Spalding v. Stewart Title Guaranty Co.

• Decision Date: 12 May 2015
• Docket Number: No. SC 94580,SC 94580
• Citation: 463 S.W.3d 770
• Parties: Randy Spalding, Respondent, v. Stewart Title Guaranty Company, Appellant.
• Court: Missouri Supreme Court

463 S.W.3d 770

Randy Spalding, Respondent

v.Stewart Title Guaranty Company, Appellant.

No. SC 94580

Supreme Court of Missouri, en banc .

Opinion issued May 12, 2015

Stewart Title was represented by John A. Koepke of Jackson Walker LLP in Dallas, Texas, (214) 953–6005; and John T. Coghlan, Justin Nichols and R. Kent Sellers of Lathrop & Gage LLP in Kansas City, (816) 292–2000.

Spalding was represented by Matthew V. Bartle and David L. Marcus of Bartle & Marcus LLC in Kansas City.

Zel M. Fischer, Judge

Introduction

Stewart Title Guaranty Company appeals the circuit court's judgment in favor of Randy Spalding after a jury trial on his claims for breach of contract and vexatious refusal to pay in regard to a title insurance policy. Stewart Title contends that the circuit court erred in: (1) overruling its motions for directed verdict and judgment notwithstanding the verdict because the suit on the title insurance policy was time barred under the five-year statute of limitations for breach of contract; (2) refusing to give its proposed instruction concerning its statute of limitations defense; (3) overruling its motions for directed verdict and judgment notwithstanding the verdict because Spalding failed to make a submissible case as to the existence and amount of the damages for the breach of contract; (4) admitting evidence from appraiser Brian Reardon regarding the damages sustained from the title defect under the policy; and (5) giving Instruction No. 7, regarding the measure of damages. Further, Stewart Title asserts that, if this Court reverses the circuit court's judgment regarding the breach of contract claim, then the circuit court necessarily erred in failing to sustain Stewart Title's motions for directed verdict, judgment notwithstanding the verdict, or new trial on the vexatious refusal to pay claim. The Court affirms.

Facts and Procedural Background

Viewing the evidence in the light most favorable to the judgment, Spalding established that, in 2003, he contracted to buy approximately 419 acres of property in the City of Lake Winnebago in Cass County, Missouri. The land was bound by 167th Street, the existing Lake Winnebago Dam, and Missouri Route 291, and much of the land is in a federally-designated flood area. Spalding and his wife formed an entity named Spalding Land Company (SLC) to take title to the property in February 2003. The land was in receivership at the time of the acquisition, and SLC acquired the land for $1,510,000.

Stewart Title issued a policy of title insurance to SLC on February 12, 2003, in the amount of $1.7 million, insuring the property as described in Schedule A of the policy. Pursuant to the policy, Stewart Title insured against loss or damage sustained or incurred by SLC by reason of “[t]itle to the estate or interest described in Schedule A being vested other than as stated therein;” “[a]ny defect in or lien or encumbrance on the title;” “[u]nmarketability of the title;” and “[l]ack of a right of access to and from the land.” The policy stated that it was “a contract of indemnity against actual monetary loss or damage sustained or incurred by the insured claimant” with liability not to exceed the lesser of “(i) the Amount of Insurance stated in Schedule A; or, (ii) the difference between the value of the insured estate or interest as insured and the value of the insured estate or interest subject to the defect, lien or encumbrance insured against by this policy.”

After purchasing the land, Spalding began talking with various people about developing the land. In 2005, Matt Bowen, John Bowen, and Scott Westlake created a new company named South Winnebago Partners (SWP). SWP began working with Spalding and SLC on plans for developing the property. The parties developed a plan to expand the existing Lake Winnebago into the flood area on the property to create new lake-front lots and traditional lots with lake-access rights.¹ In 2007, pursuant to an amended and restated operating agreement, SWP became one of the two members of SLC, along with Spalding. SWP also became the manager of SLC. The agreement recognized that the property was Spalding's contribution to SLC and that “services” were SWP's contribution to SLC.

SLC sought (and eventually obtained) a permit from the United States Army Corps of Engineers to partially remove the existing dam, construct a new dam and spillway, and expand Lake Winnebago. SLC also contracted with HNTB to be the land planner and with Olsson and Associates to perform engineering work. Further, SWP acquired options to purchase on surrounding parcels of land that might be needed for the project. Moreover, SLC presented its plan to the Lake Winnebago Homeowners Association and the city of Lake Winnebago, and both entities supported the plan.

Things appeared to be progressing with the development plan until January 2006 when Spalding received a telephone call from Paul Estes. Estes claimed that he owned a one-acre tract of land at the bottom of the lake proposed by SLC. Realizing that Estes's claim could preclude the development of the lake, Spalding contacted Coffelt Title, the agent for Stewart Title that had issued the title insurance policy to SLC. Coffelt Title responded with a letter to Spalding, dated March 21, 2006, acknowledging Spalding's claim and advising Spalding to contact Stewart Title regarding his claim.

As it turned out, both SLC and Estes held deeds showing that they owned this one-acre tract of land. Both SLC and Estes had purchased title insurance from Stewart Title, and both Estes and Spalding contacted Stewart Title about a possible title defect. From April 2006 until mid-June 2006, Stewart Title conducted an investigation to determine whether SLC or Estes possessed good title to the one-acre tract of land. On June 16, 2006, Stewart Title completed its investigation and determined that Estes owned the one-acre tract and that SLC did not. On July 15, 2006, Spalding contacted Stewart Title, and SLC made a claim under the title insurance policy.

After discovering that SLC's title was defective, Stewart Title made an election under paragraph 6 of the policy and chose to pay the loss suffered by SLC as a result of the defect. Paragraph 6 provides:

6. OPTIONS TO PAY OR OTHERWISE SETTLE CLAIMS; TERMINATION OF LIABILITY.

In case of a claim under this policy, the Company shall have the following additional options:

(a) To Pay or Tender Payment of the Amount of Insurance.

....

(b) To Pay or Otherwise Settle With Parties Other than the Insured or With the Insured Claimant

(i) to pay or otherwise settle with other parties for or in the name of an insured claimant any claim insured against under this policy, together with any costs, attorneys' fees and expenses incurred by the insured claimant which were authorized by the Company up to the time of payment and which the Company is obligated to pay; or

(ii) to pay or otherwise settle with the insured claimant the loss or damage provided for under this policy, together with any costs, attorneys' fees and expenses incurred by the insured claimant which were authorized by the Company up to the time of payment and which the Company is obligated to pay.

Upon the exercise by the Company of either of the options provided for in paragraphs (b)(i) or (ii), the Company's obligations to the insured under this policy for the claimed loss or damage, other than the payments required to be made, shall terminate, including any liability or obligation to defend, prosecute or continue any litigation.

Stewart Title informed SLC that “[t]he loss under the policy is measured as the ‘difference between the value of the insured estate or interest as insured and the value of the insured estate or interest subject to the defect, lien or encumbrance insured against by this policy.’ ” Stewart Title, therefore, claimed that SLC's loss “would be the difference in value between the property with the 1 acre tract owned by Estes and the value of the property without that 1 acre tract.” Stewart Title told SLC that it would commission an appraisal to determine this difference.

On July 3, 2007, Stewart Title sent a letter to SLC's counsel indicating that it completed its appraisal and that such appraisal “measured the diminution in value at $10,000.” Along with its letter, Stewart Title enclosed a check in the amount of $10,000 to fully resolve the claim.

On July 12, 2007, SLC returned Stewart Title's check and informed Stewart Title that $10,000 did not adequately compensate SLC for its loss. The letter said:

[W]e do believe that my client's loss is the difference in value of the land as insured, including the one (1) acre at issue, and the value of the land excluding the one (1) acre. Without the one (1) acre which is in question, the proposed Lake expansion cannot go forward, and Spalding Land Company LLC will suffer loss in the value of its land far greater than the amount of the insurance policy. With the defect corrected, and the one (1) acre in question included in the Spalding Land Company LLC tract, there would not be a loss to Spalding Land Company LLC. We do not believe that the appraisal provided accurately values the property with and without that one (1) acre.

SLC continued to suggest that, in lieu of paying the loss suffered by SLC as a result of its defective title, Stewart Title purchase the one-acre tract from Estes. Estes had requested payment of $387,000. To facilitate this approach, Spalding purchased and repeatedly renewed an option to purchase the tract from Estes. However, Stewart Title continued to insist that SLC's loss was only $10,000.

With the dispute unresolved with Stewart Title, SLC ceased operations and assigned this claim along with the land in question to Spalding. On June 9, 2011, Spalding filed suit against Stewart Title asserting claims for breach of contract and vexatious refusal to pay in regard to a title insurance policy. After a jury trial, the circuit court entered an amended judgment for Spalding in the amount...