Case Title: Stewart Title Guaranty Company v. Shelby Realty Holdings, L.L.C.

Citation: 

Docket Number: 1100215

State: alabama

Court: Alabama Supreme Court

Date: 2011-10-14T00:00:00Z

Document:
REL:10/14/2011
Notice: This opinion is subject to formal revision before publication in the advance
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SUPREME COURT OF ALABAMA
OCTOBER TERM, 2011-2012
_________________________
1100215
_________________________
Stewart Title Guaranty Company
v.
Shelby Realty Holdings, LLC
Certified Question from the United States District Court for
the Northern District of Alabama
(2:08-CV-00267-RDP)
 
SHAW, Justice.
The United States District Court for the Northern
District of Alabama, Southern Division ("the district court"),
has certified to this Court a question pursuant to Rule 18,
Ala. R. App. P.  We initially accepted the certified question;
1100215
In its brief to this Court, Shelby Realty points out that
1
the factual statement included with the district court's
certification erroneously referred to the subject insurance
coverage as a "homeowner's" policy.  (Shelby Realty's brief,
at p. 4 n.2.)  See Metmor Fin., Inc. v. Commonwealth Land
Title Ins. Co., 645 So. 2d 295, 297 (Ala. 1993) ("'Title
insurance' is defined as 'insurance of owners of property, or
others having an interest therein or liens or encumbrances
thereon against loss by encumbrance, or defective titles, or
invalidity or adverse claim to title.'  § 27-5-10, Ala. Code
1975.").
2
however, for the reasons discussed below, we now decline to
answer it.
Facts and Procedural History
In its certification to this Court, the district court
provided the following background information: 
"On May 29, 2003, Shelby Realty [Holdings, LLC
('Shelby Realty'),] purchased a mortgage on certain
Property and foreclosed on the Property the same
day. On June 10, 2003, Shelby Realty recorded the
foreclosure deed in the records of the Probate Court
of Jefferson County, Alabama. In its capacity as an
agent for Stewart Title [Guaranty Company ('Stewart
Title')], Birmingham Title Services Corporation
issued a [title insurance ] policy in favor of
1
Defendant Shelby Realty insuring fee simple title to
the Property in Shelby Realty.
"On April 20, 2004, Birmingham-Southern College
filed suit against Shelby Realty, alleging that the
College had fee simple title to the Property, and
that Shelby Realty only possessed a leasehold
interest in the Property. On April 22, 2005, Judge
Smallwood held that the College retained its fee
simple interest in the Property, and that Shelby
Realty had only a leasehold interest.
1100215
3
"On December 28, 2006, Shelby Realty and the
College entered into a Purchase and Sale Agreement
whereby Shelby Realty sold to a subsidiary of the
College Shelby Realty's interest in the Property.
Stewart Title then sent a check to Shelby Realty in
the amount of $264,000.00, which Stewart Title
claims represents the difference in the value of the
fee interest in the Property subject to the
College's ownership of the fee interest, assuming
that the Property was used as apartments.  On
January 8, 2008, counsel for Shelby Realty sent a
letter to Stewart Title enclosing a Proof of Loss on
behalf of Shelby Realty, and asserting that Shelby
Realty was entitled to additional amounts under the
terms of the Policy predicated upon Shelby Realty's
future intended use of the Property as condominiums.
"The parties dispute how liability should be
determined under the policy, whether Shelby Realty
is entitled to damages related to its intended use
of the Property or only for the way the Property was
actually used at the time of the loss."
To aid the district court in determining this issue, it
certified the following question to this Court:  
"Under 
a 
title 
insurance 
policy, 
is 
the
insured's valuation evidence limited to the use to
which the property is being devoted as of the date
of the discovery of the defect in title, or is an
insured allowed to recover damages for the highest
intended and best use of the property, even if the
property was not being used in that manner at the
time of the loss?"
Discussion
The title-insurance policy at issue in this case appears
to be American Land Title Association's standard "Owner's
1100215
4
Policy," as revised in 1992.  The pertinent portion of the
policy states: 
"This policy is a contract of indemnity against
actual monetary loss or damage sustained or incurred
by the insured claimant who has suffered loss or
damage by reason of matters insured against by this
policy and only to the extent herein described.  
"(a)  The liability of the Company under this
policy shall not exceed the least of: 
"(i)  the Amount of Insurance stated in
Schedule A; or,
"(ii) the difference between the value of
the insured estate or interest as insured
and the value of the insured estate or
interest subject to the defect, lien or
encumbrance 
insured 
against 
by 
this
policy."
(Emphasis added.)
We note, initially, that the certified question is framed
in the abstract, with no reference to any specific language in
the policy, i.e., as an evidentiary issue with broad
application. 
However, 
the 
dispute 
in 
this 
case, 
as
demonstrated by the arguments of the parties, appears to
involve the determination of the date that should be used to
ascertain the value of the certain property foreclosed on by
Shelby Realty and as to which Birmingham Southern College held
1100215
"[T]his Court will rephrase a question certified to it
2
in order to address the 'basic issue implicated by th[e]
question' 
and 
'contemplated 
by 
the 
[court] 
in 
its
certification.'"  Holcim (US), Inc. v. Ohio Cas. Ins. Co., 38
So. 3d 722, 726-27 (Ala. 2009) (quoting John Deere Co. v.
Gamble, 523 So. 2d 95, 99 (Ala. 1988)).
5
fee-simple title.   This Court has not had an occasion to
2
discuss the valuation method prescribed by the type of title-
insurance policy at issue here.  Various authorities note that
courts, 
in 
construing 
similar 
policies, have selected
differing dates for setting the value of the subject property,
including the value of the property on the date the insured
purchased the property or, as Stewart Title suggests, the date
the defect in the title is discovered.  See, e.g., Barlow
Burke, Law of Title Insurance § 7.04 (Aspen Publishers, Inc.
2010); James L. Gosdin, Title Insurance: A Comprehensive
Overview, p. 136 (2d ed. 2000); and Swanson v. Safeco Title
Ins. Co., 186 Ariz. 637, 641, 925 P.2d 1354, 1358 (Ariz. Ct.
App. 1995) ("'It seems quite apparent to us that liability
should be measured by diminution in the value of the property
caused by the defect in the title as of the date of the
discovery of the defect, measured by the use to which the
property is then devoted.'" (quoting Overholtzer v. Northern
Counties Title Ins. Co., 116 Cal. App. 2d 113, 130, 253 P.2d
1100215
We note, as reflected in the facts supplied by the
3
district court, that the executed proof of loss submitted by
Shelby Realty indicated both that Shelby Realty "intended to
refurbish and renovate the existing structures on the
Property, and ultimately sell the individual, formerly
apartment, units as condominiums" and that, "as a result of
the judicial determination that Shelby was not vested with fee
simple title, Shelby was unable to carry out its planned
renovation and sale of the Property ...."  Stewart Title
argues that all evidence presented in the district court
supports Stewart Title's position that it was unaware that the
property was purchased for development and, more specifically,
that "[it] had no knowledge of Shelby Realty's 'intention' to
develop the Property into condominiums."  Reply brief, at p.
18 n.7.  
6
116, 125 (1953))). The  valuation method proposed by Shelby
Realty is based in part on methods used to value property in
eminent-domain situations, where a condemnee is often entitled
to present evidence of the highest and best use of the
condemned tract.  See, e.g., Historic Blakely Auth. v.
Williams, 675 So. 2d 350, 352 (Ala. 1995), and Fohn v. Title
Ins. Corp. of St. Louis, 529 S.W.2d 1, 4 (Mo. 1975).3
Although the district court asks us to choose between two
valuation methods proposed by other decisions, after further
review of the arguments presented by the parties and of the
text of the title-insurance policy, it appears that the
question cannot be answered without resorting to the specific
language of the policy.  See Southern Title Guar. Co. v.
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7
Prendergast, 478 S.W.2d 806 (Tex. Civ. App. 1972) (noting that
a title-insurance policy may establish a formula for computing
property valuation).  Specifically, we note that there is
language in the policy here that appears to address the
appropriate valuation method.  For example, the policy appears
to limit Stewart Title's liability to pay, upon demonstration
of "actual monetary loss," to the lesser of "the [a]mount of
[i]nsurance stated in Schedule A," i.e., the policy limits of
coverage, or "the difference between the value of the insured
estate or interest as insured and the value of the insured
estate or interest subject to the defect, lien or encumbrance
insured against by [the] policy."  (Emphasis added.)  No
definitions of the terms "actual monetary loss" or "as
insured" are provided in the policy; however, the term "actual
monetary loss" could be deemed to restrict damages to those
based on the real, current status of the property as it was
being used at the time the defect in title was discovered. See
Chicago Title Ins. Co. v. Huntington Nat'l Bank, 87 Ohio St.
3d 270, 274, 719 N.E.2d 955, 960 (1999) (discussing the use in
a title policy of the phrase "actual loss," noting that "[t]he
word 'actual' means something that exists in fact or reality,"
1100215
We do not decide the proper reading of the policy,
4
because that issue is not before us.
8
and concluding that "the parties intended for an insured's
loss ... to be a real loss, one based on fact, not speculation
or possibility").  Further, the reference to the "value" of
the property "as insured" could be construed as limiting the
consideration of the use of the property to the use either
when the policy was purchased or when the defect in title was
discovered.  See Bender v. Kansas Secured Title & Abstract
Co., 34 Kan. App. 2d 399, 407-08, 119 P.3d 670, 676-77 (2005)
(noting a distinction between "estate or interest as insured,"
language identical to the language here and quoted above, and
improvement 
of 
the 
property 
"to 
the 
best 
available
alternative"). Thus, the title-insurance policy itself would
appear to control the proper valuation in this case.    
4
The parties, in their briefs to this Court, do not
address the construction of the policy at issue and instead
refer this Court to various authorities discussing how
valuation may be determined in various title-insurance
contexts.  Additionally, it is not apparent from the materials
before us that the district court has had the opportunity to
1100215
9
address whether the specific language of the policy would
control the determination of the value of the property.
Rule 18, Ala. R. App. P., provides that this Court may
answer questions from federal courts only where "there are no
clear controlling precedents" and the answer to the question
is "determinative of said cause."  Construing an insurance
policy treads no new ground under Alabama law, and precedent
determinative of such an analysis is well settled.  Public
Bldg. Auth. of Huntsville v. St. Paul Fire & Marine Ins. Co.,
[Ms. 1080733, October 8, 2010] ___ So. 3d ___, ___ (Ala. 2010)
("[T]he interpretation of a contract does not present a novel
legal issue. Rather, the rules of contract construction and
interpretation are well established in Alabama ....").
Furthermore, and perhaps more importantly, because the
district court might determine that the valuation issue can be
properly and fairly resolved by looking to the specific
language of the policy, answering the certified question would
necessitate our fashioning a broad rule with the possibility
that it would have no application to the particular facts
presented.  That possibility also renders us unable to answer
the question.  See Palmore v. First Unum, 841 So. 2d 233, 235
1100215
10
(Ala. 2002) ("In order for this Court to consider a certified
question from a federal court, the question must be, among
other things, 'determinative of [the underlying] cause.'"
(quoting Rule 18(a), Ala. R. App. P.)).  Therefore, we see no
grounds under Rule 18 that will allow this Court to answer the
question.  Heatherwood Holdings, LLC v. First Commercial Bank,
61 So. 3d 1012, 1026 (Ala. 2010) (declining to answer a
certified question where "existing Alabama law is sufficient
to guide the [certifying court]").   
Conclusion
We respectfully decline to answer the question certified
by the district court. 
QUESTION DECLINED.
Malone, C.J., and Woodall, Stuart, Bolin, Parker, Main,
and Wise, JJ., concur.  
Murdock, J., concurs in the result.