First American v. Action Acquisitions
| Decision Date | 30 October 2007 |
| Docket Number | No. 1 CA-CV 06-0782.,1 CA-CV 06-0782. |
| Citation | 169 P.3d 127,216 Ariz. 537 |
| Parties | FIRST AMERICAN TITLE INSURANCE COMPANY, a California corporation, Plaintiff/Counter-Defendant/Appellee, v. ACTION ACQUISITIONS, LLC, an Arizona limited liability company; Free for Now, LLC, an Arizona limited liability company, Defendants/Counter-Claimants/Appellants. Action Acquisitions, LLC, an Arizona limited liability company; Free for Now, LLC, an Arizona limited liability company, Third-Party Plaintiffs/Appellants, v. Capital Title Agency, Inc., an Arizona corporation, Third-Party Defendant/Appellee. |
| Court | Arizona Court of Appeals |
v.
ACTION ACQUISITIONS, LLC, an Arizona limited liability company; Free for Now, LLC, an Arizona limited liability company, Defendants/Counter-Claimants/Appellants.
Action Acquisitions, LLC, an Arizona limited liability company; Free for Now, LLC, an Arizona limited liability company, Third-Party Plaintiffs/Appellants,
v.
Capital Title Agency, Inc., an Arizona corporation, Third-Party Defendant/Appellee.
[169 P.3d 128]
Ramras Law Offices, P.C. by David N. Ramras, Ari Ramras, Phoenix, Attorneys for Plaintiff/Counter-Defendant/Appellee.
Jackson White, P.C. by Eric M. Jackson, Christine Farnsworth, Mesa, Attorneys for Third-Party Defendant/Appellee.
Berens, Kozub, Lord & Kloberdanz, PLC by Daniel L. Kloberdanz, Scottsdale, Attorneys for Defendants/Counter-Claimants/Appellants.
JOHNSEN, Presiding Judge.
¶ 1 In this case we address the meaning of a form exclusion in a title insurance policy insuring title to a home that was purchased at a sheriff's sale for $3,500, less than three percent of the value of the equity in the home. After the superior court set aside the purchase because the price was so low that it "shock[ed] the Court's [conscience]," the insureds sought reimbursement from the title insurer for the fair market value of the home. We hold that coverage was barred by a form provision in the policy that excluded coverage for a loss resulting from the insured's "[f]ailure to pay value" for the title, and affirm the superior court's entry of judgment in favor of the title and title insurance companies.
¶ 2 At a sheriff's sale on January 6, 2005, Action Acquisitions, LLC and Free for Now, LLC (collectively, "Purchasers") made the prevailing bid of $3,500 for a home in Gilbert that had been foreclosed upon because of unpaid homeowners' association assessments totaling about $3,000. At the time, the home was valued at between $300,000 and $400,000 and was subject to a $162,000 deed of trust.1 After the statutory redemption period, Purchasers bought a $400,000 owner's title insurance policy ("the Policy") for the home. The Policy was issued by Capital Title Agency, Inc. ("Capital Title") and underwritten by First American Title Insurance Company ("First American").
¶ 3 On September 1, 2005, the home's previous owner filed a motion to set aside the sheriff's sale on the ground that the price Purchasers paid was so inadequate that it shocked the conscience. See Mason v. Wilson, 116 Ariz. 255, 257, 568 P.2d 1153, 1155
(App.1977). Upon learning of the motion, Purchasers notified First American, which retained counsel to defend Purchasers' rights. After permitting Purchasers to intervene and hearing oral argument, the superior court that heard the foreclosure action granted the motion to set aside the sale. It stated, "The Court finds the sale is grossly inadequate and it does shock the Court's [conscience]."
¶ 4 Purchasers then filed a claim under the Policy, asserting a loss of $400,000, which they alleged to be the full cash value of the home. First American denied coverage, arguing that the claim was expressly excluded under the terms of the Policy. Soon thereafter, First American filed a complaint seeking a declaratory judgment adjudicating the parties' rights and liabilities and an order holding that the Policy excluded Purchasers' claim. Purchasers filed a counterclaim against First American and a third-party complaint against Capital Title, alleging bad faith and breach of the covenant of good faith and fair dealing, fraud and fraudulent misrepresentation, negligence and negligent misrepresentation, breach of fiduciary duty and constructive fraud and consumer fraud.
¶ 5 First American moved for summary judgment. In its motion, which Capital Title joined, First American contended that coverage for the loss resulting from the order setting aside the sheriff's sale was barred by two separate express exclusions in the Policy. The first exclusion upon which First American relied ("Exclusion 4(a)") provided that Purchasers were not insured against loss resulting from "[r]isks ... that are created, allowed, or agreed to by [Purchasers]." Under the second exclusion ("Exclusion 5"), the Policy excluded loss "resulting from ... [f]ailure to pay value for [the] Title." Purchasers responded to the motion for summary judgment and filed a cross-motion on the coverage issue.
¶ 6 After hearing oral argument, the superior court granted First American and Capital Title's motion for summary judgment and denied Purchasers' cross-motion. Because it found that Purchasers "knowingly incurred the risk that the sale could be set aside," the court held Purchasers' claim was barred by Exclusion 4(a).2 Having found that coverage was barred by the one exclusion, the court did not address First American's argument that Exclusion 5 also barred coverage. The court subsequently entered judgment in favor of First American and Capital Title on the complaint, counterclaim and cross-claim. It also granted First American and Capital Title attorney's fees of $12,500 each. Purchasers timely appealed.
A. Standard of Review.
¶ 7 In reviewing a summary judgment, we determine de novo whether genuine issues of material fact exist and whether the trial court correctly applied the law. United Dairymen v. Schugg, 212 Ariz. 133, 140, ¶ 26, 128 P.3d 756, 763 (App.2006). "[W]e view the facts and evidence in a light most favorable to the party against whom summary judgment was granted and draw all reasonable inferences in favor of that party." AROK Constr. Co. v. Indian Constr. Servs., 174 Ariz. 291, 293, 848 P.2d 870, 872 (App. 1993). Summary judgment is appropriate "if the facts produced in support of the claim or defense have so little probative value, given the quantum of evidence required, that reasonable people could not agree with the conclusion advanced by the proponent of the claim or defense." Orme Sch. v. Reeves, 166 Ariz. 301, 309, 802 P.2d 1000, 1008 (1990).
B. The Meaning of Policy Exclusion 5.
¶ 8 Purchasers argue the superior court erred in finding that Exclusion 4(a) barred coverage of their loss resulting from the setting aside of the sheriff's sale. We do not reach that argument. Instead, we hold as a matter of law that under Exclusion 5, Purchasers were not insured against the loss
because they failed to "pay value" for their title.3
¶ 9 As recited above, pursuant to Exclusion 5, Purchasers "are not insured against loss, costs, attorneys' fees, and expenses resulting from" a failure "to pay value" for their title. The parties dispute the meaning of the phrase "to pay value" within the exclusion. Purchasers argue the phrase is ambiguous and invoke the old rule that an ambiguity in an insurance policy is construed against the insurer. As First American points out, however, Arizona courts have abandoned that rule. See Transamerica Ins. Group v. Meere, 143 Ariz. 351, 355, 694 P.2d 181, 185 (1984) (rule "permit[ted] the court to create its own version of the contract and to find, or fail to find, ambiguity in order to justify an almost predetermined result"). Instead, when a phrase used in an insurance policy "is susceptible to different constructions," we determine its meaning "by examining the purpose of the exclusion in question, the public policy considerations involved and the transaction as a whole." Id.
¶ 10 In their summary judgment papers, Purchasers argued that "value" in Exclusion 5 means any amount of consideration, so that the exclusion applied only in the event they paid nothing for the home. In support, they cited Snap-On Tools Corp. v. Rice, 162 Ariz. 99, 781 P.2d 76 (App.1989), which in turn relied on a former version of Arizona Revised Statutes ("A.R.S.") section 47-1201 that stated "a person gives `value' for rights if he acquires them ... in return for any consideration sufficient to support a simple contract." Id. at 101, 781 P.2d at 78.4 But the court in Snap-On Tools considered the term "value" in the context of security interests in goods rather than in the context of a real estate transaction. The same distinction, of course, applies to any support that Purchasers might hope to draw from the Uniform Commercial Code.
¶ 11 For its part, First American argues that "value" as used in Exclusion 5 means "substantial value" or "fair and adequate value" as compared to the actual cash value of the real property acquired. Noting that Exclusion 5 in substance is a form exclusion found in standard title insurance policies, First American cites a journal article for the proposition that the exclusion derives "from the basic recording act rule that, in order to enjoy the protections of the recording act, a good faith, bona fide purchaser must `give value.'" Brian E. Davis, Title Insurance Basics, 520 PLI/Real 611, 637 (October-November 2005) (citing D. Barlow Burke, Jr., Law of Title Insurance § 3.8 (1986)). As another journal article explains, "Since title insurance is predicated on obtaining the protection under recording acts, the fact that an insured may not get this protection because he doesn't pay value is excluded." Russell W. Jordan, III, Title Insurance 1990: The Basics and Beyond, 358 PLI/Real 63, 79 (October-December 1990).
¶ 12 Our supreme court has held that "valuable consideration" for purposes of the recording act means something more than the amount of "value" required to constitute
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First Am. Title v. Action Acquisitions
...affirmed; it relied on the "failure to pay value" exclusion and did not address the "created" risk exclusion. First Am. Title Ins. Co. v. Action Acquisitions, LLC, 216 Ariz. 537, 539-40 ¶ 8, 169 P.3d 127, 129-30 (App.2007). The court stated that Arizona courts no longer construe insurance c......