### IN THE COURT OF APP EALS OF TENNESS EE AT JAC KSON O CT O BE R 1 6, 200 3 S es sio n
FOR RES T L. WHA LEY & M AR GAR ET A NN WHA LEY v. F IRST AM ERIC AN TITLE COM PA NY OF MID -WEST

Direc t Appeal from the Circ uit Court for Sh elby County No. 94890 T.D. Rita L. Stotts, Judge

No. W2002-01940-C OA-R3-C V - M arch 30, 2004

This case involves a claim under a title insurance policy

. Plaintiffs purcha sed a r esidenc e loca ted
on a two acr e lot , which, they later discovere d, had been i mproperly subdivided from a pree x isting 74 acr e tra ct. As a r esult of the i m p roper subdivision of their lot, P laintiffs are unable to obtain a building permit to construct any improvements upon the prope rty . Plaintiffs the n filed a cla im under the ir tit le ins ur a nc e po lic y wi th De fe nd a nt. Th e c la im wa s de nie d, a ndthe Pla int if fs su bs e qu e ntl y filed suit. After

considering pleading s, aff idavits, and deposition transcr ipts, the lower court gr anted Def endant’ s motion for summary judgme nt, f inding as a matter of law that the policy at issue does not cover the improper subdivision of land. F or the following rea sons, w e aff irm the ruling of the tr ia l c ou rt

.

Tenn. R. App . P . 3; Appeal as of Right; Judgme nt of th e Circ uit Court Aff irm ed

A L AN E. H I G H ERS , J. , d e li v e r e d th e o p in io n o f th e c o u r t, in w h ic h W. F RAN K C RAW FORD , P.J ., W.S ., and H OL L Y M. K I RBY , J ., joined.

Ric ha rdM. Cart e r, Curt R. Soe fk e r, Me mph is, TN , f or Ap pe lla nts

Michae l C. P atton, Thomas F. B arne tt, Memphis, TN, for Appe llee

OP IN ION

F acts and P roce dural Hi story On Aug ust 28, 1985, J im A n n P er k i ns (“Mrs. Per kins”) applied f

or and r ece ived a building permit to construct a residenc e on her 74 acr e tract of land in Shelby County , Tenne ssee. Two months later, Mrs. Per kins transfer

red a two acr e portion, which included the site for the residenc e, to her

daug hter a nd son-in-law, Te rry and Albert B e s h ire s ( c o ll e c ti v e ly “B eshires” ). Then, on Dec ember

12, 1985, Mrs. Perkins transfe rre d an additional two acr es, adjoining the first two acr e-2-

parc el, to the B eshires. O n May 27, 1988, For rest and Marg are t Whaley (collec tively

“Plaintiffs”) purcha sed the orig inal two acr e par cel, c ontaining the re s i d en ce , from the B eshires f or $125,000. Plaintiffs subsequently

purc h as ed a title insurance policy from F irst America n Title I nsuranc e Compa ny of the Mid -We st ( “ De fe nd a nt” ) tha t in su re d, a mon g oth e r t hin g s, a g a ins t un mark e ta

bil ity of the title to the property

.
I n 1 9 9 5 , Plaintiffs discovere d that their re sidence sat on a lot subdivided in violation of section 105(c ) of the Subdivision Regula tions of Memphis and Shelby County , which re quires the approva l of the re g ional planning commission prior to the divisi on of l and int o parc els of four acr es or less. As a result of the improper subdivision, neither Plainti ffs, nor a ny subsequent purc haser , can obtain a building pe rmit for construc tion or improvements on the prope rty . On Aug ust 13, 1997, Plaintiffs advised Def

endant that they believed the improper subdivision g ave rise to a cla im under their title insurance policy . Def endant denied the cla im in two letters, dated September 10, 1997 and May 15, 1998. Plaintiffs disagr eed w ith the denial of the i r cl ai m , and subseque ntly filed suit for brea ch of c ontrac t and neg lige nce in Shelby CountyCircuit Court on May 26, 1998.
On September

2, 1998, Def

endant filed a motion to dismiss or, alternatively , for summary j u d gm ent, alleging that, as a ma tter of law , the title insurance policy does not protec t ag ainst the imp ro pe r s ub div isi on of

Pla int if fs ’ p ro pe rt y . D e fe nd a nt ma int a ine d tha t title ins ur a nc e po lic ie s o nly insure leg al owner ship of property , not its economic value, a nd that the Plaintiffs clea rly own the pr op e rt y a t is su e fr e e of

a ny c omp e tin g c la ims of

ow ne rs hip . It a lso a lle g e d th a t e xce pti on 1( a )( iii )
o f t h e p o l i c y s p e c i f

i c a l l y e x c l u d e s c o v e r a g e f o r d a m a g e s ar i s i n g f

r o m a n y d i v i s i o n o f

t h e p r o p e r t y. Plaintiffs responded w ith their own motion for parti al summary judgme nt, arg uing tha t the policy does, as a matter of la w, insure a g ainst damag es arising from the imprope r subdivision. I n Dec ember 19 99 , th e tr ia l c ou rt

c on du c te d a

he ari ng on the tw o mo tio ns . T he low e r c ou rt de nie d bo th m oti on s, finding that g enuine issues of materia l f act still rema ined. On Fe bruary 26, 2001, following a y ear of additional discovery , Def endant r enew ed its motion for summary judgme nt. On Marc h 1, 2001, Plaintiffs likewise rene wed their motion for summary

judgme nt. T h e trial court, on F ebrua ry 15, 20 02 , g ra nte d D e fe nd a nt’ s mo tio n f or su mma ry jud g me nt, statin g that “ [t]he c ou rt c a nn ot f inda s a matter of la w that the Whaley ’s claim should have been c overe d u n d er t h e terms of the insura nce contra ct at issue. It appea rs that the purpose of the title policy was to addr ess issues rela ting to leg al
owner ship not value.” Plaintiffs filed a motion for rec o nsideration on Mar ch 8, 2002, which the lower c ourt denied on A ug us t 7 , 2 0 02. As part of its order de ny ing Plaintiffs’ motion, the lower court a lso certifie d the dismissal of the claims ag ainst Defe ndant as a final judg ment. Plaintiffs then timely

filed the instant appe al, cha lleng ing the ruling of the trial c ourt. Issues on Ap peal

Plaintiffs raise the f

ollowing issues, a s we pe rce ive them, for our consideration:

I

. Whether the trial c ou rt err ed by g ranting summary

judgme nt to Defe ndant on Pla int if fs ’ b re a c h o f c on tr a c t c la im.-3- A. Whether the trial c ourt err ed in finding that the scope of the p o licy extends only to leg al owner ship of the Plaintiffs’ prope rty , and not to its value.

B. Whether the trial c ourt err ed by failing to find that exclusion 1(a)(iii) of the po lic y is i na pp lic able wh e re no tic e of a de fe c t in tit le is a

pp are nt i n th e c ha in of title.

I I

. Whether the trial c ou rt erred by g ranting summary

judgme nt to Defe ndant on Plaintiffs’ neg lige nce c laims.

Stand ard of Review

I n Staples v. CBL & Associates, Inc

. , 1 5 S. W.3d 8 3 ( Te nn . 2 00 0) , th e Te nn e sse e Sup re me Cou rt se t f orth the sta nd ard s g ov e rn ing a n ap pe lla te c ou rt ’s re vie w o f a g ra nt o f s umm ary

jud g me nt:

Sin c e ou r i nq uiry

inv olv e s p ur e ly a qu e sti on of la w, no pr e su mpt ion of

c or re c tne ss at t aches to the lower c ourt’s judg ment, and our ta sk is confined to re viewing the
re c or d to de te rm ine wh e the r the re qu ir e me nts of Te nn

. R. Civ

. P. 56 ha ve be e n me t. Se e Hu nte r v . B ro wn , 9 55 S.W. 2d49 , 5 0- 51 (T e nn. 1 99 7) ; Cowden v. Sovran Bank/Central S ou th , 81 6 S .W. 2d74 1, 74 4 ( Te nn . 1 99 1) . T e nn e sse e Rul e of Civ il Pr oc e du re 56 .0 4 pro vid e s tha t summa ry jud g me nt i s a

pp ro pr ia te wh e re : ( 1) the re is
no g e nu ine i ssu e wi th r e g ardto the ma te ri a l f a c ts r e le va nt t o th e c la im o r d e fe ns e c on ta ine d in the motion ; se e By rd v . H all , 847 S.W .2d 208, 210 (Tenn. 1993) ; and (2) the moving party

is entitled to a judgme nt as a matter of law on the und i s puted fac ts. See A nderson v. Standard Register Co. , 857 S.W .2d 555, 559 (Tenn. 1993)

. Staples , 15 S.W .3d at 88.

Law a nd A nal ys is

I. Br e ac h of C ont r ac t C lai m
Pla int if fs a lle g e that th e tria l c ou rt e rr e d in g ra nti ng De fe nd a nt s umm ary jud g me nt a s to the ir b re ac h o f c o n t ra ct cl ai m

. T h eyal l ege t wo b as es o f e r r o r , e a ch re l at i n g t o t h e s co p e o f c o v er age aff orded by the title insurance policy at issue. We will address e ach a lleg ed basis in turn.

Ge neral Scope of Policy

I n its order g ranting summary judgme nt to Def endant, the trial court found tha t “[i] t appea rs that the purpose of

the title policy

was to addr ess issues rela ting to le g al owner ship not value.” The court then f

oun d , as a m at t er of law, tha t Plainti ffs we re not e ntitled to recove ry under the policy beca use there was no dis p u t e t h at P laintiffs held the prope rty fre e of a ny

competing claims of
owner ship. Pl aintiffs disag ree with this char acte rization of the policy ’s scope . They maintain thatT h e p o licy in c lud e s c o v e ra g e fo r lo sse s a risin g fro m “ a n y d e fec t in o r lien o r in c u m b ra n c e o n the ti tle 1

. . . [a n d ] u n m a rk e ta b ili ty o f t h e ti tle . . . .”

-4- this repre sents an ove rl y t echnic al interpre tation of the policy that violates the rules g overning
c on str uc tio n o f a n in su ra nc e po lic y

. Spe c if ic a lly , Plai nti ff

s emp ha size the ru le that a mbi g uo us te rm s in an insuranc e contr act are to be construed i n favor of the insure d. Sturgill v. Life Ins. Co. of Ga. , 465 S.W .2d 742, 744 (Tenn. Ct. App. 1970). T hey arg ue that ther e is nothing on the fac e of the policy that limit s it s co v er age to issues of leg al owner ship, and that any ambig uous terms in the policy must be construed to fa vor the insur ed

. P l aint iffs conte nd that, under this appr oach, the improper subdivision of their prope rty constitutes a def

ect in the title or , in the alternative, rende rs their title unmarketa

ble. Plaintiffs arg ue, ac cording ly , that their dama g es fa ll within t he policy ’s scope of cover ag e and that they

are entitled to rec overy . We respec tfully disag ree

. 1

Title insurance policies are to be int erpr eted under t he same rules of construction as any other contra ct. Humphrey s v. W . End Terrace, I

nc. , 795 S.W .2d 128, 133 (Tenn. Ct. App. 1990) ( citing Swanson v. Mid-South Titl e Ins. Corp. , 692 S.W .2d 415, 419-20 (Te nn. Ct. App. 1984)). I t is the duty of the c ourt to interpre t the contra ct as written, even those te rms which may seem ha rsh or unjust, in the absenc e of fraud or mistake. Humphrey s , 7 9 5 S

. W

. 2 d at 1 3 3 (c i t i n g E.O. Bailey & Co. v. Union Planters Title Guar. Co. , 232 S.W .2d 309, 314 (Tenn. Ct. App. 1949)) . As noted by Plaintiffs, ambig uous terms i n an insuranc e contr act will be c onstrued most favor ably to the insured. Stu rg ill , 4 65 S.W. 2da t 74 4. I n the ins ta nt c a se , the on ly po ssi ble a mbi g uit y inv olv e s te c hn ic a l te rm s such as “ defe ct in title” and “unma rketa bilityof title,” which involve le g al conc epts t h at m ay be unfamiliar to ave rag e consumers such as Plaintiffs. Howeve r, l ang uag e in a contr act is not rende red ambig uous simplybeca

use it ha ppens to be technica l or complex to t he lay man. Humphrey s , 795 S

. W

. 2 d at 1 3 3 (c i t i n g Bartlett v. Philip-C a r ey Mfg. Co. , 392 S.W .2d 325, 328 (Tenn. 1965) ). Consequently , we do not find the title policy contains any

ambig uous terms. We will, therefor e, enfor ce the contra ct as it is written, without any pref ere nce f or an inter

preta tion that favors the insured. This r equire s us to de termine whether the improper subdivision of the property in question falls within one of the c overa g e provisions relied upon by Plaintiffs. These provisions, as stated
ear lier, extend cover age t o t hose losses ar ising fr om a def ect in the title or unmar

ketability of the title.

The lowe r court found that the improper subdivision does not constit ute a de fec t in tit le or
an unmar ketable title, bec ause those conce pts conce rn i ssues of l eg al ownership, while an imprope r subdivision pertains to the value of property

. We a g ree

. I t doe s not a ppear that a Te nnessee court has y et addr es s ed t h is precise issue, but our conc lusion is s upported by the weig ht of other jurisdictions and treatises that ha ve cove red this issue. “Title re fer s to the leg al owne rs hip of a property interest so that one ha ving title to a pr operty interest can withstand the assertion of others claiming a rig ht to that tit le. But title to property does not cha

rac terize the prope rty

itself as valua

ble,
merc hantable, or eve n usable.” Haw River Land & Timber Co., Inc. v. Lawyers Title Ins. Corp. , 152 F .3 d 2 75 , 2 78 (4 th C ir . 1 99 8) (c ita tio ns omi tte d) ; see also D. Barlow Burke , L aw of Title I nsuranc e § 3.2.3 (2d ed. 1993) (“A n insured can have perf ect leg al title, worth nothing .”). In the instant case ,-5-

there is no dispute that Pl aintiffs own their pr operty fre e of a ny

competing claims of owner ship and fre e of liens or encumbr ance s. We find, theref ore, a s a matter of

law, that the imprope r subdivision does not constitute a def

ect in title.

L ikewi se, the imp ro pe r s ub div isi on of Pla int if fs ’ p ro pe rt y

do e s n ot r e nd e r the tit le unmarke table. I nstead, it constitutes a def ect in the phy sical condition of the pr op er t y t hat makes the prope rty

economica l l y d ifficult to sell. Severa l courts have addre ssed the distinction betwee n e c on omi c la c k of mark e ta bil ity a nd un mark e ta

bil ity of tit le , inc lud ing the Ge or g ia Cou rt of Ap pe a ls. I n Chicago Tit le Ins. Co. v. Inv estguard, Ltd. , 449 S.E.2d 681 (Ga

. Ct. App. 1994), the diff ere nce betwee n the two doctrine s was succ inctly stated:
[T] hose court s wh i ch have a ddresse d the issue of whe ther de fec ts in the phy sical condition of the prope rty are cover ed by title insurance ha ve g ener ally held that such defe cts do no t co n s titute unmarketability of title. See Chicago Title Ins. Co. v. Kumar , 50 6 N. E. 2d15 4 ( 19 87 ); Titl e & Tru st Co. of F lor ida v . B ar ro ws , 381 So. 2d 10 88 (Fla . Ct . A pp . 1 97 9) ; Hock ing v. Title Ins. & Trust C o. , 2 34 P.2 d 6 25 (C a l. 19 51 ); Sperling v. Title Guar. & Trust C o. , 236 N.Y.S. 553 (N.Y. 1929) , aff ’d, 170 N. E

. 1 6 3 ( 1 9 3 0 )

. W e a g r e e w i t h t h e ab o v e

- c i t e d d e c i s i o n s t h a t a d i f f e r e n c e e xists be tw e e n e c o n o mi c la c k

o f ma rk e ta b il it y , w h ic h r e late s to p h y s ic a l c o n d itions
a ff e c tin g the us e of

the pr op e rt y , a ndtit le mark e ta bil ity , w hic h r e la te s to de fe c ts aff ect i n g l ega lly

rec og nized rights and inc idents of owner ship. See Kumar , 506 N.E.2d at 157. “One c an hold per fec t titl e to land that is valuele ss; one can ha ve marke table title to land while the land itself is unmarketable .” Hock ing , 234 P.2d at 629.

Ch ic a g o Ti tl e I

n s
. Co. , 4 4 9 S.E.2d at 683. We ag ree with the fore g oing a naly sis differe ntiating economic unma

rketa bilityfrom title unmarke tability , and we find that Plaintiffs’ title has not been
re nd e re d u nma

rk e ta ble by re a so n o f the imp ro pe r sub div isi on of the pr op e rt y a t is su e . A lth ou g h it is unfortunate tha t Plainti ffs a re unlikely

to rea liz e t h e full use and value of their prope rty , they simplyhave not a lleg ed fa cts which indica te any defic iency

in their title, as they

enjoy undisputed leg al owner ship of the prope rty . Acc ording ly , we f ind that Plainti ffs’ title policy wi th Defe ndant does not insure a g ainst losses occa sioned by the i mproper subdivision of prope rty . We note that, as
a conse quence of this finding, the applicability of ex clusion 1(a) (iii) is rende red moot. As such, we decline to a ddress that issue.

II. Ne gli ge nc e Cl aim

I n their final issue on a

ppeal, Plaintiffs ar g ue that the lower court err ed in gr anting Def endant summary judgme nt as to their neg lige nce c laim. Under Te nnessee law, a pla intiff must prove ea ch of the fi ve e le me nts tha

t c omp ri se a

ne g lig e nc e c la im:
(1) a duty of car e owed by the defe ndant to the plaintiff; (2) conduct of the def endant that f e ll b e low the app lic able sta nd ardof c are , a mou nti ng to a

br e a c h o f the d uty-6-

ow e d to the pla int if

f; (3 ) a n inj ury or los s su sta ine d by the pla int if f; (4 ) c a us a tio n in fac t; and (5) pr ox imate, or leg al, cause. Burroughs v. Mage e , 118 S.W .3d 323, 327-28 (Tenn. 2003). Acc ording to Plainti ffs, Te nn. Code An n. § 5 6- 39 -1 29 (2 00 3) c re a te s th e app lic able du ty of c are , r e qu ir ing a

tit le ins urer to c on du c t a
rea sonable e x amination of the title to a prope rty and to discl o s e an y d efe cts that may be found. Plaintiffs c laim tha t D efe ndant brea ched this duty by failing to disclose the improper subdivision and that this breac h constitutes neg lige nce. We disag ree

.
Te nn . Co de An n. § 5 6- 39 -1 29 pr ov ide s that “ [n]o po lic y or c on tr a c t of tit le ins ur a nc e sh a ll be iss ue d u nti l a ndun le ss the ti tle in su ra nc e c omp a ny ha s c a us e d to be c on du c te d a re a so na ble
sear ch and e x amination of the title.” Assuming , arguendo , that this lang uag e place s a duty of ca re upon a title insurer in the c onduct of a title ex amination, P l ai n t i ff s have not a lleg ed any fac ts that
wo uldc on sti tut e a

br e a c h. As we ha ve a lr e a dy no te d, tit le is a c on c e pt re fe rring to le g a l ow ne rs hip rathe r than va lue, merc hantability , or use. Se e Ha w Ri v e r La nd & Tim be r Co ., In c . v . La wy e rs T itl e Ins. Corp. , 1 52 F .3 d 2 75 , 27 8 (4 th Cir

. 19 98 ). I t na tur a lly fo llo ws that the du ty of a tit le ins ur e r, in conducting a title sear ch, would only extend to the di scovery and dis closure of those defe cts in the chain of title that aff

ect owner ship. Her e, it is undisputed that Plaintiffs hold their property fre e of any competing claims of owner ship and, further , that no defe cts exis t in the chain of title that affe ct
ow ne rs hip

. Th e fa c t that the pr op e rt y is n ot a s v a lua

ble a s Pla int if

fs ’ i nit ia lly

be lie ve d, du e to c e rt a in
use re strictions, doe s not a ffe ct the quality of their owne rship. As a re sult, P laintiffs ca nnot show that Def endant br eac hed its duty

of ca re, a nd their neg lige nce c laim must fail.

Conclusion

For the fore g oing r easons, we aff irm the judgme nt of the lower court. Costs of this appeal
are taxed to the Pl aintiffs, F orre st and Marg are t Whaley , and their surety , for whic h execution may i s s u e i f n e c e s s ar y.

AL AN E. HI GHERS, J UDGE