Somerset Sav. Bank v. Chicago Title Ins. Co.

• Decision Date: 19 May 1995
• Citation: 420 Mass. 422,649 N.E.2d 1123
• Parties: SOMERSET SAVINGS BANK v. CHICAGO TITLE INSURANCE COMPANY.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 1123

649 N.E.2d 1123

420 Mass. 422

SOMERSET SAVINGS BANK v. CHICAGO TITLE INSURANCE COMPANY.

Supreme Judicial Court of Massachusetts Suffolk.

Argued Jan. 11, 1995.

Decided May 19, 1995.

Brian M. Hurley, for defendant.

David L. Klebanoff, for plaintiff.

E. Randolph Tucker and Thomas R. Marton, for American Land Title Ass'n & others, amici curiae, submitted a brief.

Before LIACOS, C.J., and WILKINS, NOLAN, LYNCH and GREANEY, JJ.

LYNCH, Justice.

This case involves breach of contract and negligence claims arising from a title insurance policy issued to the plaintiff by the defendant. The plaintiff alleged that the defendant failed to honor its contract to indemnify the plaintiff for a loss allegedly covered by the title insurance policy. The plaintiff also asserts claims of negligence and negligent misrepresentation based on the defendant's alleged failure to use due care in the exercise of its duties to search title, and to disclose any matters of record to the insured.

A Superior Court judge allowed the defendant's motion for summary judgment and dismissed the plaintiff's complaint. The plaintiff filed a timely notice of appeal. The Appeals Court vacated the summary judgment and remanded the case for further proceedings after concluding that the issue whether there was coverage under the terms of the policy remained unresolved. 37 Mass.App.Ct. 82, 91, 636 N.E.2d 1358 (1994). The Appeals Court also concluded that there was an issue whether the defendant was obligated, and to what extent, to examine the title to the property and to disclose relevant matters because it was a custom and practice of insurers to do so. Id. We granted the defendant's application for further appellate review. We affirm the allowance of summary judgment on the breach of contract claims. We vacate the allowance of summary judgment on the negligence claims and remand the case to the Superior Court for further proceedings.

The following facts are undisputed. In 1986, the plaintiff agreed to finance the site acquisition and construction of a seventy-two unit condominium located at 190 North Shore Road in Revere. As security for its financing, the plaintiff became the holder of a note in the amount of $9.5 million, secured by a mortgage on the land and any improvements. ¹ The plaintiff hired the law firm of Grant & Artesani, P.C. (law firm), to assist in closing the transactions. The law firm was to search the record to assure that the mortgage interest was free from defect and to certify to the plaintiff with respect to this matter. The law firm gave a favorable title certification to the plaintiff. The plaintiff also requested that the law firm obtain a title insurance policy. The law firm was an approved agent of the defendant and was authorized to issue policies up to $500,000. With respect to the plaintiff's construction loan, after securing authorization, the law firm issued to the plaintiff a loan policy of the defendant in the face amount of $9.5 million. Pursuant to an agreement between the defendant and the law firm, the law firm was authorized to validate, to countersign, to issue, and to deliver commitments, policies, and endorsements of the defendant on forms provided by the defendant.

In June of 1987, the city of Revere issued a building permit to the owner of 190 North Shore Road to construct the condominium project. On June 3, 1988, the Attorney General requested that Revere order a halt to the construction on the property because the Executive Office of Transportation and Construction (EOTC) had not consented to the issuance of the building permit as required by G.L. c. 40, § 54A (1992 ed.). ² Therefore on June 8, 1988, Revere issued a cease and desist order directed to the owner of the property to halt construction.

All or part of the property located at 190 North Shore Road was owned by the Boston and Maine Railroad in 1926. This information was apparent on the record at the registry of deeds.

The title insurance policy issued to the plaintiff, policy number 22-0468-02-000026, provides, in pertinent part:

"SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS CONTAINED IN SCHEDULE B AND THE PROVISIONS OF THE CONDITIONS AND STIPULATIONS HEREOF, CHICAGO TITLE INSURANCE COMPANY ... insures ... against loss or damage ... sustained or incurred by the insured by reason of:

"(1) Title to the estate or interest described in Schedule A being vested otherwise than as stated therein;

"(2) Any defect in or lien or encumbrance on such title ...

"(4) Unmarketability of such title...."

The policy contained an integration clause which provides:

"This instrument together with all endorsements and other instruments, if any, attached hereto by the Company is the entire policy and contract between the insured and the Company.

"Any claim of loss or damage, whether or not based on negligence, and which arises out of the status of the lien of the insured mortgage or of the title to the estate or interest covered hereby or any action asserting such claim, shall be restricted to the provisions and conditions and stipulations of this policy."

The exclusions from coverage provides in pertinent part as follows:

"(1)(a) Governmental police power.

"(b) Any law, ordinance or governmental regulation relating to environmental protection.

"(c) Any law, ordinance or governmental regulation (including but not limited to building and zoning ordinances) restricting or regulating or prohibiting the occupancy, use or enjoyment of the land, or regulating the character, dimensions or location of any improvement now or hereafter erected on the land, or prohibiting a separation in ownership or a change in the dimensions or area of the land or any parcel of which the land is or was a part.

"(d) The effect of any violation of the matters excluded under (a), (b) or (c) above, unless notice of a defect, lien or encumbrance resulting from a violation has been recorded at Date of Policy in those records in which under state statutes, deeds, mortgages, lis pendens, liens or other title encumbrances must be recorded in order to impart constructive notice to purchasers of the land for value and without knowledge; provided, however, that without limitation, such records shall not be construed to include records in any of the offices of federal, state or local environmental protection, zoning, building, health or public safety authorities."

On November 16, 1990, the plaintiff gave the defendant notice of claims under the title insurance policy. The defendant denied coverage on the ground that the effect of G.L. c. 40, § 54A, was not an insured risk under the policy and further denied that it had any obligations or duties to the plaintiff beyond those specified in the policy. The plaintiff commenced this action against the defendant asserting claims for breach of contract (counts I and IV), negligence (counts II and III), and negligent misrepresentation (count V). The defendant moved for summary judgment on all claims.

Summary judgment shall be granted where there are no material facts in dispute and the moving party is entitled to judgment as a matter of law. Cassesso v. Commissioner of Correction, 390 Mass. 419, 422, 456 N.E.2d 1123 (1983). Mass.R.Civ.P. 56(c), 365 Mass. 824 (1974). The party opposing the motion must respond by alleging specific facts which establish the existence of a dispute of material fact in order to defeat the motion. Pederson v. Time, Inc., 404 Mass. 14, 17, 532 N.E.2d 1211 (1989).

The judge began her analysis of the contract claims with the observation that, in general, building and zoning laws are not treated as encumbrances. She went on to rule: "Even assuming, however, that the restriction on use created by G.L. c. 40, § 54A is an encumbrance on the property or renders title unmarketable, there is no coverage under the policy because the exclusions clearly apply." The Appeals Court interpreted the judge's action as an expression of doubt on whether coverage existed, and only discussed the applicability of the policy exclusions. We begin our discussion with consideration of the coverage issue.

CONTRACT CLAIMS

Count I. In support of its claim for breach of contract (count I), the plaintiff contends that the provision in G.L. c. 40, § 54A, which requires that EOTC consent to the owner's intended use of the property, constitutes an encumbrance on or defect in the title to the property or that it renders title to the property unmarketable. As a general rule, a dispute concerning the proper interpretation of an insurance policy raises only a question of law. Massachusetts Bay Transp. Auth. v. Allianz Ins. Co., 413 Mass. 473, 476, 597 N.E.2d 439 (1992), citing Nelson v. Cambridge Mut. Fire Ins. Co., 30 Mass.App.Ct. 671, 673, 572 N.E.2d 594 (1991). In interpreting the provisions of a policy, we construe and enforce unambiguous terms according to their plain meaning. See Thomas v. Hartford Accident & Indem. Co., 398 Mass. 782, 784, 500 N.E.2d 810 (1986); Royal-Globe Ins. Co. v. Schultz, 385 Mass. 1013, 434 N.E.2d 213 (1982). When the provisions of a policy are plainly and definitively expressed, the policy must be enforced in accordance with the terms. See Cody v. Connecticut Gen. Life Ins. Co., 387 Mass. 142, 146, 439 N.E.2d 234 (1982). Absent ambiguous contractual language in the policy, custom and practice evidence cannot be used to vary the provisions of the policy. See Newell-Blais Post # 443, Veterans of Foreign Wars of the U.S., Inc. v. Shelby Mut. Ins. Co., 396 Mass. 633, 638, 487 N.E.2d 1371 (1986) (language clear and unambiguous; recourse to extrinsic evidence not required); Nilsen v. Mutual Marine Office, Inc., 428 F.Supp. 1375, 1378-1380 (D.Mass.1977). However, pertinent custom and usage are, by implication, incorporated into a policy and are admissible to aid in policy interpretation, not as tending to contradict or vary a contract, but on the theory that usage forms part of the contract. See ...