Present: All the Justices 

FIDELITY NATIONAL TITLE 

INSURANCE COMPANY 

OF NEW YORK 

 OPINION BY JUSTICE A. CHRISTIAN COMPTON 

v. Record No. 980707 February 26, 1999 

SOUTHERN HERITAGE TITLE 

INSURANCE AGENCY, INC. 

FROM THE CIRCUIT COURT OF THE CITY OF VIRGINIA BEACH 

Philip L. Russo, Judge Designate 

 The dispositive question in this action for breach of 

contract is whether the trial court, during a bench trial, erred 

in sustaining, at the conclusion of the plaintiff's case-inchief, the defendant's motion to strike the plaintiff's evidence 

on the issue of damages. We hold there was no error and will 

affirm. 

 In January 1997, appellant Fidelity National Title 

Insurance Company of New York, the plaintiff below, filed this 

action against appellee Southern Heritage Title Insurance 

Agency, Inc., the defendant below. In the motion for judgment, 

plaintiff alleged that it is a title insurance company 

authorized to transact business within the Commonwealth and that 

defendant is a Virginia corporation, maintaining offices in 

Virginia Beach, which is in the business of conducting real 

estate closings and issuing title insurance policies in 

connection with real property situated within this state. 
 The plaintiff further alleged that it and defendant "are 

parties to a title agency agreement bearing date of July 29, 

1992," (hereinafter, the Agency Agreement) in which plaintiff's 

predecessor, Security Title and Guaranty Company, was a party. 

The plaintiff further alleged that one Shawn West (who was sued 

but is not a party to this appeal) was a licensed title 

insurance agent executing policies on behalf of defendant that 

were underwritten by plaintiff. 

 Plaintiff also alleged that, in April 1993, defendant 

issued plaintiff's policy of title insurance to the Bank of 

Sussex and Surry insuring the first lien position of the Bank's 

deed of trust on certain real property located in Isle of Wight 

County. The plaintiff further alleged that the grantor of the 

deed of trust was not the owner of the property securing the 

Bank's loan at the time of the recording of the Bank's deed of 

trust. The plaintiff also asserted that another lender, Farmers 

Bank of Windsor, had obtained a final declaratory judgment that 

its lien has priority over the Sussex Bank's lien. 

 The plaintiff further alleged that defendant and its agent 

West knew of the lien of Farmers Bank when they issued the title 

policy and "knew, or should have known, that the first lien 

position of [the Sussex Bank] was subject to challenge by the 

beneficiary of the competing deed of trust." In addition, 

plaintiff alleged defendant "failed to except to or pay the lien 

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of the competing deed of trust" when defendant issued 

plaintiff's title policy to the Sussex Bank, and that this 

failure was the proximate cause of the plaintiff's losses. 

 In conclusion, plaintiff asserted that various provisions 

of the Agency Agreement authorize recovery from defendant of 

plaintiff's losses, that is, "nominal damages" incurred by 

plaintiff "as a result of the breach of contract" by defendant, 

and attorney's fees incurred by plaintiff "in defending [the 

Sussex Bank]." The plaintiff asserted that defendant is liable 

to plaintiff for the amount of plaintiff's losses "on the claim 

filed by [the Sussex Bank], since such claim was the natural 

result of [defendant's] failure to except to or pay the lien of 

the competing deed of trust when the [title policy] was issued." 

 In a grounds of defense, defendant generally denied that it 

was guilty of any breach of contract and denied it was indebted 

to plaintiff in any amount. Specifically, defendant asserted 

that plaintiff was not a party to any "agency agreement" dated 

July 29, 1992 "and, therefore, lacks standing to bring this 

action." Also, defendant asserted there is no "contract, 

statute or other authority" that permits plaintiff to recover 

attorney's fees. 

 In the bench trial conducted during two days in November 

1997, the plaintiff presented the alleged Agency Agreement. The 

seven-page, typed document entitled "Agreement," is between 

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"Security Title and Guaranty Company, a New York Corporation" 

labeled "Underwriter"; "Security Agency Services, Inc.," of 

Vienna, Virginia, labeled "Company"; and defendant, labeled 

"Policy Issuer." The document is signed only by West as 

president and secretary of defendant. The spaces for signatures 

on behalf of the other two parties are blank; the evidence 

failed to establish that the document ever had been signed by 

anyone for those parties. 

 The purported Agency Agreement generally provided that 

defendant was appointed, upon recommendation of the Company, "a 

non-exclusive policy issuing agent" authorized to execute and 

issue title policies in the name of the Underwriter covering 

property in the Commonwealth. The document specified certain 

duties of the Underwriter, such as, furnishing defendant "all 

regularly issued policy jackets." It provided in paragraph 

2(D): "Underwriter shall defend at its own expense all actions 

and pay all losses under policies issued pursuant to this 

Agreement, subject to the right of reimbursement in paragraph 5 

hereof." Paragraph 5, to be discussed in more detail later, is 

headed "Division of Loss and Loss Expense." 

 The purported Agency Agreement imposed certain duties upon 

the defendant, the Policy Issuer. Among those duties was the 

obligation of defendant to "issue title insurance policies, 

endorsements, binders and commitments according to recognized 

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underwriting practices and the rules and instructions given by 

Underwriter . . . ." All title policies were to "be based on a 

written report of title resulting from a search and examination 

of those public records, surveys and inspections relevant to the 

insurance afforded by such policies." Each title policy was to 

"correctly reflect the status of title with appropriate 

exceptions as to liens, defects or encumbrances disclosed by the 

search of title." 

 During its case-in-chief, plaintiff offered evidence 

tracing its corporate history to establish that it was the 

successor in interest to the "Underwriter" named in the alleged 

Agency Agreement. The plaintiff also presented testimonial and 

documentary evidence in an attempt to establish that, although 

not executed by all the parties, the Agreement was enforceable 

against defendant because defendant had performed under it. The 

plaintiff sought to show that West issued the title policy to 

Sussex Bank based on an improper examination of the land 

records. The plaintiff claimed defendant should have been 

alerted to the fact that the Sussex Bank deed of trust did not 

enjoy priority over the Farmers Bank deed of trust thus exposing 

plaintiff to a claim by Sussex Bank under the title policy. The 

plaintiff also sought to prove damages for which it claimed the 

Agency Agreement permitted recovery. 

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 In sustaining defendant's motion to strike the evidence, 

the trial court ruled the purported contract was unenforceable 

due to lack of mutuality of obligation because only West had 

signed it. In addition, the court ruled "that the damages have 

not been proven to my satisfaction." Thus, the court dismissed 

the action with prejudice. 

 We awarded plaintiff this appeal from the January 1998 

judgment order. The appeal was limited to consideration of the 

questions whether plaintiff established the existence of a 

contract between the parties, the terms of the contract, and a 

breach thereof; and whether plaintiff established damages 

sustained as a direct and proximate result of the breach of 

contract. 

 We will assume, without deciding, that the plaintiff 

established the existence of a contract between the parties on 

the terms set forth in the Agency Agreement, and that it proved 

a breach thereof. Thus, we shall agree with the plaintiff, for 

purposes of this discussion, that the trial court erred in 

striking the evidence on the issue of liability. This brings us 

to the issue of damages. 

 On appeal, the plaintiff contends it "provided evidence of 

damages of at least $99,720.16 as a direct and proximate result 

of the breach of contract on the part of Southern Heritage." 

The plaintiff argues that its damage claim, consisting of 

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attorney's fees and costs, is based on the Agency Agreement. 

Plaintiff says the trial court apparently was "confused" and 

thought that such claim was based upon the provisions of the 

title policy issued to the Sussex Bank. 

 Specifically, the plaintiff mainly relies upon paragraphs 

2(D) and 5 (A), (B), and (D) of the Agreement. As we have said, 

2(D) provides that plaintiff shall defend all actions and pay 

all losses under policies issued by defendant under the 

Agreement, "subject to the right of reimbursement in paragraph 

5." 

 Paragraph 5, as pertinent, provides: 

"Division of Loss and Loss Expense 

 A. On each loss under a title policy issued 

pursuant to this Agreement not due to Policy Issuer's 

negligence or fraud, Policy Issuer shall be liable to 

Underwriter for the first Two Thousand Five Hundred 

($2,500.00) of such loss. The term loss shall include 

the amount paid to or for the benefit of the insured 

as well as loss adjustment expense including cost of 

defending the claim resulting in the loss. 

 B. On each loss due to the negligence, fraud, or 

intentional act or omission of Policy Issuer or its 

employees, representatives, or agents, Policy Issuer 

shall be liable to Underwriter for the entire amount 

of such loss. Negligence as the term is used herein, 

includes, but is not limited to, the failure of the 

title plant, failure to discover or report any 

instrument of record affecting title, violation of 

escrow instructions[,] failure to follow Underwriter's 

instructions, and the failure to prepare a title 

policy in a manner that properly reflects any 

instrument contained in the search of a title. 

 . . . . 

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 D. Policy Issuer agrees that it is liable to 

Underwriter for all loss suffered by Underwriter by 

reason of the negligence, fraud, error, omission or 

other acts of Policy Issuer." 

 Plaintiff contends that "the Agency Agreement imposed, as a 

contractual obligation, a standard of care and conduct upon 

Southern Heritage to protect the interests of Fidelity 

National." Therefore, the argument continues, the Agreement 

specifically provided for reimbursement of expenses incurred as 

a result of defendant's negligence. Plaintiff contends the 

evidence showed defendant "did not comply with its contractual 

obligations in preparing and issuing the Policy," with the 

result that plaintiff and its insured were exposed to claims. 

 During the trial, the plaintiff presented the following 

evidence to support its damage claim. In November 1993, after 

the title policy was issued in April 1993, the plaintiff 

received a notice of claim on behalf of the Sussex Bank. The 

plaintiff then retained an attorney to "assist in the 

investigation of the claim and the legal research involved." 

 Ultimately, Farmers Bank, claiming a lien superior to 

Sussex Bank's interest, filed a chancery suit in the Circuit 

Court of Isle of Wight County naming Sussex Bank as a defendant. 

Plaintiff selected its previously retained attorney to represent 

the Sussex Bank in the suit. The evidence at the present trial 

showed that plaintiff made the selection, and incurred 

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attorney's fees and expenses, according to duties imposed by the 

title policy. 

 The evidence also showed that plaintiff paid the following 

amounts for which it claims reimbursement: For services 

rendered to plaintiff before the suit was filed against the 

Sussex Bank, attorney's fees and expenses of $15,934.09; for the 

defense of the suit against the bank, fees and expenses of 

$47,742.40; for services rendered in connection with a legal 

malpractice claim filed on behalf of the Sussex Bank against an 

attorney who had represented the bank in connection with its 

acquisition of the security interest in the subject property, 

fees and expenses of $30,771.27. 

 The evidence showed that plaintiff retained additional 

counsel because of questions raised about the underlying title 

insurance. At the time of trial, plaintiff had paid $5,272.40 

to additional counsel. 

 Moreover, counsel says, defendant's breach of contract 

caused it to be subject to liability under the title policy up 

to the policy limits of $396,566.15 for the loss, if any, 

sustained by the Sussex Bank. The evidence showed, however, 

that at the time of trial plaintiff had made no payment under 

the policy to anyone on behalf of the Bank. 

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 Under these circumstances, the plaintiff concludes, the 

trial court erred in granting the motion to strike at the close 

of the plaintiff's case. We do not agree. 

 The plaintiff maintains that under paragraph 5 defendant 

"was subject to liability for 'loss and loss expense', defined 

therein to include 'the amount paid to or for the benefit of the 

insured as well as loss adjustment expense including cost of 

defending the claim resulting in loss.'" This provision, 

plaintiff contends, authorizes recovery of attorney's fees and 

related expenses. A plain reading of paragraph 5 fails to 

support this contention. 

 The language emphasized by plaintiff is found only in 

subparagraph (A) of paragraph 5. That subparagraph deals with 

"each loss . . . not due to Policy Issuer's negligence or 

fraud." This is not such a case. This is an action based upon, 

in plaintiff's words, defendant's negligence in failing to meet 

the standard of care and conduct imposed as a contractual 

obligation in the Agency Agreement. 

 The claim in this action is governed by subparagraphs (B) 

and (D) of the Agreement, that is, loss due to defendant's 

"negligence," as defined in (B), or defendant's acts or 

omissions, mentioned in (B) and (D). But the definition of the 

term "loss" as meaning "loss adjustment expense" is not included 

in and does not apply to those subparagraphs. Hence, the 

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Agreement does not provide for recovery of attorney's fees and 

expenses in this contract action based upon defendant's alleged 

negligent acts of commission or omission. 

 Alternatively, plaintiff contends that it is entitled to 

recover attorney's fees and expenses even though the Agreement 

does not specifically so provide. The plaintiff says this Court 

has "long held that attorneys' fees and costs incurred as a 

result of the actions of another party may be recovered under 

certain circumstances," citing Owen v. Shelton, 221 Va. 1051, 

277 S.E.2d 189 (1981), and Hiss v. Friedberg, 201 Va. 572, 112 

S.E.2d 871 (1960). 

 In Hiss, followed in Owen, we noted the general rule that, 

absent any applicable contractual or statutory provision, 

attorney's fees and litigation expenses incurred by a plaintiff 

in litigation of its claim against a defendant, aside from usual 

taxed court costs, are not recoverable as an item of damages in 

contract actions. Also, we pointed out that attorney's fees and 

other expenses incurred in former litigation between the same 

parties are not recoverable in a subsequent action. Hiss, 201 

Va. at 577, 112 S.E.2d at 875. 

 In Hiss, however, we applied an exception to the general 

rule. The exception, relied upon by the plaintiff here, 

provides that when a defendant's breach of contract has forced a 

plaintiff to maintain or defend a suit with a third person, the 

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plaintiff may recover in a subsequent action against the 

defendant as damages for breach of contract the reasonable 

counsel fees incurred in the former suit involving the third 

party. Id., 112 S.E.2d at 875-76. Accord Owen, 221 Va. at 

1055-56, 277 S.E.2d at 192. The reason underlying the exception 

is that losses suffered by the plaintiff because of defendant's 

breach of contract may include the expenses of litigation with 

the third party, and these expenses are properly recoverable 

from the defendant. The exception does not deal with the cost 

of litigation with the defendant itself. Hiss, 201 Va. at 577-

78, 112 S.E.2d at 876. 

 The record in this appeal does not support application of 

the exception. During trial and on brief, the parties alluded 

to numerous lawsuits stemming from this dispute, many of which 

are not properly documented in this record. Based on the record 

before us, it does not appear that plaintiff as a party litigant 

maintained or defended a suit with a third party as "a direct 

and necessary consequence," id. at 579, 112 S.E.2d at 876, of 

the breach of the purported Agency Agreement, so as to entitle 

plaintiff to recover attorney's fees in this action as damages 

for breach of contract. See State Farm Fire and Cas. Co. v. 

Scott, 236 Va. 116, 122, 372 S.E.2d 383, 386-87 (1988). 

 For example, the plaintiff was not a party to the chancery 

suit in Isle of Wight County that was filed by Farmers Bank 

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against Sussex Bank, and others. Indeed, the plaintiff's duty 

to defend Sussex Bank in that litigation arose from the 

provisions of the title policy, not the Agency Agreement or its 

purported breach. In addition, the plaintiff was not a party to 

the attorney malpractice action brought by the Sussex Bank for 

alleged negligence in connection with the title search. Also, 

plaintiff instituted, shortly before filing the present action, 

a federal suit against Sussex Bank to determine coverage under 

the title policy. Insurance coverage is determined, of course, 

by the terms of the insurance contract, not a separate agency 

agreement. 

 Consequently, the judgment below will be 

Affirmed. 

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