Opinion ID: 2655125
Heading Depth: 2
Heading Rank: 2

Heading: Amzak’s Contract Claim

Text: Amzak’s claim under its title insurance policy with STL is governed by the law of Louisiana. As we stated in First American Bank v. First American Transportation Title Insurance Co.: Louisiana law provides that an insurance policy is a contract between the parties and should be construed using the general rules of contract interpretation set forth in the Louisiana Civil Code. The words used in an insurance policy must be given their generally prevailing meaning. When the language of an insurance 7 Case: 13-30675 Document: 00512546787 Page: 8 Date Filed: 02/27/2014 No. 13-30675 policy is clear, courts lack the authority to change or alter its terms under the guise of interpretation. Further, each provision of an insurance policy must be interpreted in light of the other provisions so that each is given the meaning suggested by the contract as a whole. Insurance policies should not be interpreted in an unreasonable or strained manner so as to enlarge or to restrict its provisions beyond what is reasonably contemplated by its terms or so as to achieve an absurd conclusion. 585 F.3d 833, 837 (5th Cir. 2009) (internal citations and quotations omitted). The relevant portions of this policy are not ambiguous. STL insured Amzak’s title to the paper mill against all adverse title claims, as follows: “[STG] insures . . . against loss or damage . . . sustained or incurred by the Insured by reason of . . . (2) [a]ny defect in or lien or encumbrance on the Title.” Insurance against the results of a title defect is not the same as insurance against a loan loss or the value of collateral. The coverage clause in the policy states in pertinent part as follows: This policy is a contract of indemnity against actual monetary loss or damage sustained or incurred by [Amzak] who has suffered loss or damage by reason of matters insured against by this policy. The policy expressly recognized that a title defect might exist yet cause no compensable loss: The following matters are expressly excluded from coverage of this policy, and the Company will not pay loss or damage, costs, attorneys’ fees, or expenses that arise by reason of: . . . (3) Defects. . . . (c) resulting in no loss or damage to the Insured Claimant. Clearly, STL contracted to indemnify Amzak for loss, but only in the event that loss resulted from failure of title. 3 Moreover, the policy language expressly limits Amzak to recovering when there has been some actual loss or damage to Amzak. It follows that Amzak must show that it suffered actual 3See First Nat’l Bank of Jeanerette v. Lawyers Title Ins. Corp., No. 08-0913, 2010 WL 3734056, at  (W.D. La. Aug. 12, 2010), adopted and entered by the district court, 2010 WL 3734020 (W.D. La. Sept. 16, 2010). 8 Case: 13-30675 Document: 00512546787 Page: 9 Date Filed: 02/27/2014 No. 13-30675 loss because of a failure of title, and if it cannot do so, then STL cannot be held responsible for any harm suffered by Amzak. The previously described events do not add up to loss from the title defect. Amzak purchased title insurance from STL in connection with its mortgage on the paper mill, but STL filed Amzak’s mortgage without attaching the property description. 4 The paper mill continued to experience severe financial difficulties. According to Amzak, Caoba notified Amzak that it would not go through with a verbally agreed upon investment deal because of “deficiencies in [the] mortgage.” Amzak made a claim to STG, STL’s underwriter, based on the policy, and STL retroactively cured the title defect. WFA filed for bankruptcy and the paper mill shut down. Amzak purchased the mill at the court-ordered sale of WFA’s assets. Amzak’s title to the paper mill never failed; on the contrary, its title was preserved through STL’s correction efforts, Amzak’s negotiation with WFA, and the dismissal of the Creditors’ Committee suit. We thus agree with, although we are not bound by, this court’s opinion in First State Bank v. American Title and hold that because “[Amzak’s] title did not fail, it is impossible for any loss to be attributed to a failure of title and thus be covered by the policy.” 91 F.3d 141, 1996 WL 400322, at  (5th Cir. 1996) (per curiam) (not designated for publication). Amzak’s loss is attributable to some other fortuities concerning WFA, none of which were insured against by STL. Id. STL insured Amzak’s 4 For a mortgage on immovable property (real estate) to be valid, it must comply with Article 3288 of the Louisiana Civil Code, which provides that a mortgage “must state precisely the nature and situation of each of the immovables or other property over which it is granted.” Without a detailed description, a mortgage has no validity, not even between the mortgagor and the mortgagee. See, e.g., 1 La. Prac. Real Est. § 13:29 (2d ed. Nov. 2012) (“a vague property description renders the mortgage invalid even as between the parties”). STL has acknowledged that its recordation of the mortgage without a legal description was a “title defect.” 9 Case: 13-30675 Document: 00512546787 Page: 10 Date Filed: 02/27/2014 No. 13-30675 title to the property, not the property’s fair market value. Id. Accordingly, we agree with the district court’s conclusion that STL did not breach the policy. As an alternative basis for finding that STL breached the title policy, Amzak points to Citicorp Savings of Illinois v. Stewart Title Guaranty Co., 840 F.2d 526 (7th Cir. 1988), for the proposition that breach occurred at the time of the loan because that is when the title of the mortgage became voidable. In Citicorp, the Seventh Circuit held that the policy was breached at the time of the loan because (i) the “lien was unenforceable ab initio,” (ii) the title policy was “intended to ensure that Citicorp could enforce the lien” when the loan was closed, and (iii) that is “what the parties intended when they entered into the agreement [the policy].” Id. at 529. The court explained that the lender “would not have extended [the loan] on the basis of a voidable mortgage” and that STG “breached the policy’s guarantee of the mortgage’s enforceability.” Id. at 530. Amzak argues that its situation is the same: the title insurer insured its title, the title was defective at the time the loan closed, and the policy was breached because the mortgage “was unenforceable” at the time of the loan. A second issue in Citicorp was whether STG’s tender of the property to the lender “cured” the breach of the policy. Id. at 530. The Seventh Circuit explained that “nowhere in the policy does it state that the insurer may tender the [property] in lieu of damages” and “tender is an imperfect substitute for damages,” because the property “may have been worth much less due to changes in market value.” Id. Amzak claims that the same analysis applies in the instant case. At the time the loan closed in August 2009, the mill was operating and was appraised for $77 to $81 million; after the bankruptcy was filed, the mill shut down and its value plummeted. However, Citicorp is not binding on this circuit, and it hardly expresses a “universal” view—recall that this court reached an opposite conclusion in First State Bank. The case is not only distinguishable but has been rejected in 10 Case: 13-30675 Document: 00512546787 Page: 11 Date Filed: 02/27/2014 No. 13-30675 Illinois, which supplied the rule of decision. First, Citicorp rested on a finding that the title policy at issue did more than indemnify against actual loss; according to the court, it actually guaranteed to the lender that its mortgage was valid. Id. at 529-30. The policy that STL issued to Amzak, however, contains no guarantee of Amzak’s title. It simply provides for indemnity if actual loss results from a title defect. Under Amzak’s policy, the mere existence of a defect is not a breach, but simply an occasion to consider whether the insured has suffered a compensable loss. As previously established, because Amzak dealt with the collateral securing its mortgage in such a way that the issue of title defect never had to be resolved, it did not suffer loss because of any title defect. 5 Finally, other courts have also rejected the guarantee rationale in Citicorp and have instead enforced the principle underlying First State Bank: indemnity is only for actual loss caused by a title defect. See, e.g., Focus Inv. Assocs. v. Am. Title Ins. Co., 992 F.2d 1231, 1237 (1st Cir. 1993); Gibraltar Sav. v. Commonwealth Land Title Ins. Co., 905 F.2d 1203, 1205 (8th Cir. 1990); JP Morgan Chase Bank, N.A. v. First Am. Title Ins. Co., 725 F. Supp. 2d 619, 623 (E.D. Mich. 2010). We now formalize the holding in First State Bank and likewise reject the guarantee rationale of Citicorp, and we agree with the 5 It is arguable that Citicorp no longer reflects Illinois law. In 2006, the Illinois Supreme Court eviscerated Citicorp’s warranty rationale, holding that title insurers are not in the business of providing information. First Midwest Bank, N.A. v. Stewart Title Guar. Co., 843 N.E. 2d 327, 335-36 (Ill. 2006). The court stated: “We conclude, therefore, that a title insurer is not in the business of supplying information when it issues a title commitment or a policy of title insurance. . . . The scope of a title insurer’s liability is properly defined by contract.” Id. A 2012 decision from the Northern District of Illinois confirms that Citicorp’s premise did not survive the First Midwest decision. First Tenn. Bank, N.A. v. Lawyers Title Ins. Corp., 282 F.R.D. 423, 426-27 (N.D. Ill. 2012). The district court emphasized that the mere existence of a title defect does not oblige the title insurer to pay damages; the defect must cause the lender an actual loss. Id. 11 Case: 13-30675 Document: 00512546787 Page: 12 Date Filed: 02/27/2014 No. 13-30675 district court’s rejection of Amzak’s argument that STL breached the title policy at the time of the loan because its mortgage was voidable at that time.