Branch Banking & Trust Co. v. Chicago Title Insurance Co. (Lawyers Weekly No. 11-07-0550, 21 pp.) (Linda M. McGee, J.) Appealed from Forsyth County Superior Court. (Lindsay R. Davis Jr. & Richard Stone, JJ.) N.C. App. Click here for the full text opinion.
Holding: Regardless of whether the applicable statute of limitations was the one for negligent misrepresentation or the one for legal malpractice, when the plaintiff-lender notified the defendant-title insurer about a prior mortgage that hadn’t been included in the title search, the statutes of limitations had not expired – though only eight days were left to file a legal malpractice claim.
We affirm judgment for the lender.
On April 11, 2003, the plaintiff-lender financed Duane White Land Co.’s (Land Co.’s) purchase of and took a deed of trust on a 5.678-acre tract of land in Warren County. Based on the title search of a local law firm, the defendant-title insurer insured the title.
Although two prior deeds of trust were listed as exceptions to the coverage, the title search failed to reveal a third prior deed of trust, dated March 6, 1998. That third deed of trust was in favor of Centura Bank and covered a portion of the 5.678-acre tract. The defendant-insurer had issued a title insurance policy to Centura Bank insuring the Centura deed of trust.
Without knowing about the Centura deed of trust, plaintiff made a new loan to Land Co. on March 23, 2005, and took second deed of trust on the same land. With regard to that closing, plaintiff asked for title insurance, and the defendant-insurer accepted the title insurance premium; however, no title insurance policy was issued, and the closing check for title charges was voided.
By Dec. 21, 2005, plaintiff had discovered the Centura deed of trust. Plaintiff notified the insurer on March 26, 2006.
Centura initiated foreclosure proceedings, and plaintiff’s subsidiary acquired the Centura deed of trust for $464,000 on April 26, 2007. Centura’s foreclosure proceeding was then dismissed.
Plaintiff initiated foreclosure proceedings, and the 5.678-acre tract was sold for $3,263,400.
Plaintiff filed a claim with the insurer to recover the $464,000 in damages it suffered as a result of the alleged breach of the 2003 policy. The insurer denied plaintiff’s claim.
In a counterclaim, the insurer asked the court to reform the 2003 policy to reflect an exclusion for the Centura deed of trust. The trial court granted summary judgment for plaintiff-lender on the counterclaim. We affirm.
The insurer’s argument for reformation is based solely on its contention that there existed a mutual mistake concerning the real property that the 2003 policy was intended to cover.
The insurer argues that neither party ever intended for the real property encumbered by the Centura deed of trust to be included in the 2003 policy. Plaintiff argues that it was not plaintiff’s intention that the 2003 policy exclude the real property encumbered by the Centura deed of trust, and that plaintiff and the insurer never agreed that the 2003 policy would exclude coverage for the real property encumbered by the Centura deed of trust.
The insurer cites no evidence of any oral agreement between it and plaintiff that would have excluded the Centura deed of trust from the 2003 policy. Without such an agreement between the two parties, the insurer cannot show that their subsequent adoption of the 2003 policy differed materially from an oral agreement, as would be required to establish mutual mistake as a basis for reformation.
The insurer has not made the necessary showing to support reformation based on mutual mistake.
Section 5 of the 2003 title insurance policy – the “no loss or damage” exclusion – states that if plaintiff is unable to show proof that it suffered an actual loss due to any fault of the insurer, the insurer’s obligations to plaintiff under the 2003 policy shall terminate.
The insurer claims that no amount remained to be paid in connection with the promissory note secured by the 2003 deed of trust because the 2005 deed of trust, executed on the same real property described in the 2003 deed of trust, effectively replaced the 2003 deed of trust and the debts owed in connection with it. The insurer argues that, since it did not explicitly insure the 2005 deed of trust, it was not liable for the loss or damage suffered by plaintiff in connection with the insurer’s defective/mistaken coverage of the 2003 deed of trust. We disagree.
The 2003 policy insures the 2003 deed of trust without restriction, except for those exceptions included in the “Exclusion from Coverage” section of the 2003 policy, none of which are relevant here.
The 2003 deed of trust, which was incorporated into the 2003 policy, defined “Debt” to include “all renewals or extensions of any obligation under the Note or other Document (even if such renewals or extensions are evidenced by new notes or other documents)….”
We hold that the 2005 deed of trust is, for the purposes of its inclusion in the 2003 policy’s coverage of the 2003 deed of trust, an “extension evidenced by a new note” of the 2003 policy. Therefore, the debt owed on the 2003 deed of trust was not extinguished by the 2005 deed of trust. The debt owed on the 2003 deed of trust was, instead, renewed and extended by a new note or document: the 2005 deed of trust.
Statute of Limitations
The insurer argued that, because of plaintiff’s delay in informing the insurer of the Centura deed of trust, the insurer was effectively prevented from bringing a claim against the local law firm for improperly issuing a final opinion on title for the 2003 deed of trust to the insurer that omitted the Centura deed of trust.
At the time the insurer was notified of plaintiff’s claim and of the Centura deed of trust, the insurer was not barred, by either G.S. § 1-15 or G.S. § 1-52(9), from filing a claim for professional malpractice or negligent misrepresentation against the law firm. The insurer did not suffer any prejudice as a result of any delay by plaintiff in informing the insurer of the Centura deed of trust; therefore, section 3 of the 2003 policy (prompt notification) does not apply.
In addition, the insurer issued the title insurance policy for the Centura deed of trust. The same local law firm provided the title opinions for the Centura deed of trust. The Centura policy covered the Centura deed of trust at issue in the present case.
Ordinarily, an insurance company is presumed to be aware of data in its files, received in formal dealings with the insured.
The insurer argues it had no notice of the Centura deed of trust that was insured by the Centura policy that the insurer itself issued.
However, the 2001 policy specifically excluded from coverage liens not recorded prior to the issuance of the 2003 policy. Thus, the insurer implicitly agreed to insure against liens that were recorded prior to the issuance of the 2003 policy.
Therefore, under the terms of the 2003 policy, which the insurer drafted and issued, the insurer had constructive notice of the Centura deed of trust at the time it issued the 2003 policy.
Because the insurer insured the Centura deed of trust, the insurer is presumed to have had knowledge of the existence of the Centura deed of trust. An inquiry by the insurer, pursued with ordinary diligence and understanding would have revealed the Centura policy issued by the insurer and the underlying Centura deed of trust.
We find this to be sufficient notice to the insurer of an additional encumbrance on the 2003 deed of trust, regardless of the timing of notice presented by plaintiff. We hold that the insurer had either actual or constructive notice of the Centura deed of trust at the time it issued the 2003 policy.