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-in-
chief, 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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