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FIDELITY NAT'L TITLE INS. CO. OF NY v. SO. HERITAGE TITLE INS. AGENCY (59812)


FIDELITY NAT’L TITLE INS. CO.
OF NY

v.

SO. HERITAGE TITLE INS.
AGENCY, INC.


February 26, 1999
Record No. 980707

FIDELITY NATIONAL TITLE INSURANCE COMPANY OF
NEW YORK

v.

SOUTHERN HERITAGE TITLE INSURANCE AGENCY, INC.

FROM THE CIRCUIT COURT OF THE CITY OF VIRGINIA
BEACH

Philip L. Russo, Judge Designate
Present: All the Justices
OPINION BY JUSTICE A. CHRISTIAN COMPTON


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 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 "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 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.

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 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.

. . . .

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 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.

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 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 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 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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