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Chicago Title Insurance Co. v. Accurate Title Searches, Inc.

Court of Appeals of Connecticut

May 30, 2017

CHICAGO TITLE INSURANCE COMPANY
v.
ACCURATE TITLE SEARCHES, INC.

          Argued October 6, 2016

         Appeal from Superior Court, judicial district of Hartford, Bright, J. [summary judgment motion]; Wiese, J. [judgment])

          Anthony E. DeCrosta, for the appellant-appellee (defendant).

          Gerald L. Garlick, for the appellee-appellant (plaintiff).

          Sheldon, Prescott and Flynn, Js.

          OPINION

          SHELDON, J.

         This is an action by the plaintiff, Chicago Title Insurance Company (Chicago Title), to recover damages from the defendant, Accurate Title Searches, Inc., for losses allegedly incurred by Ticor Title Insurance Company (Ticor Title), another title insurer with which the plaintiff later merged, [1] due to the defendant's negligence in performing a title search as to a parcel of real property in Hartford (property). In reliance upon that title search, Ticor Title issued a lender's title insurance policy (policy) for the property to NationOne Mortgage Company, Inc. (NationOne), a lender that took a note and mortgage on the property from Janice Flemming, in exchange for a $208, 000 loan to finance her purchase of the property from its purported owner, Joseph M. Davis. The plaintiff incurred the losses here complained of in investigating and settling claims against NPL Investment Trust I (NPL Investment), [2] which had become an insured under the policy upon acquiring Flemming's note and mortgage from NationOne, by two entities claiming to have superior interests in the property to those of NPL Investment. One such claimant, Terry Road, LLC (Terry Road), allegedly acquired its superior interest in the property pursuant to a quitclaim deed from Davis dated February 22, 2006, which was recorded on the Hartford land records on April 21, 2006. The other claimant, Connecticut Attorneys Title Insurance Company (CATIC), allegedly acquired its superior interest in the property pursuant to a $500, 000 attachment against Terry Road, which was recorded on the Hartford land records on September 10, 2009.

         After moving successfully for summary judgment on the issue of the defendant's liability for negligence, the plaintiff presented two related claims for damages to compensate it for losses allegedly caused by such negligence, together with prejudgment interest on such damages pursuant to General Statutes § 37-3a, at two separate hearings in damages. At an initial hearing in damages, the plaintiff sought, and the trial court, Wiese, J., awarded, $77, 500 in damages to compensate it for all sums it paid to settle the claims of Terry Road and CATIC against NPL Investment. The court held that the amount of that settlement, which had been negotiated at arm's length at a judicial pretrial, was reasonable, and thus awarded it to the plaintiff as compensatory damages in this action. At a second hearing in damages, however, the same trial court, Wiese, J., denied the plaintiff's additional claim for damages to compensate it for the attorney's fees and expenses it had incurred in investigating and resolving Terry Road's and CATIC's counterclaims against NPL Investment, and denied the plaintiff's claim for prejudgment interest on its earlier damages award under § 37-3a. The court based its rejection of the plaintiff's additional claim for damages upon its understanding of the so-called American rule, [3] under which parties bringing civil actions to recover damages from alleged wrongdoers are generally required to pay their own attorney's fees and expenses to prosecute such actions. The court rejected the plaintiff's claim for prejudgment interest on its earlier damages award on the ground that that award was ‘‘an unliquidated sum [that was neither] already payable prejudgment nor wrongfully withheld.''[4]

         On appeal, the defendant claims that the trial court erred in awarding the plaintiff compensatory damages in the full amount of its settlement with Terry Road and CATIC, without first requiring the plaintiff to prove that NPL Investment was legally liable for, and thus required to pay the settling parties, that entire amount. This is so, claims the defendant, because the plaintiff's present claim sounds not in negligence but in common-law indemnification, [5] for which the plaintiff is only entitled to recover damages for payments to third parties which it was legally obligated to make. The defendant argues that where, as here, a party from which a plaintiff seeks indemnification for payment of an underlying claim is not given notice of or an opportunity to defend against that claim, the plaintiff, as would-be indemnitee, must prove not only that the amount it seeks to recover from the defendant, as alleged indemnitor, was a reasonable amount to settle the claim, but that the plaintiff was legally liable to pay the claimant that amount.

         In its cross appeal, the plaintiff claims that the court erred in ruling that the American rule precluded the plaintiff from recovering, as an element of compensatory damages, the attorney's fees and expenses that it incurred to investigate and settle Terry Road's and CATIC's underlying claims against NPL Investment. That rule, it argues, only bars a plaintiff from recovering the attorney's fees and expenses it has incurred in the particular litigation in which such fees and costs are sought, not those incurred in previous actions that the plaintiff was forced to defend as a result of the defendant's negligence.

         On the record before us, we agree with the trial court, Bright, J., that the plaintiff's claim sounds in negligence, not in common-law identification, and thus that the defendant's arguments as to what proof is required to prevail on a claim for indemnification are inapplicable to this case. On the other hand, we disagree with the trial court, Wiese, J., that the plaintiff's claim for damages to compensate it for the attorney's fees and expenses it incurred to defend its insured in prior litigation is barred in this action by the American rule. Accordingly, although we reverse the court's judgment denying the plaintiff's claim for compensatory damages in the amount of its prior attorney's fees and expenses and remand this case for further proceedings on that claim, we affirm the court's judgment in all other respects.

         The following facts and procedural history are relevant to our disposition of this appeal. In May, 2004, Leroy R. McCalop was the record owner of the property located at 108-110 Webster Street in Hartford. On May 19, 2004, McCalop issued a general warranty deed (McCalop deed) which provided: ‘‘I, LEROY R. McCALOP of 1417 Stafford Avenue Bristol, Connecticut 06010 for consideration of TWOHUNDRED THOUSAND AND 00/100 ($200, 000.00) DOLLARS received to my full satisfaction of JOSEPH M. DAVIS of 15 June Street, East Hartford Connecticut do give, grant, bargain, sell and confirm unto the said LEROY R. McCALOP . . . all that certain piece or parcel of land . . . situated in the Town of East Hartford, County of Hartford and State of Connecticut, known as 108-110 Webster Street . . . .''[6] That same day, Davis encumbered the property with two mortgages in the aggregate amount of $200, 000. The McCalop deed and Davis' two mortgages were subsequently recorded onJune7, 2004. As recently as February 2, 2006, Davis was listed as the property's account holder for municipal utilities and taxes.

         Approximately two years after the McCalop deed was executed, Davis purportedly conveyed the property, on two separate occasions, to two different parties. The first such conveyance took place on February 22, 2006, when Davis delivered a quitclaim deed for the property to Terry Road. This quitclaim deed was recorded on April 21, 2006. Thereafter, Terry Road encumbered the property with a $25, 996 mortgage, which was recorded on May 17, 2006. Davis' second purported conveyance of the property took place on July 13, 2006, when he delivered a warranty deed for the property to Flemming for $260, 000. As consideration for the loan, Flemming gave NationOne a note in the amount of $208, 000 secured by a mortgage for the property. NationOne, in turn, applied for a lender's title insurance policy with respect to the property with the plaintiff's predecessor, Ticor Title.[7] In an effort to assess the quality of Davis' title to the property, Ticor Title requested two title searches with respect to the property.

         On April 17, 2006, approximately two months after Davis' initial conveyance of the property by quitclaim deed to Terry Road, but four days before that deed was recorded, Ticor Title retained the defendant to perform its first title search with respect to the property. Ticor Title specified in its search order that it sought a ‘‘[f]ull ([forty plus] years)'' search of the property, of which the ‘‘current owner'' was listed as ‘‘Joseph Davis.'' Pursuant to this search order, the defendant conducted a title search with respect to the property and submitted a written report of its findings to ‘‘Patricia Kunz, [Ticor Title].'' According to that report, the search covered the period starting on May 20, 1957, and ending on April 12, 2006, and revealed that the ‘‘most recent conveyance'' of the property had been by warranty deed dated May 19, 2004, from ‘‘Leroy R. McCalop, '' as ‘‘grantor, '' to ‘‘Joseph M. Davis or Leroy R. McCalop, '' as ‘‘grantee, '' which was recorded on June 7, 2004. Accordingly, although the author of the report noted that there was a ‘‘mistake in deed, in that it states consideration from Davis but conveys property to McCalop, '' the report concluded that the ‘‘present title holder'' of the property was ‘‘Joseph M. Davis or Leroy R. McCalop.'' The report also noted Davis' two mortgages on the property, which had been recorded in June, 2004, and attached a printout listing Davis as the then current account holder on the property's municipal utility bills.

         Approximately two months after the first title search, on June 13, 2006, the defendant conducted a second title search with respect to the property, also on behalf of Ticor Title. On this occasion, as on the first, the defendant purportedly conducted another ‘‘full forty year statutory search'' with respect to the property, albeit for a longer period, from May 20, 1957, until June 13, 2006, which ended approximately two months after Terry Road's quitclaim deed and one month after its mortgage had been recorded on the Hartford land records. In the written report of its findings based upon this second title search, as in the earlier written report based upon its first title search, the defendant once again noted the apparent ‘‘mistake'' in the McCalop deed as well as Davis' subsequently recorded mortgages on the property. Despite these indications as to Davis' possible title interest in the property, the defendant failed to investigate Davis' name in the grantor-grantee index. Consequently, the defendant never found, and the written report of its findings never mentioned, either Terry Road's quitclaim deed from Davis or its subsequent mortgage on the property, both of which were recorded several weeks before the listed ending date of the second title search. As a result of this omission, Ticor Title, NationOne, and Flemming were all unaware, at the time of Davis' purported conveyance of the property to Flemming, that Davis had previously transferred all of his interest in the property to Terry Road.

         On July 6, 2006, one week before the conveyance from Davis to Flemming, McCalop issued a ‘‘corrective warranty deed, '' naming Davis as the intended grantee of the 2004 McCalop deed.[8] The following week, on July 13, 2006, Flemming obtained a mortgage from NationOne in the amount of $208, 000. In conjunction with the Flemming mortgage, NationOne procured the policy from Ticor Title, which had agreed to insure it, as Flemming's mortgagee, in reliance upon the defendant's title search reports. That same day, Davis executed a warranty deed purporting to convey the property to Flemming in exchange for $260, 000.

         By March 18, 2008, Flemming had defaulted on her mortgage. Thereafter, the successor mortgagee, NPL Investment, commenced an action to foreclose on the property and recorded a lis pendens[9] on the Hartford land records. On October 1, 2009, NPL Investment filed its amended complaint, alleging that Flemming had defaulted on her mortgage and that both Terry Road and CATIC held junior interests in the property.

         After receiving notice of the pending action, both Terry Road and CATIC filed answers and counterclaims against NPL Investment and cross claims against Flem-ming and other defendants. The counterclaims and cross claims (hereinafter counterclaims) alleged that NPL Investment's mortgage was invalid because, by virtue of Terry Road's quitclaim deed from Davis, Davis had no legal interest in the property to convey to Flem-ming, and thus Flemming had no legal interest in the property when she obtained her mortgage from NationOne. In response to these allegations, NPL Investment filed a claim with the plaintiff[10] under the policy for $208, 000, which was then the outstanding principal balance on Flemming's note.

         After receiving NPL Investment's claim under the policy, the plaintiff reviewed the title search reports to assess the validity of CATIC's and Terry Road's counterclaims. Subsequent investigation revealed that the defendant's second title search report failed to disclose either Terry Road's quitclaim deed or its mortgage on the property, both of which had been recorded prior to June, 2006. On the basis of those findings, the plaintiff entered into negotiations with CATIC and Terry Road, on behalf of NPL Investment, in an effort to settle their counterclaims, and thus to resolve NPL Investment's claim under the policy. Although CATIC and Terry Road initially demanded $150, 000 to settle their dispute with NPL Investment, the parties ultimately agreed to settle the matter for $77, 500. Under the parties' settlement agreement, the plaintiff received a release of CATIC's interest in the property, a withdrawal of all legal claims by both CATIC and Terry Road, and a quitclaim deed from Terry Road to Flemming, which was issued on July 6, 2011. Thereafter, on July 21, 2011, the plaintiff issued a check in the amount of $77, 500 to CATIC.

         On March 5, 2012, plaintiff's counsel sent a demand letter to the defendant, seeking $77, 500 in compensatory damages as well as compensation for all fees and expenses it had incurred in investigating and negotiating a settlement of the underlying claims against NPL Investment. Prior to receiving this demand letter, the defendant had not been notified of any alleged defects in its title search reports with respect to the property, the counterclaims brought against NPL Investment based upon alleged defects in Flemming's title to the property, or the plaintiff's negotiations with Terry Road and CATIC to settle those counterclaims.

         On August 10, 2012, the plaintiff filed its one count operative complaint against the defendant inthis action, alleging that the defendant had been negligent in con- ducting its title search with respect to the property. Specifically, the plaintiff alleged that the defendant had a duty to exercise reasonable care in performing the title search, that it breached that duty by failing to investigate Davis' name in the grantor-grantee index, and that that breach had caused the plaintiff to suffer $77, 500 in economic damages. On June 21, 2013, the plaintiff filed a motion for summary judgment as to the defendant's liability only. In response to that motion, the defendant filed a memorandum in opposition to summary judgment in which it claimed, inter alia, that it had not breached its duty of care, and that the plaintiff's failure to provide notice of the underlying counterclaims precluded the plaintiff from asserting an indemnification claim against the defendant. On December 19, 2013, the trial court, Bright, J., granted the plaintiff's motion for summary judgment as to the defendant's liability. In its memorandum of decision, the court rejected the defendant's argument that this was an indemnification action and held that the plaintiff had demonstrated the absence of any genuine issue of material fact as to the defendant's negligence.

         Thereafter, on October 2, 2014, the court, Wiese, J., held an initial hearing in damages. In its memorandum of decision following that hearing, dated December 31, 2014, the court found that the plaintiff had satisfied its burden of proving, by a preponderance of the evidence, that it was reasonably entitled to recover $77, 500 in economic damages to compensate it for all sums paid to settle the counterclaims of CATIC and Terry Road against NPL Investment. The court initially declined, however, to rule on the plaintiff's claims for damages for attorney's fees and expenses it had incurred to investigate and settle the claims against NPL Investment, and for prejudgment interest on the plaintiff's claims for damages.

         A second hearing in damages was held on March 24, 2015, to address the latter claims for damages. Three days later, the court, Wiese, J., issued a second memorandum of decision in which it held that the plaintiff was not entitled to prejudgment interest on its damages award and that, under the American rule, the plaintiff was not entitled to recover damages from the defendant in this action to compensate it for the attorney's fees and expenses it had incurred to investigate and negotiate a settlement in the earlier action. Thereafter, the defendant filed its appeal from the court's judgment and the plaintiff filed its cross appeal. Additional facts and procedural history will be set forth as necessary.

         I

         The defendant raises two arguments on appeal. The defendant first argues that, contrary to the holding of the trial court, Bright, J., the plaintiff's complaint states a claim for common-law indemnification, and thus, consistent with the principles of indemnification law, the plaintiff was obligated to notify the defendant of the counterclaims filed by Terry Road and CATIC prior to negotiating a settlement agreement. The defendant therefore argues that the plaintiff's failure to notify it of either the counterclaims or the plaintiff's settlement negotiations, until after the plaintiff was bound by the terms of the settlement agreement, precluded the plaintiff from relying merely on the reasonableness of its settlement agreement as the basis for awarding damages at the initial hearing in damages. Instead, the defendant argues, the plaintiff was required to prove the merits of CATIC's and Terry Road's counterclaims against NPL Investment and to establish the plaintiff's liability for those counterclaims in the amount it agreed to pay. In addition, in the last two pages of its brief to this court, the defendant raises, albeit without meaningful citation, a second argument that the court erred in granting summary judgment as to the defendant's liability because the McCalop deed did not ...


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