# FILED
June 12, 1998 Cecil Crowson, Jr. Appellate C ourt Clerk IN THE COURT OF APPEALS OF TENNESSEE

AT JACKSON

______________________________________________ COMMERCIAL CREDIT PLAN, INC., Plaintiff-Appellee, Vs. Shelby Chancery No. 106149 C.A. No. 02A01-9708-CH-00204 ESTATE OF ARTHUR SMITH, JR., EARLINE BRAWLEY, Defendants, T.R.W. TITLE INSURANCE CORPORATION OF NEW YORK, a corporation, Defendant-App

ellant.

__________________________________ _________________________________________ _ FROM THE SHELBY COUN TY CHANCERY COURT THE HONORABLE NEAL SMALL, CHANCELLOR

W. Ray Jamieson of

Memphis For Appellee, Commercial Credit Plan, Inc. Randy S. Gardner, Apperson, Crump, Duzane & Maxwel

l of memphis For Appellant, T.R.W. Title Insurance Corporation

REVERSED AND REMANDED

Opinion filed:

W. FRANK CRAWFORD,

PRESIDING JUDGE, W.S.
CONCUR: DAVID R. FARMER,

JUDGE HOLLY KIRBY LILLARD, JU DGE
This appeal involves a suit to recover under a po licy of title insurance. Defendant/Appellant

TRW Title Insuranc e Corpo ration of New York (TRW) appeals the judgmentof the trial court awarding plaintif

f Commercial Cred

it Plan, Inc. (CCP) $23,500.00.2 A written stipulatio

n of facts filed in

this cause states: 1. On December

7, 1993, Commercial Credit Plan, Inc. made a loan to Arthur Smith, Jr. in the principle amount of Twenty-Five Thousand Seven Hundred Sixty-Nine and 11/100 Dollars ($25,769.11). The number of payments was 12 0 paymen ts at $427.69 per month commencing on January 11, 1997. The loan was evidenced by a Promissory Note dated December 7, 1993 signed by Arthur Smith, Jr. and attached hereto as Exhibit “A”. 2
. To secure the loan, Commercial Credit Plan, Inc . took a mortgage a gai nst the real prope rty known as 3415 Ou tlet, Memphis, Shelby County, Tennessee. 3. A Deed of Trust pe rfecting Commerc

ial C redit Plan’s mort gage against the above described property was signed b y Arthur Smith, Jr. and filed with the Shel by County Register’s Office a t Inst

rument No. EA 5904 and EC 8580. The Deed of Trust is attached hereto as Exhibit “B”. 4. On December 4, 1993, T.R.W. Title Insurance Corporation of New York issued a Mortgage Title Insurance Policy on the above referenced

property. A copy of t

he polic y is attached hereto as Exhibit “C”. 5. Ar thur Smith, Jr. defaulte d on the Note and De

ed of Trust described above and sometime thereafter Commercial C redit Plan, Inc. commenced foreclosure proceedings on the a b ove described property. The foreclosure was scheduled for Monday, February 20, 1995 at 12 o’clock noon. 6. Sometime

between December, 1993 and August, 1996, Arthur Smith died. 7. Prior to the foreclosure sale described above, documentation was produced to Commer cial Credit

Plan, Inc. indicating that

the estate of Arthur Smith, Jr. does not have clear title to thesubject property, butonly a partial interest. The property secured by the Deed of Trust is owned jo

intly by the Estate of Arthur Smith, Jr. and Earline Brawley, each owni ng an undivided one-half (1⁄2) interest in the subject property as devised by the Last Will or Arthur Smith (Sr.) dated July 29, 1972. A copy of the Will is attached hereto as Exhibit “D”. 8. The appraised va

lue of the su

bj ect property as a

whole is Twenty-Threethousand Five Hundred and N o/10 0 dollars ($23,500.00). A copy of the appraisal is attached hereto as Exhibit “E”. 9. The lien of Commercial Credi t P lan, Inc. against the subject property as described above, is valid and enfor ceab le as to an undivided one-half interest in the subject property. The following testimony was introduced at trial: After receiving proof of Ms. Brawley’s interest, CCP canceledth e foreclosure sale which had been scheduled for February 20, 1995. Approximately

five months later,

in July of 1995, Robert Castile

of CCP contacted Da

ve Davis1 The suit also sought recovery against the estate of Arthur Smith, Jr., for the

balance due on the indebtedness. Although somewhat ambiguous, we construe the trial court’s judgment to resolve the question of the estate’s liability in favor of the estate. 3 of Strategic M ortg age Services, I nc., the policy issu

ing agent for TRW,

to discuss a possible claim under the policy of title insurance. Castile testified that during a subsequent conference callbetween Davis, Castile, and W. Ray Jamieson, CCP’s attorney, Davis denied the claim on behalf of TRW. TRW’s off

icer, Mark Pfeif

fer, testified, h

owever, that S tr ategic Mortgage Services and Mr. Davis are not agents for claims on the policies issued by TRW. After the conversation

with Mr. Davis, CCP fi

led suit in Shelby County Chancery Court against TRW to recover under the policy of title insurance. 1 TRW asserts that it did not become
awareof CCP’s claim until it was served with a copy of the lawsuit. TRW contends that it was prejudiced

by CCP’s failure to timely notify it of a potential claim under the policy and that the suit should be dismissed because CCP failed to comply with the policy provisions regarding notice and proof of loss. The trial court found that CCP provide d notice of the claim to Strategic Mortgage Services and that TRW had imputednotice of the claim through its agent. The court also found that CCP had not failed to fulfill a condition precedent under the terms of t he title insurance policy. Fu rth ermore, the court found that CCP had a valid and enforceable lien against an undivided one-half

interest in the property. The court also found that this interest had value, but that the amount was not established at trial. The trial court granted judgment to CCP in the amount of $23,500.00, the stipulated value of the property. TRW appeals the judgment of the trial court and has raised three issues for review: 1. Whether

the tria l court erred in failing to dismiss plaintiff’s case for failur

e to fulfill a condi

tion precedent. 2. Whether the tria

l court erred in

finding that the plaintiff

CCP met its burden of proving damages in the amount of $23,500.00. 3. Whether the trial court erred in finding that the defendant TRWwas not prejudic

ed du e to plaintiff’s failure to provide notice of the claim and proof of loss as specified in the policy of title insurance. Since this case was tried by the court sitting without a jury, we review the case de novo upon the record with a presum ption of correc tness of the findin gs of fact by the tr

ial court. Unless the evidence preponderates against the findings, we must affi rm, absenterror of law.4

T.R.A.P. 13(d). Issues number one and three relatingto conditions precedent to coverage and prejudice will be addressed together. TRW asserts on appeal that CCP “failed to make proper demand to TRWfor coverage u

nder the subject p

olicy as require

d under its c ondi tions and stipulations.” Specifically, TRW argues that because CCP faile

d to give notice of the

claim and proof of

loss in writing to the address specified in the policy, “TRW was not given the opportunity to either indemnify, defend or refuse to do so.” As a result, TRW was denied “the opportunity to take actions prior to litigation which could have mitigated damages to the parties and/or avoided the cost of litigation.” The relevant pol

icy provisions on no

tice are as follo

ws: 3. NOTICE OF CLAIM TO BE GIVEN BY

INSURED CLAIMANT The insured shall n

otify the Company pr

omptly in writing .
.

. (ii) in case knowl

edge shall come to

an insured hereunder of

any claim of title or interest which is adverse to the title to the estate or interest or the lie

n of the insured mor

tgage, as i

nsured, and which might cause loss

or damage for which the Company may be liable by virtue of this policy . . . If prompt notice shall not be given to the Company, then as to the insured all liability of the Company shall terminate wi th regard to

the matter or matters for which prompt notice is requ ired; provided howeve r, failure to notify the Compan y shal l in no case prejudice the rights of any insured under

this policy unless the Company shall be prejudiced by the failure and then only to the extent of the prejudice.

* * * * 5. PROOF OF LOSS OR DAMAGE In addition to and after the notices required under Section 3 of these Conditions and Stipulations have been prov id ed the Company, a proof of loss or damag e signed a nd sworn by the claimant shall be furnished to the company within 90 days after the insured claimant shall asc ertain the facts

giving rise to the los s or damage. The proof of

loss or damage shall describe the defect in or lien or encumbrance on the title, or other matter insured against by thi s policy which constitutes the basis of loss or damage and shall s tate, to the extent possible, the basis of calculating the amount of the loss or damage. If the Company is prejudiced

by the failure of the insured clai mant to p rovide the required proof of loss or da

mage, the Co

mpany ’s obligations to the insured under t

he pol icy shall terminate, including any liability or obligation to defend, pros ecute , or continue any litigation with regard to

the matter or matters requiring such proof of loss or damage.

* * * *5 16. NOTICES, WHERE SENT All notices required to be given the Company and any statement in writing required to be furnished the Company shall include the numbe r of this policy and shall be addressed to the Company at its Kansas Corporate Headquarters, 8800 Col le ge Blvd., Suite 700, Overland Park, Kansas 68211. TRWasserts that the case should have been dismissed because CCP failed to fulfill the condit ions p recedent of providing adequate notice and proof of loss as required under the conditions and stipulations of the policy. Upon review of the pertinent policy provisions, we conclude that the notice and proof

of loss requirements in

this particular polic

y do not create c

onditions precede

nt to coverage. I

t is true that provisions requiring “prompt” or “immediate” notice to an insure r have be en held to create conditions prece

dent whose failur

e to fulfill will justify the denial of coverage even in the absence of prejudice to the insurer. See Hartford Accident & Indem. Co. v. Creasy, 530 S.W.2d 778 (Tenn. 1975); Allstate Ins. Co. v. Wilson , 856 S.W.2d 706, 709 ( Tenn. App. 1 992). However, the language of Section 3 of the instant policy is

at odds with

such a strict construction because this section provid

es that “failure

to notify the Company shall in no case prejudice the rights of any insured under this policy unless the Company shall be pre judiced by the fail

ure and then only to the extent of the

prejudice.” (e

mphasis added). I

n other words, fa

ilure to provide prompt notice does

not, in and of itself

, negate coverage. The

refore, strictl

y speaking, it is

not
a condition preced

ent. Section 5 requiring proof of loss or damage contains similar language and must be interpreted accordingly. Nevertheless,

if TRW can show that it

has been prejudiced by the delay in notice, it may escape liability, at least t

o the extent of the p

rejudice. TRW

asserts that it did not receive notice of CCP’s claim until it was served with this lawsuit in August of 1995, more than five months after CCP learned of the defect in title. However, the trial court found that TRW had imputed notice of CCP’s claim through it

s agent, Strategic Mortgage Services, and that TRW had “not been prejudiced by its liability to its own attorneys for fees and court costs in this

cause by any failure of [CCP] to follow the terms of the policy.” We note that CCP had know ledge of the title p roblem in Februar

y 1995, but first contacted the agent in July

1995, some five months later. Even if we construe the verbal notice to the agen t as compliance with the policy provisions, we cannot accept a finding that a five6

month delay is “giving notice promptly.” The issue then become

s whether the five

month delay in giving notice, or CCP’s failure to provide written no

tice and proof of

loss in accordanc

e with the terms of the policy, prejudiced the rights of TRW. TRW asserts that it has incurred attorney feesin the instant litigation that it would not have othe

rwise incurred i

f it had receive

d proper notice.

It is undisputed tha

t CCP didnot comply with the policy provisions requiring written notice of the claim and written sworn proof of loss. It appears that such policy provisions are designed, at least in part, to provide the insurer an opportunity to assess its options without incurring l itigation expense

s. In this case, TRWdid not have that opportunity and was prejudiced to the extent of the extra ex pense incurred. We respectfully disagree with the chancellor’s finding on this issue. In its remaining iss

ue, TRW asserts

that CCP did

not prove its damages as required by the policy. The pol

icy provides: 7. Determination and Extent of Liability. This policy is a cont

ract of indemnity a

gainst actual monetary loss or damage sustained or incurred by the insured claimant who has suffered loss or damage by reason of matters insure d 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 Insur

ance stated in

Schedule A, or, if applicable, the amount of insur ance as definedin Se ction 2(c) of these Conditions and stipulations; ( ii) the amount of the unpaid princ ipa l indebtedness secured by the insured mortgage as l imited or provided in Sec tion 8 of these Conditi ons a nd Stipulations or as reduced under Section 9 of these

Conditions and Stipulations, at the time the loss or damage insu red against

by this policy occurs, together with interest thereon; or (i i i) the difference between the value of the insured estate

or interest as insured and the value of the insured estat

e or interest subje

ct to th e defect, lien or encumbrance insured agai n st by this policy. CCP introduced the testimony of Ray Hoover, real estate appraiser, as an expert witness. He testified that the property involved was worthless, that it had no value whatsoever. However,
we note from his

testimony that he was under the impression that there could be noforeclosure of an undivided one-half in terest. Moreover, it is apparent from his testimony that he had no7

understanding that once the property was foreclosed the successful bidder would be a tenant in
common withMrs. Brawley. As such a tenant in common the bidder is entitled to a partition
or sale for partition. T.C.A. § 29-27-101 (1980) and T.C.A. § 29-27-201 (1980) ; Yates v. Yates , 571 S.W.2d 293 (Tenn. 1978). The trial court did not a

ccept Mr. Hoover

’s testimony and fo

und th at the prop erty had
some value but that the value was not established by the proof. We agre

e with the trial co

urt in tha tregard. The proof simply did not prove a measure of damages as required by the po lic y provisions. Accordingly, the judgment of the trial court is reversed, and the case is remanded to the trial court for further proceedings to establish the damages due the plaintiff as provided in the policy. Defendant,

TRW, is entitled to credit against the amount of damages incurred for such
sums it was required to expend by virtue of CCP’s failure to comply with the policy provisions regarding notice and proof of loss. Costs of the appeal are assessed equally to CCP and TRW.

_________________________________ W. FRANK CRAWFORD, PRESIDING JUDGE, W.S.

____________________________________ DAVID R. FARMER,

JUDGE

____________________________________ HOLLY KIRBY LILLARD, JU DGE