STATE OF MINNESOTA

IN COURT OF APPEALS

A14-1714

Twin Cities Metro-Certified Development Company,

Respondent,

vs.

Stewart Title Guaranty Company,

Appellant,

Stewart Title of Minnesota, Inc.,

Defendant.

Filed August 10, 2015

Reversed and remanded

Hooten, Judge

Hennepin County District Court

File No. 27-CV-14-561

Mark E. Duea, Christopher L. Olson, Geck, Duea & Olson, PLLC, White Bear Lake, 

Minnesota (for respondent)

Brian M. Sund, Eric G. Nasstrom, Ryan R. Dreyer, Morrison Sund PLLC, Minnetonka, 

Minnesota (for appellant)

Considered and decided by Hooten, Presiding Judge; Halbrooks, Judge; and 

Reilly, Judge. 

S Y L L A B U S

In order to sustain actual loss under a lender’s policy of title insurance, an insured

junior mortgagee must establish that, given the existence of a senior mortgage, equity 

remained in the property that secured its loan.
2

O P I N I O N

HOOTEN, Judge

On appeal from summary judgment, appellant insurer argues that respondent

insured sustained no loss under a lender’s title insurance policy and that the district court 

erred in its interpretation of what constitutes a covered loss under the policy. Because the 

district court misconstrued the definition of actual loss under the policy, we reverse and 

remand.

FACTS

In October 2007, Red Wing Lodging obtained a $3.8 million loan from lender 

Prime Security Bank to develop a hotel in Red Wing as part of a loan program run by the 

United States Small Business Administration. In return, Red Wing Lodging granted a 

mortgage on its real property in Red Wing (the Property) to Prime Security Bank.

In October 2008, respondent Twin Cities Metro-Certified Development Company 

(TCM), acting as the loan servicer for the Small Business Administration, loaned Red 

Wing Lodging $1.5 million in exchange for a mortgage on the Property. This junior

mortgage reduced the debt held by Prime Security Bank to $2,376,000. In connection 

with its mortgage, TCM purchased a title insurance policy from appellant Stewart Title 

Guaranty Company (Stewart),1insuring TCM against “[a]ny defect in or lien or 

encumbrance” upon its title to the Property. The policy specifically excluded from 

 

1 While there are two Stewart Title companies named as parties in this action, the district 

court dismissed Stewart Title of Minnesota from this suit, and that ruling was not 

appealed by TCM. Therefore, “Stewart” will refer to the sole remaining defendant in this 

action, Stewart Title Guaranty Company.
3

coverage any “loss or damage” to TCM which arose from Prime Security Bank’s prior 

mortgage.

In June 2009, a construction contractor filed a district court action seeking to 

foreclose on its previously filed mechanic’s lien on the Property. Three other contractors

joined the suit, asserting similar mechanics’ liens on the Property. Prime Security Bank 

defended against this action, but TCM was not a party. In August 2010, a district court 

determined that all of the lien claims were valid and part of a single project that dated 

back to March 23, 2007, prior to both the Prime Security Bank and TCM mortgages. 

This district court entered judgments in the total amount of $252,927.07 in favor of the 

lien claimants. Prime Security Bank then foreclosed on its mortgage and bought the 

Property at a June 2011 sheriff’s sale for $2,462,048.54. 

On July 15, 2011, TCM obtained an appraisal that valued the Property at $3.5 

million. On December 8, 2011, TCM redeemed2the Property from Prime Security Bank 

for $2,391,551.51 and contemporaneously sold the Property for $3,505,175.62 to a third 

party. The closing statement for the sale stated that the Property’s land and 

improvements had a value of $2.35 million, with the remaining value of the sale derived 

from personal property, goodwill, franchise rights, and signage. At the time, more than 

$1.4 million in principal debt remained on TCM’s mortgage on the Property. As part of 

the transaction, TCM was required to satisfy the outstanding mechanics’ lien judgments

 

2

TCM redeemed the Property under Minn. Stat. § 580.24(a) (2014), which gives junior

mortgagees and lienholders a limited period within which to redeem a mortgaged 

property after the sheriff’s sale occurs and the mortgagor’s redemption period has 

expired.
4

in the amount of $265,362.71. In total, TCM claimed that it lost $576,510.01 in 

connection with its redemption and sale of the Property.3 In April 2012, counsel for 

TCM submitted an indemnification claim to Stewart for reimbursement of $265,362.71, 

plus interest and attorney fees, under the title insurance policy. Stewart denied coverage.

On January 13, 2014, TCM sued Stewart, claiming that Stewart breached the title 

insurance policy by failing to indemnify TCM for the mechanics’ lien judgments that 

TCM had to satisfy before selling the Property. The parties brought cross-motions for 

summary judgment, and the district court granted partial summary judgment in favor of 

TCM. The district court concluded that TCM had suffered a covered loss under the title 

insurance policy as a result of the liability resulting from the mechanics’ liens. Stewart

later stipulated to the dismissal of its remaining defenses regarding the circumstances of 

TCM’s claim notice to Stewart, and the district court entered judgment in the amount of 

$360,833.22 in favor of TCM, which included the amount of mechanics’ liens plus 

prejudgment interest and attorney fees. This appeal followed.

ISSUES

I. Did the district court err by concluding that TCM suffered a covered loss 

under the title insurance policy and by granting partial summary judgment in its favor?

 

3 Based upon the district court’s findings, TCM suffered this net loss according to the 

following calculation:

 $3,505,175.62 sale price of the Property

-$2,391,551.51 amount TCM paid to redeem the Property

-$ 265,362.71 satisfaction of mechanics’ lien judgments

-$1,424,771.41 outstanding debt on TCM’s mortgage of the Property

 ($576,510.01) net loss claimed by TCM
5

II. Are there any remaining genuine issues of material fact?

ANALYSIS

On appeal, Stewart challenges the district court’s grant of partial summary 

judgment in favor of TCM. “We review a district court’s grant of summary judgment de 

novo to determine whether any genuine issue of material fact exists and whether the 

district court erred in applying the law.” Larson v. Nw. Mut. Life Ins. Co., 855 N.W.2d 

293, 299 (Minn. 2014). In conducting our review, we view the evidence in the light most 

favorable to the nonmoving party. Remodeling Dimensions, Inc. v. Integrity Mut. Ins. 

Co., 819 N.W.2d 602, 610 (Minn. 2012). “If issues of fact exist, the fact that the parties 

have brought cross motions for summary judgment will not obviate the need for trial of 

the factual questions.” St. Paul Fire & Marine Ins. Co. v. Nat’l Comput. Sys., Inc., 490 

N.W.2d 626, 630 (Minn. App. 1992), review denied (Minn. Nov. 17, 1992).

I.

Stewart’s primary argument on appeal is that the district court erred in determining 

that TCM suffered an insured loss under the terms of the title insurance policy. We 

interpret insurance contracts de novo, including the issue of whether provisions in a 

policy are ambiguous. Latterell v. Progressive N. Ins. Co., 801 N.W.2d 917, 920 (Minn. 

2011). An insurance policy provision is ambiguous only when it is “reasonably subject 

to more than one interpretation,” and we interpret unambiguous policy language “in 

accordance with its plain and ordinary meaning.” Id. (quotations omitted). Any 

ambiguities in the policy are construed in favor of the insured. Evelyn I. Rechtzigel Trust 

ex rel. Rechtzigel v. Fid. Nat’l Title Ins. Co., 748 N.W.2d 312, 316 (Minn. App. 2008), 
6

review denied (Minn. July 15, 2008). In a suit asserting the breach of a policy, “the 

insured bears the initial burden of demonstrating coverage, [but] the insurer carries the 

burden of establishing the applicability of exclusions.” Travelers Indem. Co. v. 

Bloomington Steel & Supply Co., 718 N.W.2d 888, 894 (Minn. 2006). “Insurance 

contract exclusions are construed narrowly and strictly against the insurer.” Id.

The district court concluded, and the parties appear to agree, that the first-inpriority mechanics’ liens that encumbered the Property were a risk covered by the policy. 

The lender’s title insurance policy here insured TCM “against loss or damage . . . 

sustained or incurred by the insured by reason of . . . [t]he lack of priority of the lien of 

the Insured Mortgage upon the Title over any other lien or encumbrance.” Because the 

mechanics’ liens had priority over, and thus encumbered, the title of the Property, the 

liens were a risk insured against by the policy.

However, title insurance “does not guarantee that the covered condition does not 

exist,” but rather serves to “indemnify the insured if the insured suffers any damages as a 

result of the condition.” Mattson Ridge, LLC v. Clear Rock Title, LLP, 824 N.W.2d 622, 

631 (Minn. 2012) (emphasis added); see also Gibraltar Sav. v. Commonwealth Land Title 

Ins. Co., 905 F.2d 1203, 1205 (8th Cir. 1990) (“A title policy is a contract of indemnity, 

not of guaranty, and provides reimbursement for actual loss only.” (quotation omitted)). 

By issuing a title insurance policy, the insurer agrees “to indemnify the insured up to a 

specified amount against loss caused by encumbrances upon or defects in the title to real 

property in which the insured has an interest.” 1 Joyce Palomar, Title Ins. Law § 1:8, at 

22 (2014–15 ed.). Here, the policy states that it “is a contract of indemnity against actual 
7

monetary loss or damage sustained or incurred by [TCM] who has suffered loss or 

damage by reason of matters insured against by this policy.” (Emphasis added.) 

Accordingly, TCM will succeed on its coverage claim only if it suffered an actual loss 

caused by a covered risk—the mechanics’ liens. The policy further limits this actual loss 

to “the least of” (1) the amount of insurance, (2) the amount of debt secured by the 

mortgage, or (3) “the difference in value of the Title as insured and the value of the Title 

subject to the risk insured against by this policy.” This third clause controls the amount 

of actual loss in this case, as neither party contends that the financial impact of the 

mechanics’ liens on the value of the Property is greater than the amount of insurance or 

mortgage debt.

Accordingly, it is crucial in this case to explain the difference in actual loss under

a title insurance policy purchased by the mortgagee of a property, like TCM, as opposed 

to a title insurance policy purchased by the owner of a property. Under an owner’s policy 

of title insurance, the actual loss of the insured is simply “the difference in value of the 

[p]roperty as insured and its value without the defect in the title.” Mattson Ridge, 824 

N.W.2d at 633 (emphasis added). This is because “[t]he fee interest of an owner is 

immediately diminished by [the] presence of [a] lien since resale value will always reflect 

the cost of removing the lien.” Blackhawk Prod. Credit Ass’n v. Chi. Title Ins. Co., 423 

N.W.2d 521, 525 (Wis. 1988). 

Citing Mattson Ridge, TCM urges that we affirm the district court’s calculation 

that TCM suffered a loss of $265,361.71, which was the amount that the Property was 

devalued by the mechanics’ liens. If TCM had been the Property’s owner and had 
8

purchased an owner’s title insurance policy from Stewart, this actual loss calculation 

would be correct; TCM would have suffered an actual loss under such a policy as soon as 

the mechanics’ liens attached to the Property.

But, as straightforward as that analysis would be, it is incorrect in this case. The 

formula provided in Mattson Ridge does not apply here because TCM is a mortgagee

insured by a lender’s title insurance policy. A mortgagee suffers actual loss under a 

lender’s title insurance policy only to “the extent to which the insured debt is not repaid 

because the value of security property is diminished or impaired by outstanding lien 

encumbrances or title defects covered by the title insurance.” Cale v. Transamerica Title 

Ins., 275 Cal. Rptr. 107, 109 (Cal. Ct. App. 1990); see also 11 Lee R. Russ & Thomas F. 

Segalla, Couch on Insurance § 159:6 (3d ed. 2005) (“[T]he insured under such a policy 

incurs loss only if the security for the loan proves inadequate to pay off the underlying 

insured debt due to the presence of undisclosed defects.”). To recover for actual loss, 

TCM needed to show not only that the Property was devalued due to the mechanics’ 

liens, but also that such a loss of value actually reduced the equity that TCM was able to 

recover from the Property in satisfaction of its mortgage.

Ascertaining whether an actual loss occurred in this case is further complicated by 

the fact that TCM was not the only mortgagee that became subject to the mechanics’ 

liens. TCM’s mortgage was junior to Prime Security Bank’s mortgage interest of $2.39 

million, and the policy specifically excludes from coverage any losses or damages 

“which arise by reason of” Prime Security Bank’s prior mortgage or from “[d]efects, 

liens, encumbrances, adverse claims or other matters . . . resulting in no loss or damage to 
9

the Insured Claimant.” The question we must resolve is whether the superior interest of 

the Prime Security Bank mortgage, independent of the mechanics’ liens, could preclude 

TCM from suffering any “actual monetary loss or damage” due to the encumbrance of 

the mechanics’ liens.

TCM urges us to follow the reasoning of the district court, which concluded that 

whether the Prime Security Bank mortgage subsumed the equitable value of the Property 

is irrelevant under the policy, as “TCM experience[d] a loss . . . because of the insured 

mechanics’ liens[,] not because of the uninsured [Prime Security Bank] mortgage.” 

Stewart, on the other hand, argues that the calculation of actual loss begins and ends with 

the Prime Security Bank mortgage that “consumed all of the . . . Property’s equity,”

leaving no equity in the Property for TCM to lose as a result of the mechanics’ liens. 

This appears to be an issue of first impression in Minnesota. Accordingly we “may also 

look for guidance from foreign jurisdictions that have addressed the issue.” Swanson v. 

Swanson, 856 N.W.2d 705, 708 (Minn. App. 2014).

The weight of relevant authorities supports Stewart’s argument that TCM can only 

recover under the policy if, when calculating the value of the mortgage without

accounting for the mechanics’ liens, the value of the property exceeded the uninsuredagainst senior mortgage of Prime Security Bank so that the TCM mortgage remained

secured by some amount of equity. As explained by the Wisconsin Supreme Court:

If the interest held by [the insured] was valueless without the 

superior lien, it cannot claim any lost value because the lien 

existed. Conversely, if the security interest held by [the 

insured] had established value, the greatest amount it can 

recover as a mortgagee for the title defect under its policy of 
10

title insurance is the value of the interest held in the land up to 

the stated policy limits of the insurance.

Blackhawk Prod. Credit Ass’n, 423 N.W.2d at 526. The Wisconsin Supreme Court 

applied this formula because a junior mortgagee, like TCM, “has as security for its 

mortgage only the mortgagor’s equity, the value of the mortgage[d] property in excess of 

the amount of the first mortgage.” Id.; see also Karl v. Commonwealth Land Title Ins. 

Co., 24 Cal. Rptr. 2d 912, 920 (Cal. Ct. App. 1993) (“Thus, [Lender] cannot make 

[insurer] pay for his bad investment judgment in securing his loan with a hovel whose 

value would not satisfy even the first lien.” (quotation omitted)), review denied (Cal. 

Mar. 17, 1994); V. Woerner, Annotation, Measure, Extent, or Amount of Recovery on 

Policy of Title Insurance, 60 A.L.R.2d 972, 996–98 (1958) (providing this rule and 

collecting cases).

We hold that, in order for a junior mortgagee to sustain an actual loss under a 

policy of lender’s title insurance, the junior mortgagee must retain equity in the 

mortgaged property notwithstanding any defects in title covered by the policy. If the 

junior mortgagee has already lost all equity in its property due to the presence of a senior 

mortgagee or lienholder whose interest is excluded under the title insurance policy, the 

junior mortgagee does not then suffer an actual loss when a covered title defect further 

reduces the property’s value. In sum, because the title insurance policy insures the 

repayment of the insured’s debt, the insured cannot suffer a loss if repayment of that debt 

is already impossible due to a superior, excluded mortgage or lien that subsumes any 
11

equity that would otherwise be utilized to satisfy, in part or in whole, the insured’s 

mortgage.

Applying this interpretation of the policy and viewing the facts in the light most 

favorable to Stewart, the value of the Property was $2.35 million, as represented in the 

December 2011 sale documents. Prime Security Bank’s mortgage interest was $2.39 

million, as this was the amount TCM paid to redeem the Property. Under this set of facts,

no equity remained in the Property to secure TCM’s mortgage after Prime Security Bank 

foreclosed its mortgage. Because the Property no longer held any remaining value with 

which to satisfy that mortgage, it made no difference for the purpose of calculating actual 

loss whether the Property was further encumbered by $265,362.71 in superior mechanics’ 

liens; TCM had no remaining equity to “lose” as the result of those liens and therefore 

did not sustain an actual loss covered by the policy.

We conclude that the district court erred in its interpretation of the policy and, to 

the extent that the district court’s grant of partial summary judgment in favor of TCM 

was predicated upon this erroneous interpretation, we reverse the judgment.

II.

Stewart further contends that we should direct the district court to grant summary 

judgment in its favor. Stewart argued to the district court that the Property was valued at 

$2.35 million, relying on the December 2011 sales documents which allocated that 

amount as the price of the land and buildings on the Property. TCM argued that the 

Property should be valued at $3.5 million, and it asserts on appeal that it provided the 

district court with evidence sufficient to establish a genuine issue of material fact 
12

regarding the Property’s value, which included a July 15, 2011 appraisal that indicated 

that the Property was worth $3.5 million and an affidavit from a TCM loan servicing 

officer noting that TCM had obtained this appraisal. Stewart claims that these documents 

are insufficient to raise a genuine issue of material fact because they constitute 

inadmissible hearsay and lack foundational reliability and proper authentication.

“Evidence offered to support or defeat a motion for summary judgment must be 

such evidence as would be admissible at trial.” Hopkins by LaFontaine v. Empire Fire & 

Marine Ins. Co., 474 N.W.2d 209, 212 (Minn. App. 1991). Ordinarily, we would review 

the district court’s evidentiary ruling on admissibility for an abuse of discretion. Doe v. 

Archdiocese of St. Paul, 817 N.W.2d 150, 164 (Minn. 2012). However, we are without 

the benefit of a district court ruling on the admissibility of these documents or its ruling 

on whether this evidence was sufficient to raise a genuine issue of material fact, as 

resolution of these issues was unnecessary to the district court’s summary judgment 

analysis. While the district court used Stewart’s proposed value for the Property in its 

analysis, the district court noted that it accepted Stewart’s valuation “[b]ecause it d[id] 

not change the outcome of this case” under the district court’s calculation of actual loss 

under the policy.

But, because we now hold that actual loss under a lender’s title insurance policy 

requires there to be equity in the property securing the subject mortgage, the resolution of 

this case now hinges on the determination of whether there was remaining equity in the 

Property after the satisfaction of Prime Security Bank’s mortgage interest. If TCM is 

able to establish that the Property’s value was greater than Prime Security Bank’s 
13

mortgage interest, independent of the mechanics’ liens on the Property, it will have 

suffered actual loss under the policy to the extent that the mechanics’ liens reduced that 

equity amount and accordingly reduced the satisfaction of TCM’s mortgage debt. See 

Blackhawk Prod. Credit Ass’n, 423 N.W.2d at 526.

“[A] reviewing court generally may consider only those issues that the record 

shows were presented to and considered by the [district] court.” Funchess v. Cecil 

Newman Corp., 632 N.W.2d 666, 673 (Minn. 2001) (emphasis added). Because 

Stewart’s evidentiary challenges were not addressed by the district court, we remand for 

further proceedings, which may include the district court’s ruling on these disputed 

evidentiary issues and a determination of whether there are any genuine issues of material 

fact requiring resolution by trial. 4

D E C I S I O N

The district court erred in its interpretation of the lender’s title insurance policy 

and its conclusion that TCM was entitled to recovery under the policy as a matter of law. 

Accordingly, we reverse the district court’s grant of partial summary judgment in favor of 

TCM and remand the case for further proceedings consistent with this decision.

Reversed and remanded.

 

4 We give no opinion on how the Property should be valued, given that the parties did not 

argue or brief that issue before this court.