CARL J. BARBIER, UNITED STATES DISTRICT JUDGE.
Before the Court is a Motion for Summary Judgment
This is a dispute over STG's obligations pursuant to a Policy of Title Insurance (the "Policy") issued by STG to BJD, covering a parcel of enclosed land. To understand the contract issue at hand, it is necessary to understand the history of the property at the heart of this case. BJD purchased the tract, 27.864 acres of undeveloped land in St. Landry Parish, Louisiana (the "Property"), on December 14, 2006. The sale document, labeled as a "Cash Sale," notes the sellers to be three married couples: John L. Olivier and Julie Ann Brinkhaus Olivier; Joseph F. Olivier and Billie Gay Olivier; and George R. Ramier and Eleanor Olivier Ramier (collectively, the "Oliviers").
The Cash Sale makes no mention of BJD's right of access to the Property. BJD was evidently unconcerned with the issue in 2006 because BJD purchased the Property from the Oliviers with intent to make it the 68-lot "Phase II" expansion of the existing Coteau Lakes subdivision.
Despite a promising start, "Phase II" never materialized as anticipated. The local real estate market declined, there was a recession, and in 2010 FEMA rezoned the entire Property from Flood Zone "C" to "A," a marked increase in flood risk designation. BJD determined it would not be cost effective to raise the entire Property in order to sell lots in the manner it had planned; instead, BJD decided it would elevate a few large plots and sell those at a
In January of 2016, the Coteau Lakes homeowners association ("HOA") and certain homeowners in the Phase I development demanded that Lot 16 not be used to access the Property, arguing that such use violated subdivision restrictions—restrictions drafted in part by members of BJD.
In a demand letter dated July 12, 2016, the Patins demanded their $135,000 purchase price be returned to them due to the apparent lack of access. Two days later, on July 14, 2016, BJD informed STG of the adverse state court decision for the first time and gave notice it intended to file a claim under the Policy.
The Policy gives options to STG for how it will resolve title and access issues. For example, pursuant to Section 6(b), STG may pay or otherwise settle with third parties on BJD's behalf, or it may pay or settle with BJD for losses or damages provided for by the policy, including fees and expenses that were authorized by STG.
After BJD filed its claim, STG hired attorney Hansel Harlan to assist BJD in obtaining access to the Property. STG claims that although "Harlan raised alternative access routes that could cure BJD's alleged lack of access, BJD has consistently stonewalled STG's cure efforts."
On September 8, 2016, BJD returned the $135,000 purchase price to the Patins without consultation or consent of STG because BJD felt this was the right thing to do.
Summary judgment is appropriate when "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (citing Fed. R. Civ. P. 56(c)), Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994). When assessing whether a dispute as to any material fact exists, a court considers "all of the evidence in the record but refrains from making credibility determinations or weighing the evidence." Delta & Pine Land Co. v. Nationwide Agribusiness Ins. Co., 530 F.3d 395, 398 (5th Cir. 2008). All reasonable inferences are drawn in favor of the nonmoving party, but a party cannot defeat summary judgment with conclusory allegations or unsubstantiated assertions. Little, 37 F.3d at 1075. A court ultimately must be satisfied that "a reasonable jury could not return a verdict for the nonmoving party." Delta, 530 F.3d at 399.
If the dispositive issue is one on which the moving party will bear the burden of proof at trial, the moving party "must come forward with evidence which would `entitle it to a directed verdict if the evidence went uncontroverted at trial.'" Int'l Shortstop, Inc. v. Rally's, Inc., 939 F.2d 1257, 1264-65 (5th Cir. 1991). The nonmoving party can then defeat the motion by either countering with sufficient evidence of its own, or "showing that the moving party's evidence is so sheer that it may not persuade the reasonable fact-finder to return a verdict in favor of the moving party." Id. at 1265.
When examining matters of state law, this Court will employ the principles of interpretation used by the state's highest court. Am. Int'l Specialty Lines Ins. Co. v. Rentech Steel LLC, 620 F.3d 558, 564 (5th Cir. 2010). Mindful of Louisiana's distinction between primary and secondary sources of law, the Court will begin its analyses with reliance on the Louisiana Constitution and statutes before looking to "jurisprudence, doctrine, conventional usages, and equity, [which] may guide the court in reaching a decision in the absence of legislation and custom." Shaw Constructors v. ICF Kaiser Eng'rs, Inc., 395 F.3d 533, 547 (5th Cir. 2004) (quoting La. Civ. Code. art. 1 rev. cmt. b). If the Court must make an "Erie guess" on an issue of Louisiana law, the Court will decide the issue the way that it believes the Supreme Court of Louisiana would decide it. Id. (citation omitted). This Court is not strictly bound by the decisions of the state intermediate courts and will disregard them if the Court is "convinced that the Louisiana Supreme Court would decide otherwise." In re Katrina Canal Breaches Litig., 495 F.3d 191, 206 (5th Cir. 2007).
What the parties have asked the Court to do in this case is to determine the nature and scope of STG's promise of indemnification to BJD. By the terms of the Policy, in exchange for a small percentage of the purchase price of the land, STG obligated itself to compensate BJD for actual losses resulting from: BJD's ownership of the parcel being other than the tract's description in the Policy's schedule; defective, encumbered, or unmarketable title; or BJD's lack of a legal right to enter or leave the Property by reasonable means.
None of the above coverage obligations amount to a promise that BJD would be able to use the land in exactly the manner that it expected. Nor by undertaking the last coverage obligation did STG promise to provide BJD any particular means of access. The single coverage provision at issue in this case states that "[STG] insures... against loss or damage ... incurred by the insured by reason of ... [l]ack of a right of access to and from the land."
Although the Policy explicitly covers for losses sustained by reason of "lack of a right of access to and from the land," BJD insists that the immediately preceding provision indemnifying for losses incurred
First of all, to read the unmarketability of title provision to subsume protection from losses for lack of right of access would render the last of the four enumerated coverages superfluous. "Louisiana law provides that an insurance policy is a contract between the parties and should be construed using the general rules of contract interpretation set forth in the Louisiana Civil Code." First Am. Bank v. First Am. Transp. Title Ins. Co., 585 F.3d 833, 837 (5th Cir. 2009). And Louisiana courts typically find interpretations of a contract that render language superfluous to be unreasonable. See e.g., Smith v. W. World Ins. Co., 134 So.3d 1198, 1200 (La.App.3d Cir. 2014). While the Louisiana Supreme Court has held that contract language that is ambiguous "must be construed in favor of the insured," the Court does not find this term to be ambiguous. Quinlan v. Liberty Bank and Tr. Co., 575 So.2d 836, 344 (La. 1990), on reh'g (Mar. 11, 1991). Indeed, it is defined; "unmarketability of the title" is:
When the Tenth Circuit considered this language under near-identical facts,
In Woody Creek the insured was a subdivision developer who bought two tracts of land separated by another tract of land owned by a third party. Id. at 1210. The developer assumed that it had a right of access between the parcels via a roadway crossing this intervening tract. A prospective buyer of a subdivision lot expressed concern regarding access, and the developer discovered it in fact had no legal right of access through the roadway to the remote parcel. The developer filed a claim against its title insurer, alleging that the lack of a right of access had diminished the
The developer argued that the temporary right of access left its title unmarketable, as evidenced by the fact that the developer had not been able to sell any of the lots "due to the lack of permanent access." Id. at 1215. The Tenth Circuit acknowledged that the eventual expiration of the right of access made the remote tract less valuable, but the Court determined this loss of value was an issue of the marketability of the land and not the title. Id. at 1217. The Court quoted from a popular treatise for a statement of the rule:
Id. (quoting 11 Couch on Insurance § 159:7 (3d ed. Supp. 2015)). Depending on this distinction, the Court affirmed the district court's opinion that lack of permanent access did not render the insured's title unmarketable, despite a loss of economic value. Id. at 1218.
Although the Tenth Circuit was interpreting Colorado law, the Court's decision was an "Erie guess," based on a line of authority making the same distinction that the Tenth Circuit drew. Id. The Court is not aware of any Louisiana authority contradicting the notion that lack of access is not "a `defect' in the title to the property." See 11 Couch on Insurance § 159:59 (3d ed. Supp. 2015).
If BJD is entitled to damages, it is through the coverage provision explicitly indemnifying against losses resulting from a lack of access to the Property. Critically, the parties agree that the Property is enclosed; left unresolved is the issue of whether BJD has suffered any compensable losses.
Quinlan, 575 So.2d 336, 348-49.
As a consequence of their function as indemnity agreements, title policies do not obligate insurers to pay merely because the insured can point to some defect of title it has discovered. Joyce Palomar, 1 Title Ins. Law § 10:8 (2018 ed.). The defect must actually result in a loss. Id. Courts across jurisdictions have struggled with this "actual loss" concept and have come to different conclusions as to what it is and when it occurs. The Seventh Circuit recognized nearly thirty years ago that "the law is thin." Allison v. Ticor Title Ins. Co., 907 F.2d 645, 652 (7th Cir. 1990).
The law has since filled out some in other jurisdictions but it remains undeveloped in Louisiana. Finding that the Policy at issue in this case is an agreement to indemnify,
First and foremost, BJD argues the Property has lost value because BJD
BJD's second expert, Thompson Bradford Core, a professional real estate appraiser, input these estimates into his own expert report
The Court finds the alleged $243,500 diminution in the Property's value is not an actual loss covered under the Policy. BJD is attempting to recover for losses incurred not because BJD lacks access to the Property; rather, BJD assumes STG will obtain an alternate route of access and is asserting it has incurred losses because it does not have its preferred route of access. Typically, title insurance policies insuring a legal right of access "do not insure access by any particular physical route." Palomar, supra, § 5:8 (collecting cases), Burke, supra, § 3.06 ("That the means of access is not what the insured expected or desired, is irrelevant."); see also Woody Creek, 830 F.3d at 1213. In the words of the First Circuit, "read according to its terms, the policy does not cover a lawsuit whose gravamen is the promise of something different from and more valuable than a generic right of access." United Bank v. Chicago Title Ins. Co., 168 F.3d 37, 39 (1st Cir. 1999).
If the parties intended the Policy to insure a particular right of access, one would expect the Policy would describe that route somewhere in the Policy. Indeed, the Policy includes the attached Schedule A, which describes the Property in basic detail.
However, that is not how the parties contracted. Instead, the Policy states that STG shall indemnify BJD for losses incurred by reason of "[l]ack of a right of access."
To be sure, BJD has suffered a loss because its development plan has fallen through. However, "[BJD's] loss is attributable to some other fortuities concerning [the Property], none of which were insured against by [STG]." In re W. Feliciana Acq., L.L.C., 744 F.3d 352, 358 (5th Cir. 2014). Thus, the Court holds that BJD cannot recover under the Policy merely because an alternative form of access may require a more expensive investment in infrastructure, even if the infrastructure cost is so expensive so as to prohibit BJD's intended use for the Property.
BJD suggests it also suffered actual damages when it returned the $135,000 purchase price to the Patins. After an
BJD asserts that satisfying the Patins' demand for $135,000 did not "settle" a "claim" or "suit," therefore, the coverage exception is inapplicable. "Because the policy does not define `claim,' this court refers to its ordinary meaning." Hartman v. St. Paul Fire & Marine Ins. Co., 1996 U.S. App. LEXIS 45372, *10 (5th Cir. 1996) (citing Constitution State Ins. Co. v. Iso-Tex, 61 F.3d 405, 407 (5th Cir. 1995)). In plain English, a "claim" is "a demand for something due or believed to be due (insurance ~)." Merriam-Webster's Collegiate Dictionary 210 (10th ed. 1993). More specifically, a claim is "[a] demand for money, property, or a legal remedy to which one asserts a right; esp., the part of a complaint in a civil action specifying what relief the plaintiff asks for." Claim, Black's Law Dictionary (10th ed. 2014) (alternatively, an assertion of "any right to payment or to an equitable remedy, even if contingent or provisional"). Thus, by demanding money from BJD the Patins believed they were owed, the Patins made a "claim" upon BJD.
BJD suggests that the Patins' demand was no "claim," because "BJD was under no legal obligation to repurchase the Property." This is a rather incredible argument. BJD is asserting that its insurer should reimburse it for a gratuitous expense that BJD could not be made to pay. This argument flies in the face of the purpose of the "consent to settle" provision in particular and of indemnity contracts in general. The coverage exception exists to "prevent the insured from voluntarily and prematurely assuming responsibility for a loss that may not attach to the insurer." Burke, supra, § 6.18. Even without this applicable coverage exception, the Court questions how a gratuitous payment would constitute an "actual loss" contemplated by the Policy. BJD cannot recover costs it voluntarily expended in returning the Patins' purchase money. BJD should carry the cost of its good deed in place of its insurer.
BJD also states it incurred "expenses for dirt work for the road across Lot 16 ($20,000), maintenance expenses ($1,100), and plowing costs ($1,000) in connection with its preparation to develop the Property beginning in late 2015, as well as `loss-of-use' damages resulting from its inability to develop it."
Finally, BJD claims it has suffered expert, court, and deposition costs in this litigation. As STG notes, these costs are recoverable only if the insured can show that the insurer operated in bad faith in handling a claim on the policy. See La. R.S. §§ 22:1892, 22:1973. In its complaint, BJD summarily alleges that STG acted in an arbitrary and capricious manner in handling its claim; this constitutes bad faith in Louisiana. See La. R.S. §§ 22:1892, 1973.
An insurer does not act arbitrarily or capriciously if it refuses to pay a claim because of a genuine dispute over coverage or the amount of the loss. In re Chinese Manufactured Drywall Products Liab. Litig., 759 F.Supp.2d 822, 853 (E.D. La. 2010) (citing Reed v. State Farm Mut. Auto. Ins. Co., 857 So.2d 1012, 1021 (La. 2003)). Given that the Court has found that the Plaintiff's asserted losses are not within the scope of coverage of the Policy, STG did not act arbitrarily or capriciously in denying BJD's claim. In any case, BJD has failed to point to any evidence in the record of STG's alleged bad faith.
Thus, none of the categories of damages enumerated by the insured are recoverable under the Policy. This is perhaps a curious result for a case where the parties agree that (1) lack of access is covered under the title insurance policy, (2) there is a lack of access, and (3) damages can be properly calculated through a diminution of value analysis. Given these three accepted truths, it would seem that the only thing left to do would be to compare the value of the Property with a right to access to the value of the Property without any right to access. Presumably, the difference in these two valuations would approximate the cost of curing the access problem.
Were it so easy. The insurer and insured debate whether the Property's alleged diminution of value constitutes an actual loss at this time. STG argues that it is not yet obligated to compensate BJD because the loss has not yet been realized. STG claims, as have other national title insurers, that pursuant to the "actual loss" limitation, it is not obligated to indemnify BJD for the loss of value of the Property until after BJD has realized the loss by purchasing a right of access or by selling the property at a loss.
This interpretation of the Policy's language, that "actual loss" occurs only with the expenditure of out-of-pocket payment, has been rejected by a number of jurisdictions. See, e.g., Miebach v. Safeco Title Ins. Co., 49 Wn.App. 451, 743 P.2d 845, 846 (1987) (concluding that "actual loss" term is ambiguous and must be construed in favor of the insurer, i.e., more broadly than only out-of-pocket expenses). According to one commentator, the majority rule
If the Court were to adopt the out-of-pocket interpretation of "actual loss," the result here would be that although BJD's Property may have lost some value from being enclosed, the loss has not yet realized through some transaction, and STG owes no duty to indemnify. This would not be a finding that STG has discharged its obligations under the Policy, and the Court does not think it would result in "illusory coverage," as BJD suggests. However, it would put the onus on BJD to take some action to realize the loss—either sell the Property or purchase a right of access. At that point, damages could be totaled by simply reviewing the actual money expended to cure or by calculating the difference between the actual sale price and the fair market price of the Property with access. Alternatively, STG could exercise its option to cure the lack of access.
If the Court were to adopt the majority rule, the result would be that BJD may argue at trial that its lack of a right of access has diminished the value of the property. STG complains that it has elected to cure access, but that option is cabined by the requirement that it be performed in a "reasonably diligent manner" and two and a half years past STG's notification of the access problem and BJD still has no legal right of access. Arguably, STG has had fair opportunity to exercise its option already.
The Parties have not cited to any Louisiana case clearly adopting either interpretation and the Court's own survey of Louisiana caselaw has likewise been unfruitful.
STG previously moved to have this case be dismissed because, in its words, "BJD has a right to demand a gratuitous servitude of passage over the vendor's adjacent property," by operation of La. Civ. Code art. 694. That article provides:
The Cash Sale form documenting the Oliviers' sale of the Property to BJD evinces that the Property is bounded on two sides by lots created by the partition of John Olivier's estate (the "Partition").
In her Report and Recommendations, adopted by the Court, the Magistrate Judge recommended that STG's motion to dismiss be denied. Although she recognized that BJD has a claim to a forced right of way under the Civil Code—either by article 694 or article 689—she found this was not equivalent to an actual right of access.
The Magistrate Judge reasoned that "BJD may claim a right of passage over neighboring property, pursuant to La. C.C. art. 689, provided it pays indemnity for the damages it causes" or "pursuant to La. C.C. art. 693, if BJD is able to establish that the passage requested was previously used or exercised prior to the partition."
Nevertheless, the Court revisits the Magistrate Judge's decision because the Court is not sure it sets out the requirements of art. 694 as the Louisiana Supreme Court would. Both the parties and the Magistrate Judge evidently agreed that art. 694 requires the owner of the dominant estate to prove by what particular
Professor Yiannopoulos disagreed with this reading of art. 694: "The absence of an existing roadway previously used over the transferor's estate does not relieve him of the obligation to furnish a passage gratuitously to the acquirer of the property." 4 A. N. Yiannopoulos, La. Civ. Law Treatise § 5:103 (3rd ed. 2004). An updated version of Prof. Yiannopoulos's revered treatise now states directly that Bayou Fleet "mistakenly" held that that the owner of an enclosed estate must prove the passage requested was previously exercised. 4 A. N. Yiannopoulos, La. Civ. L. Treatise, § 5:22 (4th ed. 2018). Commentators who argue that art. 694 does not require proof of previous use, believe "`passage' merely refers to a link between the original tract and a public road; it need not refer to a particular, previously used form of access."
Under this interpretation of art. 694, the owner of an enclosed property need not prove that his property was previously accessed by a specific route—however, if such a route was previously used, then the servitude may be fixed along the route without further deliberation. See Patin v. Richard, 291 So.2d 879, 884 (La.App.3d Cir. 1974) (interpreting the pre-revision form of art. 694, located at art. 701), Wilmore, Right of Passage, supra, at 203-204; see also Fuller, 464 So.2d at 352. Commentators suggest their reading of art. 694 is
First, it can reasonably be assumed that in a transaction that would leave a purchaser with an enclosed estate, it is the intent of the parties that the purchaser be able to access his enclosed property from the intervening tract that is retained by the seller.
Thus, it may be that whether or not BJD has evidence of "previous use" of a passage over the Oliviers' land, BJD may be entitled to a gratuitous right of passage under art. 694. Of course, the Louisiana Supreme Court might well agree with Bayou Fleet, and so might any district court in which BJD or STG took their claim of access. But even if article 694 does impose a previous use requirement, and no previous use can be shown, the worst-case scenario would be that BJD is entitled to a forced right of passage for compensation. Article 689 effectively acts as a backstop in this case, capping the cost of curing access. The determination of this cost to cure and the correlative diminution in value of the property is left to the trier of fact—that is, unless the insurer satisfies its obligations under the Policy by curing the access problem.
To sum up, the Policy is a contract of indemnity requiring STG to compensate BJD for actual damages incurred from a lack of a right of legal access. Losses from a lack of access are not covered under the unmarketability of title coverage provision. Losses incurred because a preferred right of access is not available are not recoverable. STG has not acted in bad faith and litigation expenses are not recoverable. BJD has suffered an "actual loss" if the value of the property has diminished because it lacks any legal right of access.
Accordingly,
