Zions First Nat. Bank, N.A. v. National American Title Ins. Co.

• Decision Date: 22 January 1988
• Docket Number: No. 19750,19750
• Citation: 749 P.2d 651
• Parties: ZIONS FIRST NATIONAL BANK, N.A., Plaintiff and Respondent, v. NATIONAL AMERICAN TITLE INSURANCE COMPANY, Defendant and Appellant.
• Court: Utah Supreme Court

Page 651

749 P.2d 651

ZIONS FIRST NATIONAL BANK, N.A., Plaintiff and Respondent, v. NATIONAL AMERICAN TITLE INSURANCE COMPANY, Defendant and Appellant.

No. 19750.

Supreme Court of Utah.

Jan. 22, 1988.

Bryce E. Roe, William G. Fowler, Salt Lake City, for defendant and appellant.

W. Clark Burt, Steven R. Ellinwood, Salt Lake City, for plaintiff and respondent.

ZIMMERMAN, Justice:

National American Title Insurance Co. ("National American") appeals from a judgment entered after trial to the court holding it liable to Zions First National Bank ("Zions") under a title insurance policy. National American contends that several of the trial court's constructions of the insurance policy were erroneous and that certain factual findings lack adequate evidentiary support. National American also contends that the trial court's award of attorney fees was improper. We affirm in all respects, except we reverse the award of attorney fees and remand for further proceedings on that issue.

Jeffery Olson and his partner, Steven Gibbs, had a banking relationship with Zions. By November of 1979, Olson and Gibbs owed Zions $311,000 for loans and overdrafts. Because the debt was large and unsecured, Zions instructed two of its bank officers, Robin Hampton and Dave Fuhriman, to meet with Olson and Gibbs to discuss the pledging of collateral as security in lieu of Zions' instituting legal action on the debts. Olson and Gibbs promised to pledge eight properties, including the home of Olson's parents.

On December 17, 1979, Hampton and Fuhriman met with Olson and Gibbs to have them sign trust deeds for the eight properties. In the presence of the bank officers, Olson and Gibbs signed all of the deeds, except the deed to the home of Olson's parents. Olson's parents did not appear at the meeting, so Fuhriman and Olson took the trust deed to Olson's parents' house to get the necessary signatures. When Jeffery Olson asked his father, Virgil Olson, to sign the trust deed, Virgil said that he could not sign the deed until he had spoken with his wife, Sara. Jeffery Olson then left with Fuhriman.

Fuhriman gave the trust deed to Hampton the next morning, and Hampton later gave it to Jeffery Olson, asking him to have it signed and returned to Zions. Jeffery returned the signed and notarized trust deed to Hampton later that day, and Hampton delivered it to National American's agent, Record Title Company, which recorded it.

In February of 1981, Virgil Olson was informed that Zions had a trust deed that he had ostensibly signed. Virgil contacted an attorney and executed an affidavit stating that his signature on the trust deed was forged. After receiving this affidavit, Zions' counsel sent a letter to National American demanding payment pursuant to the title insurance policy. National American refused the claim. Zions filed suit to recover on the insurance policy. Before Zions' litigation was resolved, Virgil and Sara Olson filed a quiet title action against Zions to declare the deed void and to quiet title to their property. Virgil and Sara prevailed in that action. After the trial of Zions' action against National American, the trial court held for Zions and awarded Zions $54,000 in damages, $5,000 in attorney fees, and $94.70 in costs.

On appeal, National American challenges the ruling below on a number of grounds. It argues first that, under the terms of the contract of insurance, recovery is precluded because Zions had failed to ask Virgil and Sara whether they had signed the trust deed. National American relies on a disclaimer in the policy providing that it "does not insure against loss or damage ... aris[ing] by reason of ... [a]ny facts, rights, interests or claims which are not shown by the public records but which could be ascertained by an inspection of the land or by making inquiry of persons in possession thereof." National American argues that because the fact of the forgery was not a matter of public record and because Zions would have discovered the defect had it asked Virgil and Sara, the parties in possession of the land, whether they had signed the trust deed, Zions' failure to ask exempts National American from paying under the insurance policy.

The trial court held that the coverage exclusion does not impose a contractual duty on Zions to ascertain the validity of Virgil's and Sara's signatures. It found that unless Zions had actual knowledge of the title defect, namely, the forged signatures, National American was obligated to determine the state of the title and that forgery is a defect against which the policy insured. The trial court reasoned that Virgil's reluctance to sign the trust deed until he had spoken with Sara was not alone enough to raise a question about the validity of the signatures.

The standard of review of such findings must be noted at the outset. Questions of contract interpretation not requiring resort to extrinsic evidence are matters of law, and on such questions we accord the trial court's interpretation no presumption of correctness. E.g., Kimball v. Campbell, 699 P.2d 714, 716 (Utah 1985); see, e.g., Scharf v. BMG Corp., 700 P.2d 1068, 1070 (Utah 1985). Factual findings, on the other hand, are upheld "unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses." Utah R.Civ.P. 52(a); accord Lemon v. Coates, 735 P.2d 58, 60 (Utah 1987); Webster v. Lehmer, 742 P.2d 1203, 1206 (Utah 1987) (citing Ashton v. Ashton, 733 P.2d 147, 149-50 (Utah 1987)).

With these standards in mind, we conclude that the trial court was correct in holding that the insurance policy imposed no contractual duty on Zions to ask Virgil and Sara if they had actually signed the trust deed. The policy provision excluding coverage for loss or damage arising because of "facts, rights, interests or claims which are not shown by the public records but which could be ascertained by an inspection of the land or by making inquiry of persons in possession thereof" appears intended to protect a title insurer from an unrecorded interest in the land. See Coast Mutual Building-Loan Association v. Security Title Insurance & Guaranty Co., 14 Cal.App.2d 225, 230-31, 57 P.2d 1392, 1394 (1936). Virgil and Sara's interest was recorded and shown by public record when National American issued the policy. Nothing about this situation brought it within the intended scope of the exclusion. Therefore, Zions had no duty under the contract to ask Virgil and Sara if they had signed the trust deed.

The trial court was also correct in holding that Zions did not have any implied contractual obligation to ask Virgil and Sara if their signatures were forged. Under Utah case law, the insured is not required to perform the insurer's duty to ascertain the validity of the title. Bush v. Coult, 594 P.2d 865, 867 (Utah 1979). Because title insurance is in the nature of a warranty, id., forgery is one of the defects that title insurance is intended to cover.

National American's second challenge to the ruling below is based on another disclaimer in the policy. National American appeals from the trial court's ruling that Zions could recover despite the policy exclusion denying coverage for "[d]efects ... not shown by the public records and not otherwise excluded from coverage but known to the insured." (Emphasis added.) National American contends that this provision excludes defects within the constructive knowledge of the insured and challenges the trial court's finding that Zions did not have constructive knowledge of the forgery.

We think the trial court properly rejected National American's contention on this point for two reasons. First, as previously noted, we will not overturn a trial court's finding of fact unless it is clearly erroneous. Reviewing the record as a whole, we conclude that the trial court committed no such clear error in finding that Zions had neither actual nor constructive knowledge that the signatures were forged.

Second, even if the finding of no constructive knowledge were erroneous as a matter of contract construction, the assertion that the provision in question excludes defects of which the insured is constructively aware has no merit. The plain language of the exclusion requires that the defect be "known to the insured." And not even National American seriously contests the trial court's finding that Zions lacked actual knowledge of the defect. National American cites two cases in support of the claim that such exclusionary provisions do not require actual knowledge and that constructive knowledge or notice is sufficient. Enterprise Timber, Inc. v. Washington Title Insurance Co., 76 Wash.2d 479, 457 P.2d 600 (1969); Salt Lake, Garfield & Western Railway Co. v. Allied Materials Co., 4 Utah 2d 218, 291 P.2d 883 (1955). Neither is applicable because neither involves a contract which, by its terms, requires actual knowledge.

The simple answer to National American's position is that if something broader than actual knowledge was intended by this language, certainly the drafter, National American, could have included appropriate language. And, of course, "in case of ambiguity, uncertainty or doubt the terms of the policy will be construed strictly against the company and in favor of the insured." Jorgensen v. Hartford Fire Insurance Co., 13 Utah 2d 303, 304, 373 P.2d 580, 581 (1962). We hold that actual knowledge of the defect was required.

National American's third claim on appeal is that an agency relationship existed between Jeffery Olson and Zions and that as a result, Jeffery's knowledge of the forgery should be imputed to Zions. This claim has been raised on appeal for the first time. Generally, we do not consider issues that were not presented to the trial court. E.g., Bundy v. Century Equipment Co., 692 P.2d 754, 758 (Utah 1984); Trayner v. Cushing, 688 P.2d 856, 857 (Utah 1984); Bangerter v. Poulton, 663 P.2d 100, 102 (Utah 1983); Franklin...