First American Bank v. First American Transportation Title Insurance
759 F.3d 427
| 5th Cir. | 2014Background
- First American Bank (Bank) held ship mortgages on three Titan vessels: Ocean Jewel and two Shuttles (Emerald, Sapphire); First American Transportation Title Insurance Co. (FATTIC) issued lender title policies covering certain necessaries liens.
- Titan defaulted and entered bankruptcy; necessaries liens arose and bankruptcy proceedings produced foreclosure sales and settlements: Ocean Jewel sold for $6,450,000 (net to Bank $4,172,215 after carve-outs/payments); Sapphire sank then was sold at auction/credit-bid and later resold for $500,000; Emerald’s hull was credit-bid and later resold for net ~$445,137.50 to Bank.
- First American sued FATTIC claiming greater insured losses than sums FATTIC paid (FATTIC had paid amounts tied to necessaries lien payments and foreclosure proceeds); district court initially limited recovery to amounts reflecting foreclosure results; this Court remanded to consider all relevant evidence and determine proper valuation date.
- On remand, district court held valuation date is foreclosure sale date, credited certain resale/appraisal evidence for the Shuttles, rejected early appraisals as stale for Ocean Jewel, deducted an $88,712 superpriority lien from the Sapphire recovery, and found no insurer bad-faith under La. R.S. § 22:1892.
- Bank appealed valuation date, valuation methods, specific deductions, and the no-bad-faith finding; Fifth Circuit affirmed in all respects.
Issues
| Issue | Plaintiff's Argument (First American) | Defendant's Argument (FATTIC) | Held |
|---|---|---|---|
| Proper date of valuation for mortgagee title-loss | Policy ambiguous; if ambiguous, construe against insurer; or valuation should be date of discovery of defect | Policy silent; foreclosure date is proper because mortgagee suffers loss at foreclosure | Foreclosure sale date is the appropriate valuation date; district court did not err |
| Whether district court ignored/should have credited Bank’s earlier appraisals for Ocean Jewel | Appraisals (Aug 2005) showed higher FMV and should be weighed to increase recovery | Appraisals were stale; market/business decline made foreclosure price more probative | District court permissibly discounted early appraisals and accepted foreclosure price as best evidence |
| Correct calculation of Ocean Jewel recovery (whether additional carve-outs counted as covered loss) | Recovery should be difference between vessel value ($6.45M) and net proceeds received by Bank ($4.172M) yielding larger loss | Policy limits recovery to difference in title value attributable to covered defects; carve-outs and other payments not shown to be covered risk items | District court correctly refused to award extra sums not attributable to one of the covered risks |
| Deduction of $88,712 (TBSR superpriority lien) from Sapphire recovery | TBSR relied on maritime necessaries lien (covered); deduction improper | Bankruptcy-created superpriority first-priority lien was not covered; Bank’s unencumbered recovery was reduced by that uncovered lien | Deduction upheld: Bank’s recoverable title value is reduced by the first-priority/uncovered lien amount |
| Bad-faith penalties under La. R.S. § 22:1892 | FATTIC delayed payments and acted arbitrarily after appellate ruling | FATTIC acted reasonably given factual/legal uncertainty; retained counsel, negotiated settlements, paid promptly when proceeds known | District court’s factual finding of no arbitrary/without probable cause conduct was not manifestly erroneous; no penalties awarded |
Key Cases Cited
- First Am. Bank v. First Am. Transp. Title Ins. Co., 585 F.3d 833 (5th Cir. 2009) (prior appellate decision requiring consideration of appraisals, foreclosure proceeds, and market data on remand)
- Amzak Capital Mgmt. v. Stewart Title of La., 744 F.3d 352 (5th Cir. 2014) (mortgagee does not suffer title-insurance loss until title actually fails)
- Levy Gardens Partners 2007, L.P. v. Commonwealth Land Title Ins. Co., 706 F.3d 622 (5th Cir. 2013) (elements and standard for Louisiana insurer-penalty claim under § 22:1892)
- Cadwallader v. Allstate Ins. Co., 848 So.2d 577 (La. 2003) (ambiguities in insurance policies construed against insurer)