United States District Court, D. Colorado
PHILIP A. BRIMMER, District Judge.
This matter is before the Court on Defendant's Motion for Summary Judgment [Docket No. 19] filed by defendant Stewart Title Guaranty Company ("Stewart Title") and a Motion for Partial Summary Judgment [Docket No. 20] filed by plaintiff U.S. Bank, N.A. ("U.S. Bank"). This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332.
This case arises out of a title insurance coverage dispute between U.S. Bank and Stewart Title. On July 11, 2003, JoAnn Strock borrowed $120, 000 from Aames Funding Corporation, d/b/a Aames Home Loan ("Aames"). Docket No. 20 at 4, ¶ 1. The note was secured by a deed of trust encumbering a property in Denver, Colorado. Docket No. 19 at 1, ¶ 1; Docket No. 20-1. The deed of trust was recorded in the office of the Clerk and Recorder for the City and County of Denver. Docket No. 19 at 1, ¶ 1. Ms. Strock represented that she held sole title to the property based upon a quitclaim deed purportedly bearing the signatures of Ms. Strock, Delmo Fresquez, and Laura Fresquez. Docket No. 20 at 6, ¶ 5.
Aames obtained a lender's title insurance policy from Stewart Title. The policy, number M-9726-365955, incorporated the terms, exclusions, conditions, and stipulations set forth in the American Land Title Association ("ALTA") Loan Policy (10-17-92). Docket No. 19-1 at 1, ¶ 3. The policy named the insured as "AAMES FUNDING CORPORATION DBA AAMES HOME LOANS its successors and/or assigns." Docket No. 19-1 at 3. The relevant policy terms are set forth below. Aames subsequently assigned the note to U.S. Bank. Docket No. 19 at 2, ¶ 4. U.S. Bank then became the beneficial owner of the note. Docket No. 20 at 6, ¶ 6. Wells Fargo N.A. ("Wells Fargo") was the loan servicer at all times relevant. Id.
In July 2010, Delmo Fresquez served Wells Fargo Home Mortgage of Hawaii, LLC with a complaint alleging that Ms. Strock had forged his signature on the quit claim deed used to secure the mortgage loan. Docket No. 20 at 6, ¶ 7. On September 24, 2010, Bloom Murr & Accomazzo, P.C., claiming to represent Wells Fargo Home Mortgage, sent a letter to Stewart Title's claims department representing that Wells Fargo Home Mortgage was an assignee of Aames. Docket No. 20-7. Wells Fargo's counsel stated that the quitclaim deed had been determined to be a forgery in a Colorado state court action and that Mr. Fresquez had served a complaint demanding that the deed of trust be declared void and released. Id. at 1. Wells Fargo's counsel "demand[ed] immediate defense and indemnity." Id.
On November 8, 2010, Mr. Fresquez formally filed a complaint against Wells Fargo Home Mortgage of Hawaii, LLC (the "Fresquez suit") and, on November 18, 2010, that defendant removed the case to the United States District Court for the District of Colorado. Case No. 10-cv-02818-WYD-MJW (Docket No. 1 at 1). Mr. Fresquez' original complaint alleged that Ms. Strock forged signatures on the quitclaim deed and, as such, that the deed of trust was void and without effect. Docket No. 19-4 at 3. Mr. Fresquez alleged that he had attempted to contact the holder of the deed of trust and believed the holder to be Wells Fargo Home Mortgage of Hawaii, LLC. Id. at 3. Mr. Fresquez sought a declaration that both the quitclaim deed conveying the property to Ms. Strock and the deed of trust were void. Id.
On January 20, 2011, Stewart Title denied Wells Fargo's demand, stating that "Wells Fargo is not the insured under the Policy and Stewart does not have any obligations to Wells Fargo with respect to the Action or any other matter." Docket No. 19-3 at 3. On February 9, 2011, Bloom Murr & Accomazzo, P.C. responded, admitting that U.S. Bank was the holder of the promissory note, but arguing that Wells Fargo had full authority to act on U.S. Bank's behalf with respect to the policy. Docket No. 19-5 at 1. The letter also stated:
We now know why the plaintiff sued the incorrect entity. The plaintiff's lawyer explained that he had spent hours at U.S. Bank attempting to verify that it owned the loan in question. U.S. Bank stated that it did not, in fact own the loan. One day while the plaintiff was at the property, someone came to mow the lawn and stated that Wells Fargo had sent him.... Therefore, he sued Wells Fargo of Hawaii, LLC thinking that it held the promissory note.
Id. The letter reiterated a demand that Stewart Title defend the Fresquez suit. Id. at 2. The record does not indicate when, if ever, Wells Fargo's counsel informed Mr. Fresquez that U.S. Bank, not Wells Fargo, was the holder of the promissory note.
On February 10, 2011, the court granted Mr. Fresquez' motion to substitute Wells Fargo for Wells Fargo Home Mortgage of Hawaii, LLC as the named defendant. Case No. 10-cv-02818-WYD-MJW (Docket No. 12). On August 10, 2011, Mr. Fresquez filed an amended complaint naming U.S. Bank as a defendant. Id. (Docket No. 24). On August 29, 2011, Bloom Murr & Accomazzo, P.C. filed an answer on behalf of U.S. Bank. Docket No. 19 at 4, ¶ 13. In September 2011, Stewart Title retained Geoffrey P. Anderson to represent U.S. Bank in the Fresquez suit. Id. at 4, ¶ 14. On October 14, 2011, Mr. Anderson communicated to Bloom Murr & Accomazzo, P.C. his intent to enter an appearance in the Fresquez suit. Docket No. 19-8 at 1. U.S. Bank's amended complaint in the instant case admits that counsel hired by Stewart Title represented U.S. Bank in settlement negotiations with Mr. Fresquez. Docket No. 8 at 4, ¶ 31. On January 30, 2013, Mr. Anderson formally entered his appearance in the Fresquez suit. Case No. 10-cv-02818-WYD-MJW (Docket No. 53).
On January 17, 2013, U.S. Bank brought the instant case. Docket No. 1. U.S. Bank's amended complaint brings a breach of contract claim against Stewart Title and two claims of bad faith breach of policy for breach of the duty to defend and unreasonable claims handling practices. Docket No. 8 at 4-6. With respect to U.S. Bank's breach of contract claim, the amended complaint states that "U.S. Bank and Wells Fargo request that judgment enter in their favor and against Stewart for the damages suffered by U.S. Bank and Wells Fargo." Id. at 5. However, Wells Fargo is not named as a party in the instant case.
U.S. Bank moves for summary judgment on its breach of contract claim on the issue of liability. Docket No. 20 at 7. Stewart Title moves for summary judgment on all claims, arguing that it did not breach the insurance contract and that U.S. Bank's bad faith claims are barred by the statute of limitations. Docket No. 19 at 5, 9.
II. STANDARD OF REVIEW
Summary judgment is warranted under Federal Rule of Civil Procedure 56 when the "movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-50 (1986). A disputed fact is "material" if under the relevant substantive law it is essential to proper disposition of the claim. Wright v. Abbott Labs., Inc., 259 F.3d 1226, 1231-32 (10th Cir. 2001). Only disputes over material facts can create a genuine issue for trial and preclude summary judgment . Faustin v. City & Cnty. of Denver, 423 F.3d 1192, 1198 (10th Cir. 2005). An issue is "genuine" if the evidence is such that it might lead a reasonable jury to return a verdict for the nonmoving party. Allen v. Muskogee, 119 F.3d 837, 839 (10th Cir. 1997).
The nonmoving party may not rest solely on the allegations in the pleadings, but instead must designate "specific facts showing that there is a genuine issue for trial." Celotex, 477 U.S. at 324; see Fed.R.Civ.P. 56(e). "To avoid summary judgment, the nonmovant must establish, at a minimum, an inference of the presence of each element essential to the case." Bausman v. Interstate Brands Corp., 252 F.3d 1111, 1115 (10th Cir. 2001) (citing Hulsey v. Kmart, Inc., 43 F.3d 555, 557 (10th Cir.1994)). "In applying this standard, we view all facts and any reasonable inferences that might be drawn from them in the light most favorable to the nonmoving party." Henderson v. Inter-Chem Coal Co., Inc., 41 F.3d 567, 569 (10th Cir. 1994).
U.S. Bank's breach of contract claim is vague. The amended complaint alleges that Stewart Title "failed to satisfy its obligations under the Title Policy and has breached the agreement, " but does not otherwise clearly indicate how Stewart Title breached the policy. Docket No. 8 at 5, ¶ 39. U.S. Bank's motion for partial summary judgment argues that Stewart Title breached the policy by (1) failing to defend the Fresquez suit, (2) failing to take action to repair the defect in title, and (3) failing to defend the insured lien. Docket No. 20 at 7. Thus, U.S. Bank's breach of contract claim appears to hinge on Stewart Title's alleged breach of its duty to defend.
Stewart Title argues that Wells Fargo is not an "insured" under the terms of the policy and, as such, that it did not breach the terms of the policy by refusing to defend Wells Fargo in the Fresquez suit. Docket No. 19 at 9. U.S. Bank does not dispute that Wells Fargo is not an insured, but argues, in both its response brief and its motion for partial summary judgment, that the policy imposed upon Stewart Title a duty to defend the title or the lien of the insured mortgage against third party challenges regardless of whether U.S. Bank was a named party in the litigation. Docket No. 22 at 6-7; Docket No. 20 at 16-17.
U.S. Bank's claim for "Bad Faith Breach of Policy - Duty to Defend" alleges that a claim arose under the "Insured Lien" and that "Stewart had a duty to accept the Claim and provide a defense, but failed to timely do so." Docket No. 8 at 5, ¶¶ 43, 48. U.S. Bank's claim for "Bad Faith Breach of Policy - Unreasonable Claims-Handling Practices" alleges that Stewart Title "acted unreasonably in refusing to timely provide a defense" and "in derogation of well-settled Colorado law and industry standards." Id. at 6, ¶ 52, 54. Thus, U.S. Bank's bad faith claims are substantially based upon Stewart Title's alleged failure to defend the Fresquez suit. Stewart Title argues that, because it did not breach the policy, U.S. Bank's bad faith claims should be dismissed. Docket No. 19 at 9. Stewart Title also argues that U.S. Bank's bad faith claims are barred by the statute of limitations. Id.
The issue presented by both parties' motions is whether Stewart Title breached the policy by refusing take action to defend Wells Fargo in the Fresquez suit or by otherwise not attempting to cure any title defects until August 10, 2011, when Mr. Fresquez named U.S. Bank as a defendant.
A. Insurance Policy Interpretation
The interpretation of an insurance policy is a matter of law. Allstate Ins. Co. v. Huizar, 52 P.3d 816, 819 (Colo. 2002). An insurance policy is a contract, which should be interpreted consistently with the well-settled principles of contractual interpretation. Chacon v. Am. Family Mut. Ins. Co., 788 P.2d 748, 750 (Colo. 1990). The words of the contract should be given their plain meaning according to common usage and strained constructions should be avoided. Allstate Ins. Co. v. Starke, 797 P.2d 14, 18 (Colo. 1990). Clauses or phrases should not be viewed in isolation; rather, a policy's meaning must be determined by examining the entire instrument. Huizar, 52 P.3d at 819. Policy provisions that are clear and unambiguous should be enforced as written. Chacon, 788 P.2d at 750. Where a term in an insurance policy is ambiguous, meaning it is susceptible to more than one reasonable interpretation, the Court will construe the term against the drafter and in favor of providing coverage to the insured. Sachs v. Am. Family Mut. Ins. Co., 251 P.3d 543, 546 (Colo.App. 2010).
B. Who Is An "Insured" Under the Policy
The Court first examines the policy to determine who is an "insured" under the policy. Schedule A states that the named insured is "AAMES FUNDING CORPORATION DBA AAMES HOME LOANS its successors and/or assigns." Docket No. 19-1 at 3. The policy further states:
CONDITIONS AND STIPULATIONS
1. DEFINITION OF TERMS
The following terms when used in this ...