Old Republic Nat'l Title Ins. Co. v. RM Kids, LLC.

• Decision Date: 29 June 2016
• Docket Number: A16A0258,A16A0257
• Citation: 788 S.E.2d 542,337 Ga.App. 638
• Parties: Old Republic National Title Insurance Company v. RM Kids, LLC. RM Kids, LLC v. Old Republic National Title Insurance Company.
• Court: Georgia Court of Appeals

337 Ga.App. 638

788 S.E.2d 542

Old Republic National Title Insurance Company

v.RM Kids, LLC.

RM Kids, LLC

v.Old Republic National Title Insurance Company.

A16A0257

A16A0258

Court of Appeals of Georgia.

June 29, 2016

John Robert Autry, William B. Brown, Edward Davison Burch Jr., Edward H. Wasmuth Jr., Atlanta, for Appellant.

Sherri G. Buda, Atlanta, Bryan Moy Knight, John Christopher Amabile, Leah Ward Sears, Nicholas Francesco McDaniel, Atlanta, for Appellee.

Dillard, Judge.

RM Kids, LLC, filed suit against Old Republic National Title Insurance Company (“Old Republic”), alleging, inter alia , breach of contract and bad faith refusal to pay a claim under a policy of lender's title insurance issued by Old Republic. Following a lengthy trial, a jury rendered a verdict in favor of RM Kids and awarded $7,100,000 in damages. Shortly thereafter, the trial court issued a judgment affirming the jury's verdict, and both parties filed cross-appeals.

In Case No. A16A0257, Old Republic contends that the trial court erred in ruling that the date of RM Kids's loss was the date its predecessor-in-interest closed on the loan for the subject property rather than the date RM Kids foreclosed on the property. Moreover, Old Republic argues that even if the date of the loss was, in fact, the closing date, the trial court, nevertheless, erred in ruling that RM Kids had standing to assert a claim for a loss that its predecessor actually incurred. Old Republic also maintains that the trial court erred in (1) affirming the jury's verdict that “environmental stigma” was a title defect covered by the policy; (2) admitting unreliable expert testimony; and (3) denying its motion for directed verdict to preclude any consideration of diminution of value to an adjoining tract of property that was purchased separately from the tract for which the title insurance policy was initially issued. In Case No. A16A0258, RM Kids contends that the trial court erred in denying its claims for bad-faith damages and prejudgment interest as a matter of law.

For the reasons set forth infra , we reverse the trial court's ruling that the date of RM Kids's loss was the date its predecessor-in-interest closed on the subject loan, and, thus, we remand the case for retrial. As to the remaining issues not rendered moot by the remand for retrial, we affirm for the reasons noted infra .

Construed in favor of the jury's verdict,¹ the evidence shows that the property at the center of this litigation is a 114–acre tract, through which both Hopkins Creek and the Alcovy River run, that is located in Gwinnett County near the City of Dacula and referred to as “Black Hawk Ranch.” In the early 1990s, a pumping station near the Black Hawk Ranch, which was owned and operated by Colonial Pipeline Company (“Colonial”), leaked petroleum into the groundwater. Subsequently, some of the petroleum migrated to the groundwater under Black Hawk Ranch. Colonial reported the leak to the Georgia Environmental Protection Division (“EPD”), which then, under a consent order, conducted an environmental assessment and developed a corrective-action plan. Not long thereafter, Colonial acquired Black Hawk Ranch, and, as part of a corrective-action plan, it set up three small wells on the property to monitor the groundwater. In addition, because any pumping of the groundwater could potentially have caused more petroleum to migrate from the subject property, Colonial arranged for the property to be serviced by public water from the county.

After Colonial fully implemented its corrective-action plan, testing of the groundwater indicated reduced contamination such that the EPD allowed Colonial to lower the number of monitoring wells on the property to one, and by 2003, Colonial believed that the property was suitable for sale and development. Indeed, in January 2005, Colonial sold the property to Black Hawk Ranch, LLC. And as part of that sale, Colonial attached “Exhibit C” to the deed, which provided the following:

In connection with the conveyance of the Property pursuant to this Limited Warranty Deed, Grantor hereby notifies Grantee and its successors and assigns that petroleum contamination, including groundwater and surface water contamination, emanating from Grantor's pipeline facility located adjacent to the Property was discovered in the early 1990s. Grantor has been assessing and remediating such contamination as required by the State of Georgia Environmental Protection Division (“EPD”) and has assumed and maintains full responsibility for performing the investigation, remediation and monitoring of such petroleum contamination in accordance with applicable law and the requirements of the EPD; provided, however, groundwater contamination in the deep aquifer remains and will continue to be monitored by Grantor as required by the EPD.

Exhibit C also placed the following four limitations on the use of the property: (1) no use of the groundwater for any purpose whatsoever; (2) an easement reserved by Colonial for access and maintenance of the monitoring well on the property; (3) a right of first refusal for Colonial to reacquire the property in the event the grantee received an offer on the property; and (4) reservation of a 25–foot riparian buffer easement as to Hopkins Creek and the Alcovy River.

Following its purchase of the property, Black Hawk Ranch, LLC successfully petitioned the City of Dacula to annex the parcel and rezone it for high density single-family development. One year later, in 2006, Black Hawk Ranch, LLC sold the property to BBC Partners, LLC. To fund the purchase, BBC entered into a $7,300,000 loan agreement with Peachtree Bank, with the property as security. And although there was some indication that Peachtree Bank was aware of the property's environmental issues, Exhibit C was not included in the chain of title following this conveyance and was not noted in the exceptions to Peachtree Bank's lender's title-insurance policy issued by Old Republic. Under that policy, Old Republic insured Peachtree Bank against loss or damage sustained or incurred by reason of, inter alia , “[a]ny defect in or lien or encumbrance on the title”; “[u]nmarketability of the title”; and “[l]ack of access to and from the land[.]” The policy also provided numerous exclusions, including “[d]efects, liens, encumbrances, adverse claims or other matters: [c]reated, suffered, assumed or agreed to by the Insured claimant” or such “resulting in no loss or damage to the insured claimant.” Additionally, in defining the extent of Old Republic's liability, the policy provided: “[t]his policy is a contract of indemnity against actual monetary loss or damage sustained or incurred by the insured claimant who has suffered loss or damage by reason of matters insured against by this policy and only to the extent herein described.”

In December 2006, BBC purchased a 37–acre parcel on the western side of the Black Hawk Ranch property, known as the Wages Tract, for $1,300,000, and Exhibit C was not included in that chain of title. Shortly thereafter, in April 2007, BBC and Peachtree Bank entered into a new loan for $11,400,000, which was secured by the Wages Tract and Black Hawk Ranch, and which was used to pay off the acquisition loans for both of those parcels of property. In connection with that loan, Old Republic issued the subject lender's title-insurance policy to Peachtree Bank, which, once again, made no mention of the environmental issues or restrictions on the property as outlined in Exhibit C.

In April 2008, RM Kids acquired the $11,400,000 BBC loan from RBC Bank, which was the successor by merger to Peachtree Bank, by means of an allonge and assignment of the security deed. A few months later, while engaging in discussions with BBC about a possible forbearance agreement, RM Kids learned about Exhibit C and the restrictions it imposed upon the property. And believing that title to the property was defective, RM Kids contacted Old Republic in January 2010 and demanded that it address these defects. Old Republic did not respond, and in November 2010, after subsequent demands also went unanswered, RM Kids filed suit against Old Republic, alleging, inter alia , breach of contract and bad faith. Later, in December 2012 (and while discovery in the case was still ongoing), RM Kids foreclosed on the property and purchased it at the foreclosure sale for $750,000.

Prior to trial, Old Republic filed a motion for summary judgment, arguing, inter alia , that RM Kids's bad-faith claim failed as a matter of law because it had reasonable grounds for denying RM Kids's claim under the policy. Later, Old Republic also filed a motion to exclude RM Kids's expert witness from testifying regarding diminution in value of the property, arguing that the expert's testimony was not based on any reliable methodology. Additionally, Old Republic filed a motion arguing that the trial court should, as a matter of law, rule that the date of RM Kids's loss was the date that it foreclosed on the subject property rather than the date that its predecessor-in-interest, Peachtree Bank, closed on the loan. RM Kids filed responses, and ultimately, in three separate orders, the trial court (1) granted Old Republic's motion for summary judgment as to RM Kids's bad-faith claim, (2) denied Old Republic's motion to exclude the testimony of RM Kids's expert, and (3) denied Old Republic's motion to set the date of RM Kids's loss at the time of the foreclosure, ruling instead that, as a matter of law, the date of RM Kids's loss for the purpose of measuring damages was the date Peachtree Bank closed on the $11,400,000 loan.

The case then proceeded to trial, and after both parties presented their evidence, Old Republic moved for a directed verdict on several grounds, arguing that if the date of loss was the loan closing date, RM Kids lacked standing; damages, if any, were not liquidated and, thus, not subject to prejudgment interest; the Wages Tract should not be considered...