First Citizens Bank & Trust Co. v. Stewart Title Guaranty Co.
2014 COA 1
| Colo. Ct. App. | 2014Background
- Defendant Stewart Title Guaranty Co. appeals after a bench trial found it breached the title insurance contract with First Citizens Bank & Trust Co. (FCB) and awarded FCB damages and costs; Stewart also appeals the attorney fees award.
- UWB issued a 2007 construction loan to Leathem S. Stearn secured by a deed of trust; Stewart issued a title policy stating Stearn held title and the deed of trust was valid.
- Stewart’s agent discovered the title should be conveyed from a Stearn-associated entity (Ute) to Stearn, but the conveyance did not happen.
- UWB closed the loan in-house without an STC representative; Stearn later defaulted on the loan.
- UWB sought coverage under the policy; Stewart denied coverage based on an exclusion; UWB/SCT and later FCB sued for breach of contract and related claims; collateral litigation against Stearn remained pending.
- The trial court found in favor of FCB on breach of contract and awarded damages and some costs, but awarded no attorney fees for FCB’s suit against Stewart; on appeal, the court consolidates Stewart’s challenges.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Exclusion 3(a) bars coverage. | FCB contends exclusion does not bar coverage because UWB’s conduct was not a conscious act to create a defect. | Stewart argues UWB created, suffered, assumed, or agreed to the defect, triggering Exclusion 3(a). | Exclusion 3(a) is ambiguous and does not bar coverage; the defect was not consciously created by UWB. |
| Whether Limitation 8(b) forecloses liability until final adverse determination. | FCB argues limitation is inapplicable when title defect is conceded. | Stewart relies on Limitation 8(b) to delay liability. | Limitation 8(b) is inapplicable because title defect was conceded; no final adverse determination required. |
| Whether FCB suffered an actual loss and can recover the full amount due. | FCB seeks full damages under the note since the lien was invalid from inception. | Stewart challenges the measure of loss via foreclosure-based damages. | FCB suffered loss; full amount of the note is recoverable despite foreclosure practicalities. |
| Whether attorney fees were recoverable against Stewart for the suit. | FCB contends it is entitled to attorney fees as damages for breach of contract. | Hedgecock allows attorney fees; Huizar later rejects such an exception to the American Rule. | Attorney fees for the suit against Stewart are not recoverable; Hedgecock is rejected post-Huizar; American Rule applies. |
Key Cases Cited
- Sims v. Sperry, 835 P.2d 565 (Colo.App.1992) (ambiguity in exclusion terms; ambiguous terms construed in insured's favor)
- Allstate Ins. Co. v. Huizar, 52 P.3d 816 (Colo.2002) (policy interpretation; rejection of Hedgecock-style fees exceptions)
- Hedgecock v. Stewart Title Guar. Co., 676 P.2d 1208 (Colo.App.1983) (attorney fees for title policy breach allowed (overruled by Huizar))
- Huizar v. Allstate Ins. Co., 52 P.3d 540 (Colo.2000) (rejected Hedgecock rationale; American Rule governs fees)
- Bunnett v. Smallwood, 793 P.2d 157 (Colo.1990) (American Rule exceptions not favored by Colorado courts)
- Stewart Title Guar. Co. v. West, 110 Md.App. 114, 676 A.2d 953 (Md.App.1996) (limitation applicable only where title is disputed; not when defect conceded)