US Bank, N.A. v. Stewart Title Guaranty Company

Filing 25

ORDER. ORDERED that Defendants Motion for Summary Judgment 19 is GRANTED in part and DENIED in part as indicated in this Order. ORDERED that plaintiff's Motion for Partial Summary Judgment 20 is DENIED by Judge Philip A. Brimmer on 03/20/14.(jhawk, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Philip A. Brimmer
Civil Action No. 13-cv-00117-PAB-KLM
US BANK, N.A.
Plaintiff,
v.
STEWART TITLE GUARANTY COMPANY,
Defendant.

ORDER

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.
I. BACKGROUND1
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.

1

The following facts are undisputed unless otherwise indicated.

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 (1017-92).2 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.3 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.4 Docket No. 20 at 6, ¶ 7. On September 24,
2010, Bloom Murr & Accomazzo, P.C., claiming to represent Wells Fargo Home

2

The ALTA is a real estate industry trade group that promulgates standard form
title insurance policies used in several states. 11 Couch on Insurance § 159:1; see,
e.g., Nationwide Life Ins. Co. v. Commonwealth Land Title Ins. Co., 579 F.3d 304, 306
(3d Cir. 2009).
3

According to U.S. Bank’s amended complaint, a loan servicer “administers and
collects mortgage loans on behalf of the holder of the beneficial interest in the
mortgage.” Docket No. 8 at 3, ¶ 18 n.1.
4

Stewart Title claims that it is without sufficient information to admit or deny the
exact date that Ms. Fresquez served a complaint on Wells Fargo of Hawaii, LLC.
Docket No. 21 at 1, ¶ 7.
2

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:
3

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
4

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 US 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

5

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).
III. ANALYSIS
U.S. Bank’s breach of contract claim is vague.5 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
5

Under Colorado law, to prove a breach of contract claim, a plaintiff must
establish the following elements: (1) the existence of a contract; (2) plaintiff’s
performance or some justification for nonperformance; (3) defendant’s failure to
perform; and (4) resulting damages to the plaintiff. W. Distrib. Co. v. Diodosio, 841
P.2d 1053, 1058 (Colo. 1992). U.S. Bank fails to identify what damages it suffered
before becoming a party to the Fresquez suit. Although Stewart Title hints at the
existence of an indemnity agreement between U.S. Bank and Wells Fargo, Docket No.
23 at 1, the record contains no evidence or allegations upon which to conclude that
such an agreement existed. In other words, U.S. Bank provides no evidence upon
which to conclude that U.S. Bank suffered any losses prior to being named in the
Fresquez suit. See Gibraltar Sav. v. Commonwealth Land Title Ins. Co., 905 F.2d
1203, 1205 (8th Cir. 1990) (“[plaintiffs] did not suffer a loss as defined by the policy
[because t]here has been no final judicial determination adverse to Lenders’ mortgage
lien.”). Nonetheless, Stewart Title does not raise the issue of damages in its motion for
summary judgment.
6

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
7

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:

8

CONDITIONS AND STIPULATIONS
1. DEFINITION OF TERMS
The following terms when used in this policy mean:
(a) “insured”: the Insured named in Schedule A. The term “insured” also
includes
(i) the owner of the indebtedness secured by the insured mortgage and each
successor in ownership of the indebtedness except a successor who is an
obligor under the provisions of Section 12(c) of these Conditions and
Stipulations . . .
*

*

*

(iii) the parties designated in Section 2(a) of these Conditions and
Stipulations.
(b) “insured claimant”: an insured claiming loss or damage.
*

*

*

2. CONTINUATION OF INSURANCE
(a) After Acquisition of Title. The coverage of this policy shall continue in
force as of Date of Policy in favor of (i) an insured who acquires all or any
part of the estate or interest in the land by foreclosure, trustee’s sale,
conveyance in lieu of foreclosure, or other legal manner which discharges
the lien of the insured mortgage; (ii) a transferee of the estate or interest so
acquired from an insured corporation, provided the transferee is the parent
or wholly-owned subsidiary of the insured corporation, and their corporate
successors by operation of law and not by purchase, subject to any rights or
defenses the Company may have against any predecessor insureds . . . .
Id. at 9-10.
It is undisputed that Aames, the named insured, assigned the note to U.S. Bank.
Docket No. 19 at 2, ¶ 4. U.S. Bank, however, does not claim that Wells Fargo was a
successor in interest to U.S. Bank, that U.S. Bank assigned Wells Fargo the note, or
that Wells Fargo acquired “any part of the estate or interest in the land.” See Docket
9

No. 19-1 at 10. Instead, Wells Fargo is the loan servicer. Docket No. 20 at 6, ¶ 6. U.S.
Bank admits that a loan servicer “administers and collects mortgage loans on behalf of
the holder of the beneficial interest in the mortgage” and alleges that Wells Fargo had
the authority to act on U.S. Bank’s behalf with respect to the policy. Docket No. 8 at 3,
¶ 18 n.1. The Court finds as a matter of law that U.S. Bank, and not Wells Fargo, is the
“insured” under the terms of the policy.
C. Duty to Defend
The Court next addresses U.S. Bank’s argument that Stewart Title breached the
insurance contract by refusing to defend the Fresquez suit. Docket No. 22 at 5; Docket
No. 20 at 10. Under Colorado law, the duty to defend is separate and distinct from an
insurer’s obligation to indemnify its insured. See Hecla Mining Co. v. N.H. Ins. Co., 811
P.2d 1083, 1086, n.5 (Colo. 1991). While “[t]he duty to indemnify relates to the
insurer’s duty to satisfy a judgment entered against the insured, . . . [t]he duty to defend
concerns an insurance company’s duty to affirmatively defend its insured against
pending claims.” Cyprus Amax Minerals Co. v. Lexington Ins. Co., 74 P.3d 294, 299
(Colo. 2003) (internal quotations and citations omitted). The duty to defend is broader
than the duty to indemnify such that “the insured need only show that the underlying
claim may fall within policy coverage; the insurer must prove it cannot.” Compass Ins.
Co. v. City of Littleton, 984 P.2d 606, 614 (Colo. 1999) (internal citations and quotations
omitted). Provided that “‘the underlying complaint against the insure[d] alleges any
facts that might fall within the coverage of the policy,’ the carrier is under an initial duty
to defend.” Employers’ Fire Ins. Co. v. W. Guar. Fund Serv., 924 P.2d 1107, 1111

10

(Colo. App. 1996) (quoting Hecla Mining, 811 P.2d at 1089). “[T]he duty to defend must
be determined based solely on a comparison of the allegations of the complaint made
against the insured with the insuring provisions of the policy.” Employers’ Fire, 924
P.2d at 1110.
Because Wells Fargo is not an insured under the policy, the Court looks to the
language of the policy to determine if Stewart Title was obligated to defend anyone
other than the insured. The policy states:
STEWART TITLE GUARANTY COMPANY . . . insures, as of Date of Policy
shown in Schedule A, against loss or damage . . . sustained or incurred by
the insured by reason of:
1. Title to the estate or interest described in Schedule A being
vested other than as stated therein;
2. Any defect in or lien or encumbrance on the title . . .
5. The invalidity or unenforceability of the lien of the insured
mortgage upon the title . . .
The Company will also pay the costs, attorneys’ fees and expenses incurred
in the defense of the title or the lien of the insured mortgage, as insured, but
only to the extent provided in the Conditions and Stipulations.
Docket No. 19-1 at 6. As noted in the last sentence, the scope of Stewart Title’s
obligation to pay costs, attorneys’ fees, and expenses is controlled and defined by the
Conditions and Stipulations. The Conditions and Stipulations indicate that the insured
under the policy is U.S. Bank as a successor in ownership of the indebtedness.
Section Three of the Conditions and Stipulations places upon the insured a duty
to provide Stewart Title notice of litigation or notice of any claim adverse to the insured’s
interest:

11

3. NOTICE OF CLAIM TO BE GIVEN BY INSURED CLAIMANT.
The insured shall notify the Company promptly in writing (i) in case of any
litigation as set forth in Section 4(a) below, (ii) in case knowledge shall come
to an insured hereunder of any claim of title or interest which is adverse to
the title to the estate or interest or the lien of the insured mortgage, as
insured, and which might cause loss or damage for which the Company may
be liable by virtue of this policy, or (iii) if title to the estate or interest or the
lien of the insured mortgage, as insured, is rejected as unmarketable.
Id. at 10. The policy does not explicitly allow any entity other than the insured claimant
to provide Stewart Title notice on the insured claimant’s behalf; however, “failure to
notify the Company shall in no case prejudice the rights of any insured under this policy
unless the Company shall be prejudiced by the failure and then only to the extent of the
prejudice.” Id. Section Four of the Conditions and Stipulations specifically explains the
scope of Stewart Title’s obligation to defend under the policy and contemplates that
Stewart Title may take other action to clear title:
4. DEFENSE AND PROSECUTION OF ACTIONS; DUTY OF INSURED
CLAIMANT TO COOPERATE.
(a) Upon written request by the insured . . . the Company, at its own cost and
without unreasonable delay, shall provide for the defense of an insured in
litigation in which any third party asserts a claim adverse to the title or
interest as insured, but only as to those stated causes of action alleging a
defect, lien or encumbrance or other matter insured against by this policy
. . . . The Company will not pay any fees, costs or expenses incurred by the
insured in the defense of those causes of action which allege matters not
insured against by this policy.
(b) The company shall have the right, at its own cost, to institute and
prosecute any action or proceeding or to do any other act which in its opinion
may be necessary or desirable to establish the title to the estate or interest
or the lien of the insured mortgage, as insured, or to prevent or reduce loss
or damage to the insured. The Company may take any appropriate action
under the terms of this policy, whether or not it shall be liable hereunder, and
shall not thereby concede liability or waive any provision of this policy. If the
Company shall exercise its rights under this paragraph, it shall do so
diligently.
12

(c) Whenever the Company shall have brought an action or interposed a
defense as required or permitted by the provisions of this policy, the
Company may pursue any litigation to final determination by a court of
competent jurisdiction and expressly reserves the right, in its sole discretion,
to appeal from any adverse judgment or order.
Id. at 10-11.
The language of paragraph 4(a) is written in terms of the insurer’s defense duties
to “the insured.” The paragraph begins by stating “[u]pon written request of the insured”
the insurer “shall provide for the defense of an insured in litigation. . . .” Id. Nothing
about this language suggests that the insurer has duties to any entity other than the
insured. U.S. Bank focuses on the language in paragraph 4(a) that refers to “litigation
in which any third party asserts a claim adverse to the title or interest as insured.”
Docket No. 22 at 4. U.S. Bank argues that Fifth Third Mortgage Co. v. Chicago Title
Insurance Co., 692 F.3d 507, 514 (6th Cir. 2012), interpreted the same language and
supports its position that a duty to defend arises where the insured is not a named
party. In Fifth Third, the insured became a participant in the underlying litigation when it
intervened in a foreclosure suit to protect its mortgage interest in the property. Id. at
510. The insurer argued that it had a duty to defend the insured only if the insured was
a defendant in litigation. Id. at 514. The Sixth Circuit rejected the insurer’s argument
and, interpreting a policy nearly identical to the policy in the instant case, held that the
insurer had a duty to defend the insured because the underlying claim was “adverse to
the insured.” Id. (emphasis in original). Unlike the plaintiff in Fifth Third, U.S. Bank did
not intervene in the underlying suit and was not otherwise a participant in the Fresquez
suit until August 10, 2011. Thus, Fifth Third is distinguishable and cannot be

13

interpreted as requiring an insurer to defend an action where, as here, the insured is
not a participant.
As noted above, it order to determine whether an insurer is subject to a duty to
defend, the court must decide whether the facts alleged in the complaint fall within the
coverage of the policy. See Employers’ Fire, 924 P.2d at 1110. U.S. Bank does not
explain how a court can determine “facts that might fall within the coverage of the
policy” when the underlying complaint does not name the insured in any capacity and
the insured is not a party to the underlying litigation. See Hecla Mining, 811 P.2d at
1089. U.S. Bank argues that Stewart Title’s obligation under the policy to “pay the
costs, attorneys’ fees and expenses incurred in defense of the title or the lien of the
insured mortgage” is expanded to situations where, as here, an entity other than the
insured is engaged in litigation to defend the insured title. See Docket No. 19-1 at 6.
The policy language U.S. Bank cites cannot, as U.S. Bank acknowledges, be
interpreted in isolation; rather, the policy indicates that the scope of Stewart Title’s
obligation is controlled by the Conditions and Stipulations. Paragraph 4(a) of the
Conditions and Stipulations states that Stewart Title’s obligation extends only to “the
defense of an insured.” Id. at 11. The Conditions and Stipulations do not place upon
Stewart Title a duty to defend a suit where the insured is not a party to the proceeding
and it is difficult to contemplate why a person or entity who is not the beneficial owner of
the title would be defending the title in litigation. Thus, the reasonable interpretation of
Stewart Title’s obligation to pay costs, attorneys’ fees, and expenses is that such an
obligation extends only to the costs, attorneys’ fees, and expenses incurred by the

14

insured in litigation. The Court finds that the terms of the policy are clear and
unambiguous in this regard.
U.S. Bank relies on Hecla Mining for the proposition that Stewart Title had a duty
to defend Wells Fargo when Wells Fargo notified Stewart Title of Mr. Fresquez’
complaint.6 Docket No. 20 at 13. In Hecla Mining, the Colorado Supreme Court held
that the insurer had a duty to defend the insured in a suit where the insured was a
defendant in the underlying litigation. 811 P.2d at 1085; see also Employers’ Fire, 924
P.2d at 1111. In this case, there was no “complaint made against the insured” until
August 10, 2011. See Employers’ Fire, 924 P.2d at 1110. U.S. Bank fails to show how
Mr. Fresquez’ declaratory judgment claim against Wells Fargo – a party with no interest
in the underlying lien – would be “adverse to [U.S. Bank]” as contemplated by the
policy. Cf. Hecla Mining, 811 P.2d 1089 (holding that the duty to defend arises when
the allegations in the complaint, if sustained, would impose a liability covered by the
policy). As such, U.S. Bank’s reliance on Hecla Mining is misplaced. See Van Winkle
v. Transamerica Title Ins. Co., 697 P.2d 784, 786 (Colo. App. 1984) (affirming trial court
finding that policy language required title insurer to defend only the named insured).7
6

U.S. Bank argues that Mr. Fresquez’ complaint stated allegations within the
policy’s coverage such that Stewart Title’s duty to defend the Fresquez suit arose on
September 24, 2010, when Wells Fargo notified Stewart Title of Mr. Fresquez’
complaint. Docket No. 20 at 12-13. Stewart Title argues that its duty to defend did not
arise until U.S. Bank became a party to the Fresquez suit on August 10, 2011, when
Mr. Fresquez amended his complaint to add U.S. Bank as a defendant. Docket No. 19
at 9; Case No. 10-cv-02818-WYD-MJW (Docket No. 24).
7

U.S. Bank’s citations to other Colorado cases discussing an insurer’s duty to
defend are distinguishable for the same reason, namely, the insured was a party to the
underlying action. See, e.g., Sims v. Sperry, 835 P.2d 565, 567 (Colo. App. 1992);
Wheeler v. Reese, 835 P.2d 572, 573 (Colo. App. 1992).
15

The Court finds that the policy did not require Stewart Title to provide a defense
to the Fresquez suit until such time as U.S. Bank became a party to the action.8 The
Court will grant summary judgment in favor of Stewart Title on this issue.
D. Duty to Remedy the Title Defect and to Defend the Insured Mortgage
U.S. Bank argues that Stewart Title breached the policy by failing to take
affirmative action to remedy the title defect and failing to take action to defend the title
or the lien of the insured mortgage. Docket No. 20 at 14-16.
The record does not indicate that U.S. Bank or Wells Fargo demanded that
Stewart Title take action to remedy the title defect or requested that Stewart Title
intervene in the Fresquez suit. Rather, in its September 24, 2010 letter, Wells Fargo
identified itself as the insured under the policy, said it was the holder of the deed of
trust, which it referred to as the “Wells Fargo Deed of Trust,” and requested only that
Stewart Title provide “immediate defense and indemnity.” See Docket No. 20-7 at 1.
Wells Fargo’s initial letter did not mention U.S. Bank or indicate that Wells Fargo was
the agent of the beneficial owner of the note. Id. Wells Fargo’s February 9, 2011 letter
to Stewart Title admitted that “U.S. Bank is the holder of the promissory note,” but
maintained that Stewart Title had a duty to defend Wells Fargo. Docket No. 19-5. U.S.
Bank’s breach of contract claim on this issue therefore turns on whether, absent a
8

U.S. Bank also argues that loan servicers are the parties most likely to be
named in a lawsuit challenging title to property securing a mortgage such that the policy
would be rendered illusory if it did not cover the defense of lawsuits against loan
servicers. Docket No. 22 at 7. However, U.S. Bank provides no factual or legal support
for its argument. Moreover, a loan servicer is highly likely to notify the insured, who
would then have the ability to seek to intervene and become a party entitled to be
defended. As a result, the Court rejects U.S. Bank’s argument that Stewart Title’s
interpretation of the policy renders the insurance policy illusory.
16

request from the insured, the policy’s terms required Stewart Title to unilaterally remedy
a defect in title or to intervene in the Fresquez suit to defend the insured mortgage after
Wells Fargo put Stewart Title on notice that Mr. Fresquez was seeking to have the deed
of trust declared void.9
There are two types of title insurance policies: an “owner’s policy,” which is
purchased to protect the borrower/homeowner’s property interest, and a “lender’s
policy,” which is purchased to protect the lender’s security interest. Markocki v. Old
Republic Nat’l Title Ins. Co., 254 F.R.D. 242, 245 (E.D. Penn. 2008). In either case,
absent express provisions to the contrary, title insurance “is a contract of indemnity, and
not a contract of guaranty or warranty.” Haines v. Old Republic Nat’l Title Ins. Co., 178
P.3d 1086, 1090 (Wyo. 2008); see also First Fed. Sav. & Loan Ass’n of Fargo, N.D. v.
Transamerica Title Ins. Co., 19 F.3d 528, 530 (10th Cir. 1994) (applying Colorado law);
Stewart Title Guar. Co. v. West, 676 A.2d 953, 960 (Md. Ct. Spec. App. 1996)
(collecting cases). “The policy does not purport to ‘guarantee’ title”; rather, “the insured
must show actual loss sustained before recovery can be had.” Securities Serv., Inc. v.
Transamerica Title Ins. Co., 583 P.2d 1217, 1221 (Wash. App. 1978). When an insurer
is notified of a threat to title the insurer can choose among three options: “(1) pay the
insured for the loss up to the amount of the coverage limits of the policy; (2) clear the
title defect within a reasonable time; or (3) show that the alleged unmarketability or

9

Even assuming such a duty existed under the policy, U.S. Bank fails to explain
how Stewart Title could have remedied the title defect under these facts. However, for
the reasons stated below, it is unnecessary to parse U.S. Bank’s allegations for a
coherent theory of liability because the Court finds that U.S. Bank’s claim fails.
17

other title problems do not really exist.” Haines, 178 P.3d at 1090. However, although
the insurer retains the option to clear the title defect, it is generally under no obligation
to do so. See 11 Couch on Insurance § 159:9. This interpretation is consonant with
the purpose of a lender’s policy, which is to protect a lender’s security interest. Cf.
Markocki, 254 F.R.D. at 245 (“an owner’s policy [is] generally purchased . . . to protect
the borrower’s property interest”).
The Court turns to the policy’s terms to determine whether Stewart Title has a
“right” or a “duty” to institute litigation or take other action to establish title. The policy
states:
The Company will also pay the costs, attorneys’ fees and expenses incurred
in defense of the title or the lien of the insured mortgage, as insured, but only
to the extent provided in the Conditions and Stipulations.
Docket No. 19-1 at 6. U.S. Bank argues that Stewart Title’s obligation to “pay the costs,
attorneys’ fees and expenses incurred in defense of the title or the lien of the insured
mortgage” places a broad duty on Stewart Title to take action to clear title or intervene
in litigation to defend the insured mortgage. U.S. Bank, however, fails to account for
the remainder of the provision which provides that Stewart Title is obligated “only to the
extent provided in the Conditions and Stipulations.” See id. at 6. Paragraph 4(b) of the
Conditions and Stipulations plainly indicates that Stewart Title shall have the “right” to
take whatever action “in its opinion” may be necessary to protect or establish title. See
Docket No. 19-1 at 11. Stewart Title “may,” rather than must, take such action, but,
should Stewart Title decide to exercise “its rights,” it must do so diligently. Id.
(emphasis added). Paragraph 4(b) does not place an independent duty to act on

18

Stewart Title; rather, the paragraph mentions only Stewart Title’s rights under the policy
and Stewart Title’s option to take whatever action it deems necessary. If the provision
cited by U.S. Bank created as broad a duty as U.S. Bank argues, Paragraph 4(b) would
have been drafted differently to capture the reasonable expectations of the insured,
such as providing that Stewart Title “shall institute” a defense of the insured mortgage
or that Stewart Title have “the obligation to institute” action to clear title. Paragraph 4(b)
contains no such mandatory language. Moreover, the policy must be interpreted as a
whole. Were Stewart Title under the same obligation to defend the insured and
unilaterally cure title defects, the differences between the language of paragraph 4(a)
and paragraph 4(b) would be left unexplained.
U.S. Bank argues that the policy describes the interest being insured as the
“estate or interest in the land identified in this Schedule A and which is encumbered by
the insured mortgage in fee simple and is at the Date of Policy vested in the borrower(s)
shown in the insured mortgage and named above.” Docket No. 19-1 at 3. However,
the Conditions and Stipulations plainly do not contemplate defense of the insured
mortgage. As noted above, Stewart Title’s obligation is to “provide for the defense of
an insured” as defined by the policy and Stewart Title has the discretion to institute
litigation or otherwise act to protect “the lien of the insured mortgage.” Id. at 11.
The policy also explicitly states that the policy is one of indemnity and that
Stewart Title is liable for costs, attorneys’ fees, and expenses only to the extent
permitted by Section Four:
7. DETERMINATION AND EXTENT OF LIABILITY.
This policy is a contract of indemnity against actual monetary loss or damage
19

sustained or incurred by the insured claimant who has suffered loss or
damage by reason of matters insured against by this policy and only to the
extent herein described.
*

*

*

(c) The Company will pay only those costs, attorneys’ fees and expenses
incurred in accordance with Section 4 of these Conditions and Stipulations.
8. LIMITATION OF LIABILITY
(a) If the Company establishes the title, or removes the alleged defect, lien
or encumbrance, or cures the lack of a right of access to or from the land, or
cures the claim of unmarketability of title, or otherwise establishes the lien of
the insured mortgage, all as insured, in a reasonable diligent manner by any
method, including litigation . . . it shall have fully preformed its obligation with
this respect to that matter . . . .
(b) In the event of any litigation, including litigation by the Company or with
the Company’s consent, the company shall have no liability for loss or
damage until there has been a final determination by a court of competent
jurisdiction, and disposition of all appeals therefrom, adverse to the title or to
the lien of the insured mortgage, as insured.
Docket No. 19-1 at 12-13. These policy provisions do not support U.S. Bank’s
assertion that the policy creates a duty to defend the title independent of the insurer’s
duty to defend the insured. If anything, these provisions reinforce the interpretation of
the policy that Stewart Title’s duties are defined in relationship to the insured. The
policy’s stated purpose is “a contract of indemnity against actual monetary loss or
damage sustained or incurred by the insured” and Paragraph 7(c) states that Stewart
Title will only pay “those costs, attorneys’ fees and expenses incurred in accordance
with Section 4 of these Conditions and Stipulations.”10 Id. at 12-13 (emphasis added).

10

U.S. Bank fails to produce any evidence suggesting that it incurred costs and
attorney’s fees prior to being named as a defendant in the Fresquez suit.
20

The Colorado Supreme Court has not decided if ALTA policy language places on
an insurer the affirmative duty to cure a title defect. Other jurisdictions considering the
question have reached varying conclusions. Courts that closely adhere to the text of
ALTA policies hold that an insurer’s duty to indemnify or otherwise act to cure title
defects does not arise until a final determination by a court. See Willow Ridge Ltd.
P’ship v. Stewart Title Guar. Co., 706 F. Supp. 477, 482 (S.D. Miss. 1988); see also
Securities Service, 583 P.2d at 1221 (holding that the insured must show actual loss
before recovering under the policy and that the policy did not impose a broad duty on
insurer to “clear title”); Childs v. Miss. Valley Title Ins. Co., 359 So.2d 1146, 1150, 1152
(Ala. 1978) (interpreting similar policy language and holding that, in bad faith action,
insurer had no duty to take affirmative action to clear title against an adverse claim to
title). In Willow Ridge, where the foreclosure and transfer of title on the underlying
property occurred prior to any determination as to the validity of the liens, the insurer
did not breach its obligation by “failing to obtain discharge of the liens.” 706 F. Supp. at
482. “While a suit to clear title was an option available to [the insurer], it was an option
and nothing more than that.” Id. at 483.
U.S. Bank relies on Ticor Title Insurance Co. v. University Creek, Inc., 767 F.
Supp. 1127, 1130 (M.D. Fla. 1991), where the court construed an owner’s title
insurance policy. The court did not interpret the insurance policy as requiring the
insurer to bring suit to remedy a title defect, but held that the policy “contemplates that
[the insurer] will take some action to remove an encumbrance within a reasonable time
after receiving notice of it.” Id. at 1137. However, unlike the instant case, the insured in

21

Ticor intervened in a suit over the underlying property and the insured repeatedly
refused to take any action for over seven months. Id. at 1132-33.
U.S. Bank also cites Summonte v. First American Title Insurance Co., 436 A.2d
110 (N.J. Super. Ct. Ch. Div. 1981), in support of its argument that Stewart Title
breached a duty to remedy the title defect. In Summonte, the insured requested that
the title insurer remove a lien from the insured’s property pursuant to an owner’s title
insurance policy. Id. at 111. The insurer acquired the lien, but refused to remove the
lien and litigation ensued. Id. The court interpreted policy language similar to the policy
at issue here and, construing the policy in favor of the insured, held that the right to
establish title was a “mandatory alternative to the obligation to defend.” Id. at 115.
Because “no litigation had commenced requiring a defense, the insurer was obliged to
remove the defect.” Id. at 116. The court also noted that, because the insurer owned
the lien, principles of equity dictated that it remove the lien rather than requiring the
insured to pay the amount due to the insurer, only to have the insurer reimburse the
insured. Id.
The holding in Summonte is based upon unusual facts; the insured was left
without any recourse because its insurer was both lien holder and insurer. Id. Here,
U.S. Bank had at least two options: one, intervene in the Fresquez suit, thereby
requiring Stewart Title to defend the suit; or, two, wait until the Fresquez suit concluded
and, in the event that the declaratory judgment was enforceable against U.S. Bank,
recover damages under the policy, which would in no event exceed the policy limit of

22

$120,000.11 See Docket No. 19-1 at 3.
The Court finds that, pursuant to the policy and under the facts of this particular
case, Stewart Title had no duty to take unilateral action to clear title or intervene to
defend the insured mortgage.
To the extent U.S. Bank’s breach of contract claim is based upon Stewart Title’s
alleged acts or omissions prior to August 10, 2011, U.S. Bank has failed to raise a
genuine dispute as to any material fact in opposition to Stewart Title’s motion for
summary judgment. Thus, as to conduct occurring prior to August 10, 2011, the Court
will grant Stewart Title’s motion for summary judgment on U.S. Bank’s breach of
contract claim.
Stewart Title admits that its duty to defend arose on August 10, 2011, when U.S.
Bank was named in the Fresquez suit. Docket No. 19 at 9. U.S. Bank’s amended
complaint alleges that, after August 10, 2011, Stewart Title delayed tendering a defense
and “refused to pay any amount to facilitate the proposed settlement.” Docket No. 8 at
4, ¶¶ 27-33. Because neither party addresses these allegations as they relate to
Stewart Title’s obligations after its duty to defend arose, the Court will deny summary
judgment on U.S. Bank’s breach of contract claim to the extent it is based on Stewart
Title’s acts or omissions occurring after August 10, 2011.
11

Even though jurisdictions differ in interpreting ALTA policies, the weight of
authority requires an insurer who has undertaken an action to clear title to do so in a
reasonable amount of time and without undue delay. See Willow Ridge, 706 F. Supp.
at 483; First Federal, 19 F.3d at 531. In this case, however, U.S. Bank provides no
evidence upon which to conclude that it or Wells Fargo requested Stewart Title take
action to clear title. Instead, Wells Fargo continued to demand that Stewart Title
defend the suit and indemnify Wells Fargo even after Wells Fargo’s counsel admitted
that U.S. Bank was the beneficial owner of the note.
23

E. Bad Faith Claims
U.S. Bank’s bad faith claims allege 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 also alleges that Stewart Title “acted unreasonably in refusing to timely provide a
defense.” Id. at 6, ¶ 52. Thus, based on the amended complaint, it appears that U.S.
Bank’s bad faith claims are based primarily on Stewart Title’s refusal to defend the
Fresquez suit.
Stewart Title argues that U.S. Bank’s bad faith breach of insurance policy claims
should be dismissed for the same reasons as U.S. Bank’s breach of contract claim,
namely, that Stewart Title did not breach the policy before U.S. Bank was named in the
Fresquez suit. Docket No. 23 at 4. “To establish the tort of bad faith breach of an
insurance contract, a plaintiff must show that the insurer acted both unreasonably and
with knowledge of or reckless disregard of its unreasonableness.” Pham v. State Farm
Mut. Auto. Ins. Co., 70 P.3d 567, 572 (Colo. App. 2003). “Bad faith breach of an
insurance contract encompasses the entire course of conduct and is cumulative.” Id.
However, bad faith claims exist “independently of the liability imposed by an insurance
contract.” Pham, 70 P.3d at 571; see also Flickinger v. Ninth Dist. Production Credit
Ass’n of Wichita, Kan., 824 P.2d 19, 24 (Colo. App. 1991) (“[bad faith] is not a claim
arising under the pertinent policy; it is, rather, a claim that exists independently from the
liability imposed by the insurance contract”). “The carrier’s tort liability, therefore, does
not depend upon its liability under the insurance contract.” Id.
U.S. Bank does not directly respond to Stewart Title’s argument or produce any

24

evidence to support its bad faith claims. See Docket No. 22 at 4; Docket No. 20 at 17.
However, Stewart Title fails to explain why a finding that it did not breach the insurance
policy compels the dismissal of U.S. Bank’s bad faith claims, which are not dependent
upon contractual liability and are based upon the entire course of conduct between the
insurer and the insured. See Pham, 70 P.3d at 572. Thus, Stewart Title is not entitled
to summary judgment on U.S. Bank’s bad faith claims.
Stewart Title also argues that U.S. Bank’s claims for bad faith breach of policy
are barred by the statute of limitations. Docket No. 19 at 9. Bad faith actions must be
“commenced within two years after the cause of action accrues.” Colo. Rev. Stat. § 1380-102(1)(a). A bad faith cause of action accrues “on the date both the injury and its
cause are known or should have been known by the exercise of reasonable diligence.”
Colo. Rev. Stat. § 13-80-108; accord Brodeur v. Am. Home Assurance Co., 169 P.3d
139, 147 (Colo. 2007) (applying § 13-80-108 to bad faith tort claim). As noted above,
bad faith claims are independent of contractual liability. Pham, 70 P.3d at 571. “Each
bad faith act constitutes a separate and distinct tortious act, on which the statute of
limitation begins to run anew when plaintiff becomes aware of the injury and its cause.”
Cork v. Sentry Ins., 194 P.3d 422, 427 (Colo. App. 2008).
Stewart Title raises this issue on summary judgment, which shifts the burden
back to U.S. Bank to show a genuine dispute of material fact as to when it knew or
should have known of its injury and the injury’s cause. Bausman, 252 F.3d at 1115.
U.S. Bank argues that it could not have known of its injury until January 20, 2011, when
Stewart Title denied coverage. Docket No. 22 at 10. Stewart Title responds, without

25

citation to the record, that it informed U.S. Bank on numerous occasions prior to
January 20, 2011 that it would deny coverage. Docket No. 23 at 6. However,
according to the record, Stewart Title denied coverage to Wells Fargo. Docket No. 193. The record is devoid of any evidence indicating when U.S. Bank learned of the
Fresquez suit, learned of Wells Fargo’s request for coverage, and learned of Stewart
Title’s denial. The fact that U.S. Bank and Wells Fargo were represented by the same
counsel after U.S. Bank joined the Fresquez suit does not serve to impute Wells
Fargo’s knowledge to U.S. Bank prior to U.S. Bank joining the Fresquez suit.
Accordingly, since neither party has presented any evidence as to when U.S. Bank
learned of an injury and its cause, the Court finds that Stewart Title is not entitled to
summary judgment on its statute of limitations defense.
IV. CONCLUSION
For the foregoing reasons, it is
ORDERED that Defendant’s Motion for Summary Judgment [Docket No. 19] is
GRANTED in part and DENIED in part as indicated in this Order. It is further
ORDERED that plaintiff’s Motion for Partial Summary Judgment [Docket No. 20]
is DENIED.

DATED March 20, 2014.
BY THE COURT:

s/Philip A. Brimmer
PHILIP A. BRIMMER
United States District Judge

26