Fleishour v. Stewart Title Guar. Co.

• Decision Date: 28 September 2010
• Docket Number: Case No. 4:08CV01958.
• Parties: Michael J. FLEISHOUR, et al., Plaintiffs,v.STEWART TITLE GUARANTY COMPANY, Defendant.
• Court: U.S. District Court — Eastern District of Missouri

743 F.Supp.2d 1060

Michael J. FLEISHOUR, et al., Plaintiffs,

v.STEWART TITLE GUARANTY COMPANY, Defendant.

Case No. 4:08CV01958.

United States District Court, E.D. Missouri, Eastern Division.

Sept. 28, 2010.

Ian C. Simmons, Sean P. Haley, Thomas A. Federer, Federer and Federer, PC, St. Charles, MO, for Plaintiffs.

Thomas Cummings, Deanna M. Wendler Modde, Armstrong Teasdale, LLP, St. Louis, MO, for Defendant.

MEMORANDUM OPINION

E. RICHARD WEBBER, District Judge.

This matter comes before the Court on a Non–Jury Trial to address the claims of Plaintiffs Michael J. Fleishour and Melissa Wortman's (“Plaintiffs”) in their Complaint [doc. # 5]. A one-day trial of Plaintiffs' claims was held before the Court on March 22, 2010.

I. FINDINGS OF FACT

This litigation arises out of a quiet title action by a third party against Plaintiffs Michael J. Fleishour and Melissa M. Wortman (collectively, “Plaintiffs” or “the Fleishours”), which led Plaintiffs to seek to establish their rights under a policy of title insurance (“the policy”) issued to them by Defendant Stewart Title Guaranty Company (“Defendant”).

Plaintiffs and Defendant entered into the policy on February 22, 2008, in connection with Plaintiffs' purchase of a piece of real property in Valley Park, Missouri. In connection with the purchase, Plaintiffs were represented by a broker, Gail Ruebsam (“Ruebsam”), and Jane Nuckolls (“Nuckolls”) acted as broker for the seller, Mission Gate Christian Ministries. Some time before the sale was completed, Plaintiffs and the seller's president, Patricia Mathes (“Mathes”), became aware that a retaining wall had to be replaced in order to obtain an occupancy permit from the City of Valley Park, and this required a boundary stake survey of the property. When the stakes were placed on the property, Plaintiffs' future next-door neighbor, Audrey Silberman (“Silberman”), noticed that the surveyed area included an area of land that she believed belonged to her, a triangular area of approximately 1,100 square feet that Silberman had been landscaping for approximately ten years.

Shortly thereafter, Silberman faxed letters to Mathes and Ruebsam, stating that she was claiming ownership of that portion of the property by adverse possession, and then, after receiving no response, she called Nuckolls and Ruebsam to deliver the same information. Nuckolls conferred with her managing broker about the issue, and they apparently concluded that Silberman's claim was not valid, and decided to proceed with the sale. Silberman stated that she was told by someone at Ruebsam's office to contact the seller concerning her claim, but testimony was unclear as to whether she spoke with Ruebsam personally. At the closing on February 21, 2008, Mathes raised the issue of Silberman's claim, and Ruebsam and Nuckolls both indicated that there was no problem with proceeding with the transaction.

In late March of 2008, Silberman approached Plaintiffs personally, suggesting that they settle the matter by transferring the disputed portion to her in exchange for $1,000, and she also sent them a letter to the same effect. Plaintiffs refused to do so, and then, in late April, Plaintiffs received a letter from Silberman's attorney, stating that she intended to take legal action if they continued to refuse to transfer the property to her. Plaintiffs responded by retaining Thomas Federer (“Federer”) as legal counsel, and Federer proceeded by submitting a claim to Defendant on May 14, 2008. From that point on, all communications concerning Plaintiffs' claim took place between Federer and Bradley Farney (“Farney”), Defendant's claims counsel.

Farney responded to Plaintiffs' claim by requesting that Federer provide Defendant with a calculation of the diminution in value of Plaintiffs' property if they lost title to the disputed portion. After Farney had requested this information several times over a period of weeks, Federer contacted Farney and told him that he did not know the amount and did not believe it to be relevant, believing that it was Defendant's responsibility under the policy to address Silberman's claim. Farney explained that Defendant's position was that the policy gave Defendant the option of paying the diminution in value of Plaintiffs' land to satisfy its obligations under the policy—that is, that Defendant could pay that amount instead of defending against Silberman's claim. In early July, Federer informed Farney that Silberman intended to file a suit to quiet title to the disputed portion, and asserted that Defendant was obligated to pay the full amount of the policy—$121,500—to avoid its duty to defend against Silberman's suit, because Plaintiffs would not have purchased the property if they had known about the issue.

In late June, Farney also spoke with Nuckolls and Ruebsam as part of his investigation of Plaintiffs' claim. Nuckolls informed him that Ruebsam definitely knew about Silberman's claim because she and Ruebsam had had several conversations about it prior to closing. When Farney spoke to Ruebsam, however, she provided a different account, stating that she had no knowledge of the claim until after closing. The Court is persuaded, based on testimony from Mathes and Nuckolls, that Ruebsam did in fact know about the claim at the time of closing. Mathes stated that she, Nuckolls, and Ruebsam discussed the issue at the closing, at which point the parties indicated that they were nevertheless ready to proceed with the sale. Nuckolls stated that she had multiple conversations with Ruebsam concerning Silberman's claim. As noted above, Silberman also related that she personally contacted Ruebsam's firm about the issue, and sent notice to Ruebsam as well. Neither party offered any testimony from Ruebsam, and apart from Farney's testimony concerning his conversation with her, there was no other evidence offered that would support the inference that she was unaware of the claim, and the evidence to the contrary was persuasive. It is undisputed, however, that neither Ruebsam nor any other party passed this information on to Plaintiffs prior to closing. Additionally, Defendant established through Farney's testimony that there was no indication of Silberman's claim in the public records, and that Defendant had no knowledge of it before Federer submitted Plaintiffs' claim under the policy.

On July 16, 2008, Plaintiffs received service of process in Silberman's adverse possession suit against them. Federer forwarded a copy of the petition to Farney, formally requesting an acknowledgment in writing that Defendant would be providing their defense, and Farney responded by again requesting documentation about Plaintiffs' anticipated loss. Farney and Federer then repeated the substance of their earlier exchanges, with Farney seeking to establish the diminution in value of Plaintiffs' property in order to tender that amount, and Federer maintaining that Defendant had a duty to defend regardless of the extent of its liability for damages under the policy. Apparently sensing that the parties had reached an impasse, Farney commissioned his own appraisal of the property, and the appraiser determined that the disputed portion was worth $1,000. Farney tendered payment of this amount to Federer, who refused on behalf of Plaintiffs. At some point after Silberman filed the suit, Farney also spoke with Silberman's attorney in an attempt to settle the claim with her directly, but her attorney indicated that Silberman was not interested in a settlement because she wanted to obtain title to the disputed portion.

Plaintiffs then proceeded to file the present suit against Defendant, seeking a declaratory judgment and damages. In their Count I, Plaintiffs request a declaratory judgment that the policy obligated Defendant to provide their defense in the underlying suit or pay them $121,500, representing the full amount of the policy, and this Count also seeks to recover their attorneys' fees from the Silberman suit and present suit. Plaintiffs' Count II alleges that Defendant breached the insurance contract by refusing to accept coverage and provide their defense in the underlying suit, and seeks damages in the full amount of the policy.

In connection with discovery in this case, Plaintiffs obtained their own appraisal of the disputed section, which returned a value of $3,700. Plaintiffs have since refused an offer from Defendant to pay this amount, but the parties are in agreement that it represents the diminution in value of Plaintiffs' property for purposes of this litigation.

II. ANALYSIS

Plaintiffs contend that Defendants' duty to defend under the title insurance contract extended to Silberman's claim against their property, and that Defendant's only means of fulfilling that obligation was to either (1) provide their defense or (2) tender the full amount of the policy, $121,500. Because Defendant refused both of those options, Plaintiffs assert that Defendant breached the insurance contract and is liable to Plaintiffs for the attorneys' fees they incurred in defending themselves against Silberman's suit, and in the present suit to establish that liability.

Defendant argues that certain policy provisions exempt coverage of Plaintiffs' claim, and therefore absolved Defendant of any duty to provide Plaintiffs' defense against Silberman's suit, in that (a) Plaintiffs had knowledge of the claim through Ruebsam, their broker, before the parties entered into the title insurance contract; and (b) Silberman's claim involved a discrepancy between the property's actual boundaries and its apparent boundaries. In the alternative, Defendant contends that Plaintiffs' claims fail because the policy permits it to satisfy its duty to defend against third-party claims by tendering the amount of loss that would result from such claims, an offer which Defendant made and Plaintiffs rejected.

The parties agree that this contract dispute is governed by Missouri law, under which the...