First American Title Insurance Company v. McGonigle et al
Filing
159
MEMORANDUM AND ORDER granting 127 Motion for Summary Judgment; granting 130 Motion for Summary Judgment. Signed by District Judge Monti L. Belot on 3/14/2013. (alm)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
FIRST AMERICAN TITLE INSURANCE
COMPANY,
)
)
)
Plaintiff,
)
)
v.
)
)
JERRY MCGONIGLE, et al.,
)
)
Defendants.
)
)
)
JERRY AND GEORGIA MCGONIGLE,
)
)
Defendants/Third )
-Party Plaintiffs)
v.
)
)
MARY RICH, et al.
)
)
)
Third Party
)
Defendants.
)
)
CIVIL ACTION
No.
10-1273-MLB
MEMORANDUM AND ORDER
This case comes before the court on the following motions:
1)
First American’s motion for summary judgment (Doc. 127),
memoranda in support (Docs. 128, 133), the McGonigles’ response (Doc.
140) and First American’s reply (Doc. 142); and
2)
Defendant City of Hutchinson’ motion for summary judgment
(Doc. 130), First American’s response (Doc. 135) and the McGonigles’
response (Doc. 139).
I.
Facts and Procedural History
This case arose after the McGonigles purchased a home and the
surrounding acreage in Hutchinson, Kansas, in 2008 from Danny and Mary
Beth Rich.
The purchased land included the Panorama Dam.
In 1981,
the Riches entered into an agreement with the City of Hutchinson
concerning the duties of both the Riches and the City concerning the
dam.
The agreement required the Riches to remove trees from close
proximity to the dam, and to perform maintenance and repairs.
The
City also had the right to inspect the dam and give notice of needed
repairs.
In the event that the Riches did not make said repairs, the
City could complete the repairs and bill the Riches.
This agreement
was binding upon the parties and their assigns and was filed with the
Register of Deeds.
In 1993, the Kansas Division of Water Resources (DWR) inspected
the dam.
An inspection report was issued and noted that the dam was
not being maintained.
submitted to the Riches.
The
inspection
report
There is no evidence that this report was
A DWR team inspected the dam again in 1997.
again
noted
that
the
dam
was
not
being
maintained. DWR changed the dam classification to high hazard because
it believed there was a potential for loss of life and/or significant
property damage in the event of dam failure. DWR sent a letter to Dan
Rich in which it informed Rich that he was in violation of the permit
issued in 1979.
DWR gave Rich 60 days to inform it of his plans to
bring the dam into compliance.
Rich did not respond to DWR and DWR
did not take any further action at that time.
again in 1999.
DWR issued another letter to the Riches and required
that they take action.
to the Riches.
The dam was inspected
DWR also submitted a proposed Consent Order
The Riches did not respond and DWR did not take any
action.
In 1999, a title insurance policy was issued by First American
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to the Riches.
The policy did not include the 1981 agreement.
On
October 30, 2008, First American issued a title policy to the
McGonigles for the property.
the 1981 agreement.
The policy did not except from coverage
At some point after the sale closed, the
McGonigles learned of the 1981 agreement.
On January 8, 2009, a meeting was held at Panorama Dam with the
McGonigles and representatives for the City and DWR.
The McGonigles
were told that the maintenance of the dam was their responsibility and
DWR expressed several concerns about the dam and suggested several
repairs. On December 4, 2009, the McGonigles received an estimate for
the repairs to the dam.
The estimate was approximately $850,000.1
The McGonigles sent a demand letter to First American, seeking
coverage under the title commitment.
First American denied the claim
and filed this action seeking a declaratory judgment that it has no
duty to defend or honor the McGonigles’ claim.
The McGonigles filed a counter claim against First American
alleging breach of contract, and cross claims against the Riches,
Aste Realty, Karen Gilliland and Terry Brigman.
The McGonigles
amended their complaint on two additional occasions.
(Docs. 54, 88).
The City filed an answer and cross claim against the McGonigles and
the Riches, seeking specific performance.
The parties submitted a
proposed pretrial order to the court in December 2012.
The proposed
pretrial order states that First American breached its contract with
the McGonigles because it failed to discover the 1981 Agreement.
The
McGonigles contend that the 1981 Agreement is a covered risk and
1
A more recent estimate puts the repairs at more than $500,000.
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sought damages due to their expenses in complying with the agreement.
On January 11, 2013, the City moved for summary judgment on the
basis that the 1981 agreement was unenforceable.
(Doc. 130).
All
parties, including the McGonigles, agree with the City’s position and
the motion is uncontested.
(Docs. 135, 139).
On March 1, 2013, the
court sent the parties a letter seeking to clarify the McGonigles’
claims against First American in light of the City of Hutchinson’s
uncontested motion for summary judgment. (Doc. 144). The McGonigles’
contend that their breach of contract claim is based on 1) the
property has unmarketable title; 2) a defect, lien or encumbrance; or
3) suffers from an existing violation of laws or regulations.
Policy Language
The policy states as follows with respect to the covered risks
cited by the McGonigles:
SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE
EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULE B AND THE
CONDITIONS, FIRST AMERICAN TITLE INSURANCE COMPANY OF
KANSAS, a Kansas corporation (the “Company”) insures, as
of Date of Policy and, to the extent stated in Covered
Risks 9 and 10, after Date of Policy, against loss of
damage, not exceeding the Amount of Insurance sustained
or incurred by the Insured by reason of:
* * *
2.
Any defect in or lien or encumbrance on the
Title. . .
3.
Unmarketable Title.
* * *
5.
The violation or enforcement of any law,
ordinance, permit, or governmental regulation (including
those relating to building and zoning) restricting,
regulating, prohibiting, or relating to
(a) the occupancy, use, or enjoyment of the Land;
(b) the character, dimensions, or location of any
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improvement erected on the Land;
(c) The subdivision of land; or
(d) environmental protection
if a notice, describing any part of the Land, is
recorded in the Public Records setting forth the
violation or intention to enforce, but only to the extent
of the violation or enforcement referred to in that
notice.
(Doc. 128, exh. 40 at 1).
The policy states as follows with respect to the exclusions
First American contends are applicable:
EXCLUSIONS FROM COVERAGE
The following matters are expressly excluded from the
coverage of this policy, and the Company will not pay
loss or damage, costs, attorneys’ fees, or expenses that
arise by reason of:
1. (a) Any law, ordinance, permit, or governmental
regulation (including those relating to building and
zoning) restricting, regulating, prohibiting, or relating
to
(i) the occupancy, use, or enjoyment of the Land
. . .
or the effect of any violation of these laws,
ordinances, or governmental regulations.
* * *
3. Defects, liens, encumbrances, adverse claims, or
other matters . . .
(c) resulting in no loss or damage to the Insured
Claimant . . .
* * *
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 Unmarketable Title, all as Insured, in a
reasonably diligent manner by any method, including
litigation and the completion of any appeals, it shall
have fully performed its obligations with respect to that
matter and shall not be liable for any loss or damage
caused to the Insured.
(Doc. 128, exh. 40 at 2-3).
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II.
Summary Judgment Standard
The rules applicable to the resolution of this case, now at the
summary judgment stage, are well-known and are only briefly outlined
here.
Federal Rule of Civil Procedure 56(c) directs the entry of
summary judgment in favor of a party who "show[s] that there is no
genuine issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law."
Fed. R. Civ. P. 56(c).
An issue is “genuine” if sufficient evidence exists so that a rational
trier of fact could resolve the issue either way and an issue is
“material” if under the substantive law it is essential to the proper
disposition of the claim.
Adamson v. Multi Community Diversified
Svcs., Inc., 514 F.3d 1136, 1145 (10th Cir. 2008).
When confronted
with a fully briefed motion for summary judgment, the court must
ultimately determine "whether there is the need for a trial–whether,
in other words, there are any genuine factual issues that properly can
be resolved only by a finder of fact because they may reasonably be
resolved in favor of either party."
477 U.S. 242, 250 (1986).
judgment.
III.
Anderson v. Liberty Lobby, Inc.,
If so, the court cannot grant summary
Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).
Analysis
A.
City of Hutchinson’s Motion for Summary Judgment (Doc. 130)
The City of Hutchinson moves for summary judgment against
itself.
The City asserted claims against the McGonigles and the
Riches seeking specific performance of the 1981 Agreement.
In its
motion, the City contends that the dam is under the exclusive
jurisdiction of the DWR citing K.S.A. 82a-301a.
Section 82a-301a
states that “all dams . . . are declared to be under the jurisdiction
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of [DWR].”
the dam.
Therefore, the City cannot enter an agreement concerning
All parties agree and the motion is uncontested.
The City’s motion is granted.
B.
(Doc. 130)
First American’s Motion for Summary Judgment (Doc. 127)
First American moves for summary judgment on the McGonigles’
claim for breach of contract. The McGonigles contend that their claim
is based on three covered risks set forth in the policy.
The court will address each risk in turn.
(Doc. 156)
The court will then turn
to First American’s argument concerning exclusions to covered risks.
1.
Covered Risk 5 - Current Violations of Laws and Regulations
The McGonigles assert that covered risk 5 is applicable because
DWR requires that the dam be repaired to comply with Kansas law.
First American contends that this covered risk is not applicable
because the alleged violations of Kansas law were not recorded. First
American is correct.
The policy clearly states that a notice must be
recorded in the public records in order for the risk to be covered
under the policy.
Therefore, First American’s motion for summary judgment on this
issue is granted.
2.
Covered Risk 2 - Defect, Lien or Encumbrance on the Title
Next, the McGonigles contend that covered risk 2 is applicable
because the dam is a defect, lien or encumbrance on the title.
The
McGonigles first argue that the 1981 Agreement “by itself or as
evidence of Panorama Dam” is an encumbrance and/or defect.
at 21).
(Doc. 140
The McGonigles cite only to Black’s Dictionary in support of
their position.
The 1981 agreement is unenforceable.
cannot be an be an encumbrance on the title.
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Therefore, it
The McGonigles further assert that the 1981 Agreement should
have been disclosed because it is evidence of the dam’s presence and
the fact that it is regulated.
Presumably, the McGonigles were aware
of the dam as it was located on the property they were purchasing.
If they weren’t, they should have been.
There is no support for the
position that it was First American’s responsibility to point out that
there was a dam on the property nor is there support for the
contention that First American had a duty to inform the McGonigles of
all laws and regulations pertaining to the use of their property.
Therefore, First American’s motion for summary judgment on this
issue is granted.
3.
Covered Risk 3 - Unmarketable Title
Finally, the McGonigles contend that the title to their property
is unmarketable because it exposes them to litigation.
Kansas law
holds that a title is unmarketable if there is “doubt or uncertainty
sufficient to form the basis of litigation.”
J & S Bldg. Co., Inc.
v. Columbian Title & Trust Co., 1 Kan. App.2d 228, 240 (1977)(quoting
Williams v. Bricker, 83 Kan. 53, 55 (1910)).
First American does not assert that the title to the McGonigle’s
property
is
marketable.
Rather,
First
American
contends
that
exclusion 1, which precludes coverage for damages which arise by
reason of any law, “exempts from coverage under the Title Policy
conditions affecting the property which otherwise would render the
title ‘unmarketable.’” (Doc. 157 at 3).
The covered risks do except
from coverage all exceptions and exclusions set forth in the policy.
The McGonigles respond that the exclusion is not applicable because
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it is for future violations of Kansas law, not existing violations.2
The court now turns to the language in the exclusion.
The
exclusion states, in pertinent part, that “the Company will not pay
loss or damage . . . that arise by reason of: 1. (a) Any law . . . or
governmental regulation . . . restricting, regulating, prohibiting,
or relating to (i) the occupancy, use, or enjoyment of the Land; (ii)
the character, dimensions, or location of any improvement erected on
the Land; . . . or the effect of any violation of these laws,
ordinances, or governmental regulations.” (Doc. 128, exh. 40 at 2-3).
The exclusion goes on to say that it does not modify or limit the
coverage set forth in covered risk 5.
As discussed supra, covered
risk 5 pertains to a recorded notice of violations.
The McGonigles contend that the language in covered risk 5
applies to current violations and the language in exclusion 1 is only
applicable to future violations.
The McGonigles, however, state no
authority for this proposition and fail to point to any language in
the provision which would support a finding that exclusion 1 is
limited to future violations.
The court finds that the language in
exclusion 1 applies to violations of Kansas law that were present, but
not recorded, on the date the policy went into effect.
There is no dispute that the dam was and is in violation of
Kansas regulations at the time the policy was issued and DWR seeks a
resolution. Kansas law provides that the chief engineer of DWR “shall
2
In their initial response, the McGonigles argued that this
exclusion only pertained to zoning regulations. (Doc. 140 at 15-16).
The language in the policy, however, clearly applies to any law
relating to the use or enjoyment of the Land. The exclusion is not
limited to zoning regulations.
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have the power and duty to inspect any dam.”
K.S.A. 82a-303b(a)(1).
If the chief engineer determines that a dam is in violation of any
regulations, he or she shall order the correction of the violation or
condition by the owner.
K.S.A. 82a-303c(a).
The McGonigles continue
to argue that their damages are the costs to repair the dam which have
yet to be incurred but are estimated at more than $500,000.
Because the McGonigles seek damages for repairs to the dam due
to a violation of Kansas law or regulation, the court finds that the
clear language of the policy set forth in exclusion 1 precludes the
damages sought by the McGonigles.
IV.
Conclusion
First American’s motion for summary judgment is granted. (Doc.
127).
Defendant City of Hutchinson’s motion for summary judgment is
granted.
(Doc. 130).
A motion for reconsideration of this order is not encouraged.
Any such motion shall not exceed 3 double-spaced pages and shall
strictly comply with the standards enunciated by this court in Comeau
v. Rupp, 810 F. Supp. 1172, 1174 (1992).
The response to any motion
for reconsideration shall not exceed 3 double-spaced pages.
No reply
shall be filed.
IT IS SO ORDERED.
Dated this
14th
day of March 2013, at Wichita, Kansas.
s/ Monti Belot
Monti L. Belot
UNITED STATES DISTRICT JUDGE
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