The Tenth Circuit Decides Two Cases Addressing the Scope of Coverage of a Title Insurance Policy

The Tenth Circuit recently affirmed a decision from the District Court for the District of Colorado on July 26, 2016 that Woody Creek Ventures, LLC, (“Woody Creek”) which obtained a title insurance policy with Fidelity National Title Insurance Company (“Fidelity”), was not entitled to coverage for its alleged losses because it did not have a permanent “right of access” to its parcel of land. See Fid. Nat’l Title Ins. Co. v. Woody Creek Ventures, LLC, No. 14-1274, 2016 U.S. App. LEXIS 13563 (10th Cir. July 26, 2016).

Fidelity’s insurance policy insured against unmarketability of title and against a lack of access to property. When Woody Creek discovered that its parcel of land lacked a permanent access through a specific roadway, it sought coverage from Fidelity. In response, Fidelity obtained a 30-year right-of-way grant to that parcel. However, Woody Creek maintained that Fidelity failed to cure the lack of access and that the title remained unmarketable because the access was not permanent. Fidelity then filed suit seeking a declaratory judgment that Woody Creek was not entitled to coverage because the right-of-way grant cured the access issue.

The District Court found in favor of Fidelity concluding that the 30-year right-of-way grant fell within the plain, unambiguous meaning of a “right of access” in the policy. It also concluded that the possibility of future litigation regarding the right of access did not render the title unmarketable. The Tenth Circuit affirmed upon finding that most Colorado courts do not read the phrase “right of access” as requiring any particular type of physical or legal access. In addition, the Tenth Circuit agreed with Fidelity’s position that a lack of legal access to property is not the type of defect that renders a title unmarketable. Thus, the Tenth Circuit predicted that the Colorado Supreme Court would construe the phrase “unmarketability of title” to relate to defects affecting rights of ownership, i.e., defects in title, rather than defects affecting the physical condition or use of the covered property.

In a second opinion issued on the same day, the Tenth Circuit also affirmed a decision from the District Court for the District of Utah resolving a dispute over the scope of a title insurance policy, and denying coverage to an owner of a title insurance policy who sought to recover losses to the insured property. See BV Jordanelle, LLC v. Old Republic Nat’l Title Ins. Co., No. 15-4127, 2016 U.S. App. LEXIS 13562 (10th Cir. July 26, 2016).

BV Jordanelle, LLC (“BV”) had obtained a mortgage on real property as security for a loan and had acquired a title insurance policy from Old Republic National Title Insurance Company (“Old Republic”). When the borrower defaulted, BV foreclosed on the property, but the municipality also foreclosed on the same property when a municipality assessment went unpaid. BV and the municipality litigated in state court, resulting in the municipality prevailing and obtaining title to the property. BV subsequently sued Old Republic in the District Court for refusing the compensate BV for its loss of the property and for failing to defend BV in the state-court litigation. The District Court found in favor of Old Republic concluding that the policy did not entitle BV to either payment for its loss of the property of a defense in the state-court suit.

The Tenth Circuit, applying Utah law, affirmed the decision by addressing each of covered risks defined in the policy raised by BV to contend that it was entitled to coverage. In discussing one of the policy risks, the Court found that the insurance policy was issued before the municipality levied assessments against the property, thus the defects did not exist when the policy was issued and cannot be covered. The Court also agreed with the District Court’s ruling that Old Republic had no duty to defend BV in the state-court litigation because Old Republic only had a duty if one or more of the claims could result in liability under the policy. However, BV did not explain how any of its claims in the state-court litigation might trigger liability under the policy. Because BV did not make the requisite showing on appeal, Old Republic had no duty to defend BV against the municipality.