Metro. Nat'l Bank v. Commonwealth Land Title Ins. Co.

• Decision Date: 23 February 2015
• Docket Number: No. SD 33161,SD 33161
• Citation: 456 S.W.3d 61
• Parties: Metropolitan National Bank, Plaintiff/Appellant, v. Commonwealth Land Title Insurance Company, Defendant/Respondent.
• Court: Missouri Court of Appeals

456 S.W.3d 61

Metropolitan National Bank, Plaintiff/Appellant

v.Commonwealth Land Title Insurance Company, Defendant/Respondent.

No. SD 33161

Missouri Court of Appeals, Southern District, Division One.

Filed: February 23, 2015

Appellant's Attorneys: Charles B. Cowherd and Derek A. Ankrom, of Springfield, MO

Respondent's Attorney: Shawn T. Briner and Mary G. Walsh, of Chesterfield, MO

Opinion

WILLIAM W. FRANCIS, JR., C.J./P.J.

Metropolitan National Bank (“Metropolitan”) appeals summary judgment entered in favor of Commonwealth Land Title Insurance Company (“Commonwealth”). We reverse and remand this matter to the trial court for further proceedings.

Factual and Procedural History

On February 2, 1999, Jo Belle Hopper (“Hopper”) sold a parcel of real property (“Tract 3”) to Red Rocket Fireworks, Inc. (“Red Rocket”), in exchange for Red Rocket's promissory note and deed of trust. In June 2005, Red Rocket notified Hopper that it intended to apply for a loan with Metropolitan, to be secured by five tracts of land, including Tract 3. In order for Red Rocket to secure the loan, Red Rocket needed Hopper to subordinate her promissory note and deed of trust on Tract 3 to Metropolitan.

On June 22, 2005, Hopper executed a “Subordination Agreement.” The Subordination Agreement recited that the Hopper deed of trust was subordinated to Metropolitan's note and deed of trust. Thereafter, Red Rocket received a loan from Metropolitan in the amount of $1,915,340, in exchange for a note and deed of trust. The Subordination Agreement was notarized by an employee of Guaranty Title Company (“Guaranty Title”), an agent of Commonwealth. All the documents were recorded on June 24, 2005, with Metropolitan's note and deed of trust being first recorded.

On June 24, 2005, Commonwealth issued a “Loan Policy of Title Insurance,” policy number H55–0121124 (“the Policy”) to Metropolitan, insuring the validity and priority of Metropolitan's note and deed of trust. The coverage provision pertinent to this appeal states:

SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULE B AND THE CONDITIONS AND STIPULATIONS, [Commonwealth], insures, as of Date of Policy shown in Schedule A, against loss or damage, not exceeding the Amount of Insurance stated in Schedule A, sustained or incurred by the insured by reason of:

....

6. The priority of any lien or encumbrance over the lien of the Insured mortgage;

The “Exclusions From Coverage” reads in part:

The following matters are expressly excluded from the coverage of this policy, and [Commonwealth] will not pay loss or damage, costs, attorneys' fees, or expenses that arise by reason of:

....

3. Defects, liens, encumbrances, adverse claims or other matters

(a) created, suffered, assumed, or agreed to by the Insured claimant;

(b) not known to [Commonwealth], not recorded in the public records at Date of Policy, but known to the insured claimant and not disclosed in writing to [Commonwealth] by the Insured claimant prior to the date the insured claimant became an insured under this policy;

Red Rocket subsequently defaulted on its loan. On December 11, 2009, Red Rocket filed a Chapter 11 bankruptcy petition, listing the Metropolitan note and deed of trust as one of its debts. Thereafter, Metropolitan filed a creditor's motion to lift the automatic stay, requesting an order from the bankruptcy court to allow it to enforce its rights under its note and deed of trust on four of the five tracts of land, including Tract 3. On January 8, 2010, the bankruptcy court entered an order sustaining Metropolitan's motion.

Metropolitan then entered into an agreement to sell the four tracts of land to “Love's Travel Stop & Country Stores, Inc.,” for $1,175,000. On February 15, 2010, Metropolitan published a “Notice of Trustee's Sale” on the four tracts of land—to be foreclosed on—on February 24, 2010.

On February 23, 2010, Hopper filed a petition for injunctive relief, declaratory judgment, and fraud, challenging Metropolitan's right to sell Tract 3, alleging, among other things, that Metropolitan had committed fraud, and that Metropolitan or Red Rocket failed to provide consideration for the Subordination Agreement. Metropolitan denied in its answer that it had committed fraud, and as an affirmative defense, Metropolitan alleged that Hopper had “executed a valid and enforceable subordination agreement ... that governs the parties' respective priorities and effectively bars and waives [Hopper]'s claims in this case and releases [Metropolitan] from such claims.”

In lieu of a temporary restraining order, Hopper allowed Metropolitan to complete the foreclosure sale in exchange for escrowing the amount of money Hopper claimed owed to her, pending resolution of the Hopper lawsuit.¹

On April 26, 2010, Metropolitan tendered the defense of Hopper's claims to Commonwealth under the Policy. Metropolitan advised Commonwealth that “Hopper's petition claims her deed of trust has priority over [Metropolitan]'s deed of trust.” Metropolitan advised the case would “likely be resolved on the parties' summary judgment motions because the material facts are, for the most part, not in dispute.” With its claim, Metropolitan provided Commonwealth the title policy, deeds of trust, Subordination Agreement, Hopper's petition, and Metropolitan's answer in which it denied Hopper's claims of fraud.

On August 4, 2010, Commonwealth denied Metropolitan's claim under the Policy, stating, “[Commonwealth] has considered the information you have provided and the terms of the Policy and has determined that the claim is not afforded coverage.” Commonwealth's denial letter continued:

[Hopper] is claiming priority based on the terms of the Subordination Agreement negotiated with [Metropolitan], the representations made by [Metropolitan] to [Hopper] in obtaining the Subordination Agreement negotiated with [Metropolitan], and subsequent actions taken by [Metropolitan] in breach of the terms of the Subordination Agreement. Further, [Hopper] is alleging that [Metropolitan] fraudulently induced [Hopper] to enter into the Subordination Agreement.

Commonwealth indicated that any title defect “is a defect ‘created, suffered, assumed, or agreed to by the Insured Claimant’ pursuant to Exclusion 3(a) of the Policy”; that “[a]ny defect arising from the Subordination Agreement transaction is therefore excluded from coverage pursuant to Exclusion 3(b) of the Policy[,]” and that any loss or damage arising from Hopper's deed of trust “was specifically excepted from coverage in Schedule B Part I of the Policy.”

On March 10, 2011, Metropolitan filed a two-count petition seeking damages from Commonwealth for breach of contract in refusing coverage, and vexatious refusal to pay. Commonwealth filed an answer to the petition and included specific affirmative defenses, which included:

6. Pursuant to Exclusion No. 3(a) of the referenced policy of title insurance, matters such as those set forth in the ‘Hopper Lawsuit’ were excluded because the allegations of priority contained therein were predicated entirely upon conduct allegedly undertaken by the plaintiff herein and, as such, any resulting adverse claim was ‘created, suffered, assumed, or agreed to’ by the plaintiff herein.

7. Pursuant to Exclusion 3(b) of the referenced policy of title insurance, matters such as those set forth in the ‘Hopper Lawsuit’ were excluded because the allegations of priority contained therein were based upon matters that (a) were not part of the public record, (b) were known by the plaintiff herein; (c) were not known by the defendant herein; and (d) were not disclosed in writing by the plaintiff herein.

After some discovery, Commonwealth filed a motion for summary judgment, a statement of uncontroverted material facts, and a memorandum in support of its motion for summary judgment.² Commonwealth's first three paragraphs in its statement of uncontroverted material facts stated:

1. On February 23, 2010, Jo Belle Hopper (“Hopper”) sued plaintiff Metropolitan National Bank (“MNB”) in Greene County, Missouri Cause No. 1031–CV02717 (which case is hereinafter referred to as “the Hopper—MNB Case”). See Exhibit “1”, which is a copy of the Verified Petition which Harper [sic] filed in the Hopper—MNB Case.

2. In the Hopper—MNB Case, Hopper sought a declaratory judgment that a written subordination agreement which she had signed in favor of MNB was unenforceable based upon the actions of MNB. See Exhibit 1, Paragraph 43.

3. Hopper also claimed in the Hopper—MNB Case that the written subordination agreement she executed in favor of MNB should be rescinded due to MNB's fraud. See Exhibit 1, Paragraphs 52–58.

Commonwealth's memorandum asserted that there were undisputed facts that established it did not have an obligation to defend Metropolitan, pursuant to Exclusions 3(a) and 3(b) of the Policy. Commonwealth explained in its brief:

[Commonwealth] denied [Metropolitan]'s tender of defense based upon the Policy's language (which expressly excludes ‘acts of the insured’), the accusations set forth by Hopper in her claim for priority over [Metropolitan]'s deed of trust (which were based solely upon things allegedly said or done by [Metropolitan] ), and [Metropolitan]'s statement that the material facts underlying Hopper's claim were ‘for the most part, not in dispute.’

On May 24, 2013, Metropolitan filed its memorandum in opposition to Commonwealth's motion for summary judgment and its response to Commonwealth's statement of uncontroverted material facts with supporting exhibits. Metropolitan admitted suit was filed on February 23, 2010, and denied paragraphs 2 and 3 with supporting exhibits. Metropolitan argued that there were issues of material fact with respect to these paragraphs.

Metropolitan also asserted in the summary judgment record that Guaranty Title had contacted Hopper's attorney prior to signing the Subordination Agreement, that Hopper discussed the Subordination Agreement with an employee of Guaranty Title...