United States District Court, D. New Mexico
AZTEC ABSTRACT & TITLE INSURANCE, INC., a New Mexico Corporation, Plaintiff,
MAXUM SPECIALTY GROUP & MAXUM INDEMNITY COMPANY, Defendants.
MEMORANDUM OPINION AND ORDER
matter comes before the Court upon Maxum's Memorandum
Motion for Summary Judgment (Motion for Summary Judgment),
filed January 11, 2017. (Doc. 34). Plaintiff filed a response
on February 3, 2017, and Defendant Maxum Indemnity Company
(Maxum) filed a reply on February 16, 2017. (Docs.
37 and 38). Having considered the Motion for Summary
Judgment, the accompanying briefing, and the relevant
evidence, the Court grants the Motion for Summary Judgment.
Relevant Facts Viewed in the Light Most Favorable to
provides title and escrow services for real estate closings
and is an agent for title insurance underwriter Commonwealth
Land Title Insurance Company (Commonwealth). (Doc. 1-1) at
19-22; (Doc. 34-1) at 2-3, depo. at 9-10. Under the agency
agreement with Commonwealth, if Plaintiff is grossly
negligent in its provision of title services, Plaintiff may
be liable to Commonwealth for any loss it suffers as a result
of the gross negligence. (Doc. 1-1) at 20. This lawsuit
involves Commonwealth's request for indemnification from
Plaintiff for an error in its provision of title services.
Chronology of Events
2008, Sweetwater Farms (Sweetwater) obtained a mortgage from
Zions First National Bank (Zions) to encumber a parcel of
land next to a peanut processing plant. (Doc. 34) at 3,
¶ 5; (Doc. 34-1) at 4, depo. at 18-19. Plaintiff's
closing officer, Jennifer Hardin, handled the closing of the
transaction, and Plaintiff issued a title insurance policy
underwritten by Commonwealth. (Doc. 34-1) at 2 and 4, depo.
at 9, 18-19.
2009, Sweetwater obtained a mortgage from Excel National Bank
(Excel) to encumber the property upon which the peanut
processing plant was situated. Id. at 4, depo. at
19. Hardin, likewise, handled the closing of that transaction
for Plaintiff, and Plaintiff issued a title insurance policy
underwritten by Commonwealth. Id.
December 2010, Excel sought to foreclose on its Sweetwater
mortgage and discovered that Zions was asserting that its
Sweetwater mortgage was senior to a portion of the property
where the peanut processing plant was located, property
subject to the Excel mortgage. (Doc. 34) at 3, ¶ 7;
(Doc. 34-1) at 17. Consequently, in a letter dated December
22, 2010, Excel notified Commonwealth of Zions' claim to
Excel's property and indicated that it had contacted
Plaintiff about the problem, which Plaintiff was researching.
(Doc. 34-1) at 17. This letter was copied to Hardin.
Id. Under the terms of the title insurance policy,
Commonwealth provided Excel with counsel to defend its
interest in the disputed property. Id. at 33.
February 2011, Commonwealth advised Plaintiff, by letter,
about the claim Excel presented to Commonwealth. Id.
at 19. Commonwealth requested that Plaintiff provide a copy
of its file on the Sweetwater transactions and any other
information which would help Commonwealth's
“investigation or resolution of this matter.”
March 2011, Plaintiff's president, Bessie Engram,
responded to Commonwealth explaining that a mistake in the
legal descriptions in the two Sweetwater transactions
occurred and that “[r]e-recording the Zions National
Bank mortgage with corrected legal [description] or filing a
modification with the corrected legal [description] of that
mortgage should remedy the problem.” Id. at
18. Plaintiff also enclosed the requested Sweetwater files.
admits that filing a mortgage with an incorrect legal
description of the property is a negligent act. Id.
at 8, depo. at 40-41. Moreover, Engram knew, in March 2011,
that it was possible that the error in legal descriptions
could result in a loss of collateral. Id. at 8,
depo. at 40.
2012, Plaintiff, through Engram, applied for professional
errors and omissions (E & O) liability insurance with
Maxum. See Id. at 21. Question 38 of the application
asks whether the applicant is “aware of any incident or
circumstance which MAY RESULT in a CLAIM being made against
the Applicant…?” Id. at 28. Plaintiff
responded “no.” Id. Maxum subsequently
issued the E & O insurance policy with an inception date
of July 1, 2012. Id. at 36.
October 2012, Engram learned, from Hardin, about the
foreclosure proceeding involving the Sweetwater property and
that there was an issue with respect to Zions and Excel's
mortgages, i.e., a possible overlap of the mortgages. (Doc.
37-1) at 1, depo. at 26, 28, and 29. In fact, Hardin
testified at the October 2012 trial of the foreclosure
proceeding. (Doc. 34-1) at 8, depo. at 41. In December 2012,
the state court determined in the foreclosure proceeding that
Zions had the first lien on the disputed property while Excel
had a second lien on that property. Id. at 9, depo.
at 46. Excel, thus, lost the value of the collateral with
respect to the disputed property. Id.
Hardin testified at the foreclosure trial in October 2012,
Engram had concerns about whether Plaintiff erred with
respect to the Sweetwater mortgages. (Doc. 38-1) at 4, depo.
at 44. Consequently, prior to the state court's
determination in December 2012, Engram obtained a copy of the
foreclosure trial transcript and asked Hardin if there was a
claim against Plaintiff. Id. at 4, depo. at 42, 44.
Hardin told Engram “no.” Id. at 4, depo.
at 44. Following the 2012 foreclosure trial, Engram waited
for Commonwealth to contact her. Id. at 4, depo. at
45. Engram explained at her deposition that, “If there
was going to be a claim against me, they would have made
result of the state court's decision, Commonwealth
indemnified Excel for “the loss incurred as a result of
a portion of [Excel's] Insured Property being subject to
the superior Zions Mortgage.” (Doc. 34-1) at 33.
Commonwealth resolved Excel's claim by paying Excel the
title insurance policy limit of $275, 000.00. Id.
December 2014, Commonwealth wrote a letter to Plaintiff
asserting that Plaintiff “knew or should have known
that the legal descriptions were conflicting” and that
the conflicting legal descriptions resulted in a loss to
Excel and Commonwealth. Id. Hence, Commonwealth
demanded that Plaintiff indemnify it for the losses and
expenses it incurred due to the conflicting legal
descriptions. Id. Commonwealth suggested that
Plaintiff file a claim with its E & O insurer, Maxum, for
indemnification. Id. Engram acknowledged she had
received “some” correspondence from Commonwealth
prior to the December 2014 letter. Id. at 11-12,
depo. at 57-58.
January 2015, Plaintiff made a claim to Maxum for
indemnification. Id. at 34. In addition to
indemnification, Engram expected Maxum to defend Plaintiff
from a possible lawsuit by Commonwealth. Id. at 13,
depo. at 68. In anticipation of such a lawsuit, Plaintiff
retained counsel. Id. at 13, depo. at 67.
Commonwealth, however, has not filed any legal proceedings
against Plaintiff in this matter. Id. at 11, depo.
at 56. Indeed, Commonwealth has agreed not to sue Plaintiff
for negligence with respect to the Excel mortgage.
Id. at 12, depo. at 60.
October 2015, Maxum denied coverage explaining that the E
& O insurance policy did not apply. Id. at 34.
Maxum specifically cited the prior knowledge exclusion
provision which states that the policy does not apply to
“[a]ny ‘claim' arising out of or resulting
from any ‘wrongful act'” which the insured
“had knowledge of or information related to, prior to
the first inception date of the continuous claims-made
coverage with [Maxum], and which may result in a
‘claim.'” Id. at 37. According to
Maxum, Plaintiff was aware of the legal descriptions error in
2010 and 2011. Id. at 38. Maxum, therefore,
concluded that Plaintiff “was aware of wrongful acts
which might result in a claim against it prior to July 1,
2012, ” the inception date of the E & O insurance
Other Relevant Provisions of the E & O Insurance
policy provision on the duty to defend states that Maxum has
the “duty to defend any ‘insured' against any
‘suit' seeking … ‘damages.'”
(Doc. 34-2) at 2. “Damages” are those sums an
insured is “legally obligated to pay … because
of a ‘wrongful act' in the rendering of or failure
to render ‘professional services' by any
‘insured'….” Id. Maxum,
however, has no duty to defend if “this insurance does
not apply.” Id. Maxum, at its discretion, may
“investigate any ‘wrongful act' and settle
any ‘claim' or ‘suit' that may
policy further defines “damages” as
“compensation only in the form of money for a
‘claim' to which this insurance applies.”
Id. at 4. A “claim, ” in turn, is
defined as “a written or verbal demand received by any
‘insured' for money….” Id. A
“suit” is “a civil proceeding in which
‘damages' because of the rendering of or failure to
render ‘professional services' to which this
insurance applies are alleged.” Id. at 5. A
“wrongful act” is “any actual or alleged
negligent act, error or omission in the rendering or failure
to render ‘professional services.'”
The Complaint Against Maxum
December 2015, Plaintiff filed suit against Maxum,
Commonwealth, and a survey company in state court. (Doc. 1-1)
at 7. Maxum removed the case to federal court in February
2016. (Doc. 1). Only Maxum remains as a Defendant.
See Stipulated Order of Dismissal of Claims Against