respondent Pulte Title Agency of Minnesota, LLC (Pulte Title), to be paid to the owners of the farmland at closing. At the closing on March 8, 2000, the owners of the Jackson County farmland delivered a deed transferring the farmland directly to Rechtzigel, and Pulte Title distributed the funds to the Jackson County sellers.

Rechtzigel purchased title insurance for the farmland. That insurance policy was issued by respondent Fidelity National Title Insurance Company of New York (Fidelity). In addition to acting as a closing agent for the transaction, Pulte Title was the insurance agent that issued the binder and sold the title insurance. The insurance had an effective date of March 8, 2000. In the binder, Pulte Title represented to Rechtzigel that it would be issued an ALTA Residential Owner's Policy—1987 (1987 policy). However, the actual policy issued was an ALTA Owner's Policy—1992 (1992 policy).

Unbeknownst to the other parties at the time of this 1031 exchange, Like-Kind was engaged in financially risky practices. It deposited the over $600,000 that it received from Pulte Homes in a common account, and the commingled funds were apparently used to cover Like-Kind's obligations in earlier transactions. Similarly, Like-Kind's obligations in this transaction were at least partially paid with funds from other, not-yet-completed transactions. Shortly after closing, Like-Kind's financing arrangement collapsed, and it filed bankruptcy on April 25, 2000. Although all matters related to the Rechtzigel/Pulte Homes/Jackson County farmland transaction had been completed prior to the bankruptcy filing, the bankruptcy trustee contacted Rechtzigel, demanding that Rechtzigel restore to the bankruptcy estate the sum of $602,424.76, representing the funds that had been deposited with and disbursed by Like-Kind on behalf of Rechtzigel. Because Rechtzigel's transaction closed on March 8, 2000, less than 90 days before the bankruptcy, the bankruptcy trustee initiated challenges to avoid these fund transfers as preferences. See 11 U.S.C. § 547(b)(4)(A) (2000) (stating that a transfer for benefit of a creditor within 90 days of filing a bankruptcy petition may be avoided by the bankruptcy court).

In November 2000, when no settlement was reached, the bankruptcy trustee initiated a preference action against Rechtzigel in United States Bankruptcy Court demanding judgment against Rechtzigel in the amount of $602,424.76. Before and after the trustee's lawsuit, Rechtzigel filed numerous claims with Fidelity, demanding that pursuant to the title insurance policy Fidelity defend against the bankruptcy trustee's claims and legal action. Fidelity refused, asserting that the title insurance Rechtzigel purchased did not insure against the monetary demands of the trustee. Rechtzigel eventually settled with the bankruptcy trustee for $102,412.20.

After the bankruptcy settlement, Rechtzigel initiated this action, alleging that Fidelity¹ (1) breached its duty to defend and cover losses under the title insurance contract; (2) made negligent misrepresentations by agreeing to deliver a 1987-form policy, but providing a 1992-form policy; (3) breached its contract by switching policy forms; and (4) acted in bad faith. The parties made cross-motions for summary judgment. The district court denied Rechtzigel's motion and granted summary judgment to Fidelity and Pulte Title. This appeal follows.

ISSUES

I. Did Fidelity have a duty under the title insurance policy to cover losses sustained by Rechtzigel as a result of the bankruptcy trustee's preference action?

II. Did Fidelity have a duty under the title insurance policy to defend against the bankruptcy trustee's preference complaint?

III. Did Fidelity breach its commitment to Rechtzigel to issue the 1987 policy?

IV. By issuing the 1987 policy, did Fidelity make negligent misrepresentations, causing loss?

ANALYSIS

On appeal from a grant of summary judgment, this court determines whether the district court erred in its application of the law and whether there are any genuine issues of material fact. Herrmann v. McMenomy & Severson, 590 N.W.2d 641, 643 (Minn.1999). In reviewing the record for the existence of a genuine issue of material fact, we view the evidence "in the light most favorable to the party against whom summary judgment was granted." O'Malley v. Ulland Bros., 549 N.W.2d 889, 892 (Minn.1996). But where, as here, all parties move for summary judgment, they tacitly agree that no genuine issue of material fact exists. Am. Family Mut. Ins. Co. v. Thiem, 503 N.W.2d 789, 790 (Minn. 1993); Frey v. United Serv. Auto. Ass'n, 743 N.W.2d 337, 344 (Minn.App.2008). Where there are no genuine issues of material fact, this court reviews the district court's application of the law de novo. Leamington Co. v. Nonprofits' Ins. Ass'n, 615 N.W.2d 349, 353 (Minn.2000).

I.

The first issue is whether the title insurance policy covers the claims made against Rechtzigel by the bankruptcy trustee. At the outset, Rechtzigel asserts that it contracted for title insurance coverage under the 1987 policy and that Fidelity's duty to cover losses arising out of the preference action must be determined on the basis of the terms of that policy. This point is important because the 1992 policy specifically excludes coverage for bankruptcy preference actions. The 1987 policy does not contain that exclusion. The district court ruled that whether the trust purchased the 1987 policy or the 1992 policy was irrelevant because neither policy covered this preference action. We begin our analysis by addressing coverage under the 1987 policy.

Title insurance is intended to protect against all loss or damage which the insured sustains by reason of "(1) existing defects in, or unmarketability of title . . .; (2) leases and encumbrances changing the same as of the date of the policy; or (3) defects in title of a mortgagor to the mortgaged estate, or mortgaged interest." 11 Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 159:5 (3d ed.2005). "General principles of contract interpretation apply to insurance policies." Lobeck v. State Farm Mut. Auto. Ins. Co., 582 N.W.2d 246, 249 (Minn.1998). Interpretation of an insurance policy and application of the policy to the facts of a particular case are questions of law reviewed de novo. Am. Family Ins. Co. v. Walser, 628 N.W.2d 605, 609 (Minn.2001). "When interpreting an insurance contract, words are to be given their natural and ordinary meaning and any ambiguity regarding coverage is construed in favor of the insured." Id. Likewise, exclusions in the policy are to be construed narrowly. Id.

Fidelity's obligations to Rechtzigel are governed by the language in the insurance policy. The 1987 policy contains the following relevant coverage and exclusion provisions:

OWNER'S COVERAGE STATEMENT

This policy insures your title to the land. . . .

We insure you against actual loss resulting from:

• any title risks covered by this Policy-up to the Policy Amount and

• any costs, attorneys' fees and expenses we have to pay under this Policy

COVERED TITLE RISKS

This Policy covers the following title risks, if they affect your title on the Policy Date.

1. Someone else owns an interest in your title.

. . . .

3. Forgery, fraud, duress, incompetency, incapacity or impersonation.

. . . .

8. There are liens on your title, arising now or later, for labor and material furnished before the Policy Date . . .

. . . .

11. Your title is unmarketable, which allows another person to refuse to perform a contract to purchase, to lease or to make a mortgage loan.

. . . .

14. Other defects, liens, or encumbrances.

EXCLUSIONS

In addition to the Exceptions in Schedule B, you are not insured against loss, costs, attorneys' fees, and expenses resulting from:

. . . .

3. Title Risks:

. . . .

• that first affect your title after the Policy Date—this does not limit the labor and materials lien...