Joglor, LLC v. First American Title Insurance Company

Filing 154

OPINION and ORDER granting 59 motion for summary judgment; denying 67 motion for summary judgment. The complaint is dismissed with prejudice. Final judgment to be entered. Signed by US Magistrate Judge Bruce J. McGiverin on September 27, 2016. (McGiverin, Bruce)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
JOGLOR, LLC,
Plaintiff,
v.

Civil No. 15-1088 (BJM)

FIRST AMERICAN TITLE INSURANCE
COMPANY,
Defendant.
OPINION AND ORDER
Joglor, LLC (“Joglor”) brought this action under the court’s diversity jurisdiction
against First American Title Insurance Company (“FATIC” or “Company”), alleging
breach of two title insurance policies, bad-faith handling of Joglor’s insurance claims, and
entitlement to attorney’s fees and costs. Docket No. 1 (“Compl.”). Seeking a declaratory
judgment, the Company counterclaimed. Docket No. 13. The parties stipulated to the
dismissal of the bad-faith claim, and so that claim was dismissed. Docket Nos. 84, 105.
Joglor and FATIC cross-moved for summary judgment, Docket Nos. 59, 67, and opposed
each other’s motions. Docket Nos. 77, 90, 114, 127, 128, 143. The case is before me on
consent of the parties. Docket No. 24.
For the reasons set forth below, the Company’s motion is GRANTED, and Joglor’s
motion is DENIED.
SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate when the movant shows “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). A dispute is “genuine” only if it “is one that could be resolved in favor
of either party.” Calero-Cerezo v. U.S. Dep’t of Justice, 355 F.3d 6, 19 (1st Cir. 2004). A
fact is “material” only if it “might affect the outcome of the suit under the governing law.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The moving party bears the

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initial burden of “informing the district court of the basis for its motion, and identifying
those portions” of the record materials “which it believes demonstrate the absence” of a
genuine dispute of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
The court does not act as trier of fact when reviewing the parties’ submissions and
so cannot “superimpose [its] own ideas of probability and likelihood (no matter how
reasonable those ideas may be) upon” conflicting evidence. Greenburg v. P.R. Mar.
Shipping Auth., 835 F.2d 932, 936 (1st Cir. 1987). Rather, it must “view the entire record
in the light most hospitable to the party opposing summary judgment, indulging all
reasonable inferences in that party’s favor.” Griggs-Ryan v. Smith, 904 F.2d 112, 115 (1st
Cir. 1990). The court may not grant summary judgment “if the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.” Anderson, 477 U.S. at 248.
BACKGROUND
Except where otherwise noted, the following facts are drawn from the parties’ Local
Rule 561 submissions.2 The facts giving rise to this case are largely undisputed.
The Actors
The Company is a Nebraska corporation authorized by the Puerto Rico Insurance
Commissioner’s Office to sell title insurance in Puerto Rico. CSUF ¶ 1. Joglor is a Puerto

Local Rule 56 is designed to “relieve the district court of any responsibility to ferret
through the record to discern whether any material fact is genuinely in dispute.” CMI Capital
Market Inv. v. Gonzalez-Toro, 520 F.3d 58, 62 (1st Cir. 2008). It requires a party moving for
summary judgment to accompany its motion with a brief statement of facts, set forth in numbered
paragraphs and supported by citations to the record, that the movant contends are uncontested and
material. D.P.R. Civ. R. 56(b), (e). The opposing party must admit, deny, or qualify those facts,
with record support, paragraph by paragraph. Id. 56(c), (e). The opposing party may also present,
in a separate section, additional facts, set forth in separate numbered paragraphs. Id. 56(c). While
the “district court may forgive a party’s violation of a local rule,” litigants ignore the Local Rule
“at their peril.” Mariani-Colón v. Dep’t of Homeland Sec. ex rel. Chertoff, 511 F.3d 216, 219 (1st
Cir. 2007).
2
The Company’s Statement of Uncontested Facts (“CSUF”), Docket No. 60; Joglor’s
Statement of Uncontested Facts (“JSUF”), Docket No. 68; Joglor’s Opposing Statement of Facts
(“JOSF”), Docket No. 78; Company’s Opposing Statement of Facts (“COSF”), Docket No. 91 at
1–25; Company’s Additional Statement of Facts (“CASF”), Docket No. 91 at 25–36; and Joglor’s
Response to the CASF (“RCASF”).
1

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Rico limited liability company whose sole and controlling member is Jose Figueroa
Morales (“Figueroa”). CSUF ¶ 2. As Joglor’s executive director, Figueroa, who is
authorized to practice law in Puerto Rico, negotiates on behalf of Joglor and makes its dayto-day decisions. CSUF ¶¶ 3, 5. Armando Orol Mesa (“Orol”) is a certified public
accountant who provides consulting and tax-preparation services to Joglor. CSUF ¶ 6.
Since around 2006, Figueroa and Orol have owned Ecoland, Inc. (“Ecoland”), which was
formerly doing business as Top Security Home Developers, Inc. (“Top Security”). CSUF
¶¶ 8, 10. Figueroa is Ecoland’s president, and Orol is Ecoland’s secretary. CSUF ¶ 9.
In August 2006, Figueroa sought two credit lines from Banco Popular de Puerto
Rico (“Banco Popular” or “BPPR”) to complete an industrial and residential real estate
development project on lands previously purchased by his company. CSUF ¶ 18. Figueroa
signed two credit line agreements between Ecoland (known as Top Security at the time)
and Banco Popular, one for $700,000 of credit and the other for $2,000,000 of credit. CSUF
¶ 11. At that time, Figueroa also executed two promissory notes to the order of Banco
Popular that corresponded to the amounts of credit Ecoland obtained. CSUF ¶ 12. The
$700,000 promissory note (the “$700,000 Mortgage Note”) was to be secured by a first
mortgage lien over seven properties in Puerto Rico. CSUF ¶ 13. And the $2,000,000
promissory note (the “$2,000,000 Mortgage Note”) was to be secured by a first mortgage
lien over five different properties in Puerto Rico. CSUF ¶ 14.
Figueroa also signed two pledge agreements in favor of Banco Popular in which
the $700,000 and $2,000,000 Mortgage Notes were pledged and delivered as collateral
security for the lines of credit granted to Ecoland. CSUF ¶ 15. In addition, Orol, Figueroa,
and Figueroa’s wife, Gloria Maria Santaella Paris (“Santaella”), signed agreements in their
personal capacities to guarantee the funds granted by the lines of credit. CSUF ¶¶ 16, 17.
The Insurance Policies
As part of the transaction for financing the two lines of credit, FATIC issued two
title insurance policies (one for $700,000 and another for $2,000,000) that corresponded to

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the mortgage deeds contemplated by the two promissory notes. CSUF ¶¶ 19–22, 24–25.
Both policies named the insured as Banco Popular “and/or its successors and assigns as
their respective interests may appear.” CSUF ¶ 23 (emphasis removed). Both insurance
policies also state that the insurance coverage is “subject to” the “conditions and
stipulations” contained in the policy. CSUF ¶ 26 (emphasis removed). Section 9 of the
Conditions and Stipulations of both policies states as follows:
9. REDUCTION OF INSURANCE; REDUCTION OR TERMINATION
OF LIABILITY.
(a) All payments under this policy, except payments made for costs,
attorneys’ fees and expenses, shall reduce the amount of the insurance pro
tanto. However, any payments made prior to the acquisition of title to the
estate or interest as provided in Section 2(a) of these Conditions and
Stipulations shall not reduce pro tanto the amount of the insurance afforded
under this policy except to the extent that the payments reduce the amount
of the indebtedness secured by the insured mortgage.
(b) Payment in part by any person of the principal of the
indebtedness, or any other obligation secured by the insured mortgage, or
any voluntary partial satisfaction or release of the insured mortgage, to the
extent of the payment, satisfaction or release, shall reduce the amount of
insurance pro tanto. The amount of insurance may thereafter be increased
by accruing interest and advances made to protect the lien of the insured
mortgage and secured thereby, with interest thereon, provided in no event
shall the amount of insurance be greater than the Amount of Insurance stated
in Schedule A.
(c) Payment in full by any person or the voluntary satisfaction or
release of the insured mortgage shall terminate all liability of the Company
except as provided in Section 2(a) of these Conditions and Stipulations.
CSUF ¶ 28. And the pertinent part of Section 2(a) of the Conditions and Stipulations of
both policies reads as follows:
(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; and (iii)
any governmental agency or governmental instrumentality which acquires

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all or any part of the estate or interest pursuant to a contract of insurance or
guaranty insuring or guaranteeing the indebtedness secured by the insured
mortgage.
CSUF ¶ 29.
The Settlement & Release Agreement
In February 2013, Banco Popular informed Figueroa, Santaella, and Orol of arrears
due on the $700,000 and $2,000,000 credit lines, as well as a third loan, and demanded
payment of the loan balances. CSUF ¶¶ 32–34. The third loan had been issued to Joblar,
Inc. (“Joblar”), a separate entity whose shareholders are Figueroa, Orol, and Blas BuonoCorrea (“Buono”). CSUF ¶ 33. After receiving the demand for payment, Figueroa and Orol
negotiated with Banco Popular’s attorneys and reached a “Settlement and Release
Agreement” (“Settlement Agreement”) in September 2013. CSUF ¶¶ 35, 36. Figueroa
executed this agreement in his personal capacity, and as an authorized representative of
Ecoland and Joblar. CSUF ¶ 37.
The loan agreements encompassed by the Settlement Agreement were the
following: (1) the $2,000,000 line of credit agreement, the line of credit itself, and the
$2,000,000 Mortgage Note; (2) the $700,000 line of credit agreement, the line of credit
itself, and the $700,000 Mortgage Note; and (3) the third loan issued to Joblar. CSUF ¶ 38.
Also encompassed by the Settlement Agreement were Ecoland’s two pledge agreements
and the guarantees signed by Figueroa, Santaella, Orol, and Buono. CSUF ¶ 39. The
Settlement Agreement referred to these documents as the “Loan Documents.” CSUF ¶ 40.
After acknowledging that the Loan Documents were due and payable, and that
Banco Popular could accelerate the payments and request the full payment and satisfaction
of all the amounts due under the Loan Documents, CSUF ¶ 42, the Settlement Agreement
stated that:
the Debtors have requested BPPR to accept the amount of $1,400,000.00
(the “Settlement Amount”) as full payment and satisfaction of the Debt, and
to discharge all outstanding obligations and liabilities with respect thereto,
and BPPR has agreed to do so, subject to the terms and conditions hereof.

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CSUF ¶ 43. Articles 2, 3, 4, and 5 of the Settlement Agreement, all of which are relevant
to the parties’ respective positions, provide as follows:
2. Payment of Settlement Amount. The Debtors hereby pay and deliver to
BPPR the Settlement Amount, by means of a certified check issued by a
federally insured financial institution and payable to the order of BPPR, the
receipt of which is acknowledged by BPPR and which amount is accepted
as full payment and satisfaction of the Debt.
3. Release of Obligations. In consideration of the payment hereby made by
the Debtors to BPPR, as full payment and satisfaction of the Debt, BPPR
hereby release the Debtors from any and all further obligations and
liabilities with respect to the Debt.
4. Release of Collateral Security. Upon the execution of this Settlement
Agreement, BPPR will deliver to the Debtors the Loan Documents (original
or copies thereof, as applicable), including the original Mortgage Notes duly
endorsed to Joglor, LLC, as instructed by the Debtors, without recourse,
representation or warranty of any kind. The execution, delivery and filing
of any document or instrument required for the release and/or cancellation
of any collateral security, including, without limitation, the Mortgage Notes
and the Mortgages, shall be performed by the Debtors, or any other person
or entity, at their own cost and expense. BPPR makes no representation or
warranty as to the validity, effectiveness, enforceability, perfection or
priority of any collateral security.
5. Release and Indemnity. In consideration of the present settlement and
release, the Debtors, on their behalf and on behalf of their affiliates,
subsidiaries, parents, heirs, officers, shareholders, members, partners,
directors, managers, employees, attorneys, contractors, and agents, and their
respective successors and assigns, hereby release and agree to indemnify
and hold harmless BPPR and its affiliates, subsidiaries, parents, heirs,
officers, shareholders, members, partners, directors, managers, employees,
attorneys, contractors, and agents, and their respective successors and
assigns, and BPPR hereby releases and agrees to indemnify and hold
harmless the Debtors, from and against any action, cause of action, suit,
damage, claim, obligation, liability, demand, costs and expenses of any kind
whatsoever, at law or in equity, past or present, known or unknown, that
may be directly or indirectly related to, arise from or otherwise connected
with (i) the Debt, the Loans, the Loan Documents, the Properties (including,
without limitation, any property taxes levied upon or assessed against the
Properties), or the transactions contemplated thereby or any actions or
omissions in connection therewith; and (ii) any aspect of the dealings or
relationships between the Parties relating to any or all of the documents,
transactions, actions or omissions referenced herein, except that this release

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and indemnification shall not apply to any claims that may arise as a result
of the breach of this Settlement Agreement. In entering into this Settlement
Agreement, the Parties represent to each other that they had adequate
opportunity to consult with legal counsel and hereby agree and
acknowledge that the validity and effectiveness of the releases set forth
above do not depend in any way on any such representations, act or
omissions or the accuracy, completeness or validity hereof. Furthermore,
the Parties hereby agree and acknowledge that the releases set forth above
shall not be interpreted or construed as a release of any other obligations of
the Debtors with BPPR and all such obligations and undertakings of the
Parties with respect thereto shall continue in full force and effect.
CSUF ¶ 44. Article 10 provides that the Settlement Agreement is binding upon the parties
and their respective successors and assigns. CSUF ¶ 45.
Article 11 of the Settlement Agreement contains integration and merger clauses,
which state that the Settlement Agreement is the “entire agreement” between the parties
and “revokes all prior agreements and/or understandings with respect to the subject matter”
of the Settlement Agreement. CSUF ¶ 46. Joglor acknowledges that it had knowledge of
all the terms and conditions of the Settlement Agreement, and that, in September 2013,
Morales issued a check payable to Banco Popular for $1,400,000 on Joglor’s behalf. CSUF
¶¶ 48, 49; OSF ¶ 49. That same month, and per Article 4, Banco Popular endorsed the
$700,000 and $2,000,000 Mortgage Notes to the order of Joglor. CSUF ¶ 50.
Joglor’s Insurance Claims
In October 2014, the Company received insurance claims from Joglor that pertained
to the two title insurance policies issued to Banco Popular in February 2013. CSUF ¶ 55.
Joglor claimed that Banco Popular assigned the mortgage notes to Joglor, and that the
mortgage deeds intended to secure the $700,000 and $2,000,000 Mortgage Notes could not
be registered in the Puerto Rico Registry of Property due to various reasons. CSUF ¶¶ 56,
58. At that time, Joglor did not inform FATIC that it had obtained the Mortgage Notes as a
result of the Settlement Agreement, and the Company did not obtain a copy of the
Settlement Agreement until the parties were conducting discovery around April 2015.
CSUF ¶¶ 59, 60. The parties presently dispute whether the Company was aware that the

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mortgage deeds were not recordable, as well as whether the mortgage deeds are susceptible
to recordation. CSUF ¶ 57; JSOF ¶ 57; JSUF ¶¶ 17, 34; CSOF ¶¶ 17, 34.
DISCUSSION
Joglor contends that it is entitled to summary judgment because Banco Popular
endorsed the mortgage notes to the order of Joglor and FATIC’s insurance policies cover
an insured’s losses when the mortgage liens cannot be recorded. Docket Nos. 67, 78. The
Company denies liability, arguing that the two title insurance policies terminated when
Banco Popular and Ecoland reached the Settlement Agreement that satisfied the debt
obligations imposed by the mortgage notes. Docket No. 59. Alternatively, the Company
contends Joglor is not entitled to summary judgment because it is unsettled at this point
whether the mortgage notes can be recorded.3 Docket No. 90.
I.

Insurance Contracts
It is uncontested that Puerto Rico insurance law applies to this diversity action. See,

e.g., AJC Int'l, Inc. v. Triple-S Propiedad, 790 F.3d 1, 3 (1st Cir. 2015). The Puerto Rico
Insurance Code, P.R. Laws Ann. tit. 26, § 101 et seq., which controls the interpretation of
insurance contracts, provides that “[e]very insurance contract shall be construed according
to the entirety of its terms and conditions as set forth in the policy, and as amplified,
extended, or modified by any lawful rider, endorsement, or application attached to and
made a part of the policy.” Id. § 1125.
“Absent an ambiguity, [the court] must interpret the insurance contract according
to its ‘plain meaning, as a whole, and in harmony with the general purposes of the policy.’”
Vazquez-Filippetti v. Cooperativa de Seguros Multiples de P.R., 723 F.3d 24, 29 (1st Cir.
2013) (quoting Jewelers Mut. Ins. Co. v. N. Barquet, Inc., 410 F.3d 2, 16 (1st Cir. 2005)).
“When the Insurance Code of Puerto Rico does not provide an interpretative approach for
a particular situation, the Civil Code is used as a supplemental source of law in interpreting
Because the Company’s first argument is meritorious, there is no need determine whether
the mortgage deeds are susceptible to being recorded in the Puerto Rico Registry of Property.
3

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the insurance contract.” Nieves v. Intercontinental Life Ins. Co. of P.R., 964 F.2d 60, 63 (1st
Cir. 1992). “Article 1233 of the Puerto Rico Civil Code provides that when ‘the terms of a
contract are clear and leave no doubt as to the intentions of the contracting parties, the
literal sense of its stipulations shall be observed.’” Id. (quoting P.R. Laws Ann. tit. 31, §
3471).
Contracts for insurance “are considered adhesion contracts under Puerto Rico law,”
and so they are “liberally construed in favor of the insured.” Nieves, 964 F.2d at 63; see
also Quiñones López v. Manzano Pozas, 141 P.R. Dec. 139, 155 (1996) (“[N]ice
constructions that would allow insurers to dodge liability are not favored.”). However,
Puerto Rico law does “not compel constructions in favor of the insured when a clause
favors the insurer, and its meaning and scope is [sic] clear and unambiguous.” Triple-S
Propiedad, 790 F.3d at 4 (quoting Quiñones López, 141 P.R. Dec. at 155 (citing cases)).
Accordingly, if an insurance clause is unambiguous and favors the insurer, the
unambiguous clause “should be held as binding on the insured.” Triple-S Propiedad, 790
F.3d at 4 (quoting Quiñones López, 141 P.R. Dec. at 155). As discussed below, the
Company asserts that both title insurance policies contain such a clause.
II.

Termination of Liability
FATIC argues that the execution of the Settlement Agreement triggered an

unambiguous clause in the insurance policies that terminated the Company’s liability.
Docket No. 59. Joglor maintains that the Company waived this argument by not asserting
it with sufficient specificity in the answer to the complaint, and that the argument lacks
merit in any event. Docket No. 77.
A.

Waiver

Federal Rule of Civil Procedure 8(c) provides that “[i]n responding to a pleading,
a party must affirmatively state any avoidance or affirmative defense.” Fed. R. Civ. P. 8(c).
“Generally speaking, failure to plead an affirmative defense results in a waiver of the
defense and the exclusion of all evidence relevant to it.” Conjugal Partnership v. Conjugal

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Partnership, 22 F.3d 391, 400 (1st Cir. 1994). “The purpose of Rule 8(c) is to give the court
and the other parties fair warning that a particular line of defense will be pursued.” Williams
v. Ashland Eng’g Co., 45 F.3d 588, 593 (1st Cir. 1995), abrogated on other grounds by
Carpenters Local Union No. 26 v. U.S. Fid. & Guar. Co., 215 F.3d 136 (1st Cir. 2000).
“Hence, a defendant who fails to assert an affirmative defense at all, or who asserts it in a
largely uninformative way, acts at his peril.” Williams, 45 F.3d at 593.
But, where “a plaintiff clearly anticipates that an issue will be litigated, and is not
unfairly prejudiced when the defendant actually raises it, a mere failure to plead the defense
more particularly will not constitute a waiver.” Id. In Williams, for example, the First
Circuit held that the defendant did not waive a preemption defense although the answer
“did not specifically mention” it. See Williams, 45 F.3d at 593. The Williams court held so
because (1) the answer contained “a broader Rule 12(b)(6) defense that was capable of
encompassing [the] preemption” defense, and (2) the totality of the circumstances indicated
that Rule 8(c)’s core purpose had been vindicated. Id. (plaintiff was not ambushed by
defense where the defendant amplified its position prior to the close of discovery and the
parties briefed the issue during summary judgment); see also Shapiro v. Haenn, 222 F.
Supp. 2d 29, 43 (D. Me. 2002) (“because it d[id] not appear that Plaintiff ha[d] been
prejudiced by Defendant . . . raising the . . . defense for the first time on summary judgment,
the Court . . . consider[ed] the defense”).
In this case, FATIC asserted a 12(b)(6) defense in its answer, and that defense is
broad enough to encompass situations where the defendant-insurer denies insurance
coverage. Docket No. 13 at 11 ¶ 1; see 84 Albany Ave. Realty Corp. v. Standard Fire Ins.
Co., 13 F. Supp. 3d 241, 245 (E.D.N.Y. 2014) (“there was no insurance coverage in place
when Plaintiff sustained” losses, and so the complaint “fail[ed] to state a claim for relief”).
Second, Joglor acknowledges that the Company did not obtain a copy of the Settlement
Agreement until the parties were conducting discovery in April 2015. OSF ¶¶ 59, 60; see
also Docket No. 13 at 11–12 ¶¶ 2–3. And before that time, the Company sought the

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Settlement Agreement from Joglor––arguing that the documents were necessary for the
Company to mount a complete defense––but Joglor resisted disclosure on confidentiality
grounds and asked Banco Popular not to disclose the document to FATIC. Docket Nos. 291–29-14, 31, 36. Third, Joglor and the Company had an opportunity to brief the defense
FATIC seeks to assert, and both parties took advantage of that opportunity. Under these
circumstances, as in Williams, Joglor cannot claim that it was ambushed or prejudiced by
FATIC raising the termination-of-liability defense at the summary-judgment stage. See
Williams, 45 F.3d at 593; see also Shapiro, 222 F. Supp. 2d at 43. Thus, FATIC’s defense
was not waived, and will be considered.
B.

Section 9(c)

The Company underscores the plain language of Section 9(c), and argues that this
clause (which is included in both title insurance policies) militates toward the conclusion
that FATIC’s liability terminated when the Settlement Agreement was executed. Section
9(c) provides that “[p]ayment in full by any person or the voluntary satisfaction or release
of the insured mortgage shall terminate all liability of the Company except as provided in
Section 2(a) of these Conditions and Stipulations.” Docket Nos. 60-22 at 2, 60-23 at 2. The
Company contends that the exception in Section 2(a) is inapplicable in this case, and Joglor
did not argue to the contrary. Compare Docket No. 59 at 7 n.4, with Docket Nos. 77, 127.
Courts that have interpreted Section 9(c), as well as materially similar clauses in
other title insurance policies, have held that “once the mortgage [is] paid,” the title insurer’s
“obligations under the policy [have] ended.” Morrison v. Wells Fargo Bank, N.A., 711 F.
Supp. 2d 369, 389 (M.D. Pa. 2010) (Section 9(c) counseled summary judgment in favor of
the title insurer); Paramount Properties Co. v. Transamerica Title Ins. Co., 1 Cal. 3d 562,
568 (1970) (“In the usual case” a clause materially similar to Section 9(c) “would operate
in a straightforward manner; once a lender has been paid in full he normally no longer has
an interest in the title of the underlying security”); RNT Holdings, LLC v. United Gen. Title
Ins. Co., 230 Cal. App. 4th 1289, 1298 (2014) (trial and appellate court reached same

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conclusion with respect to a clause materially similar to Section 9(c)); First Midwest Bank,
N.A. v. Stewart Title Guar. Co., 355 Ill. App. 3d 546, 554 (2005) (“where the mortgage loan
that was insured by the title policy is paid or voluntarily satisfied, the insurer’s liability
under the title policy is terminated”), aff'd, 218 Ill. 2d 326 (2006); Title Guar. & Trust Co.
v. Johnson, 485 S.W.2d 764, 767 (Tenn. Ct. App. 1972); see also Barlow Burke, Law of
Title Insurance, §3.02[D] (“a policy of lender’s title insurance can be terminated by the
release or satisfaction of the debt. If the lien is released, so is the insurance for the lien.”);
11 Steven Plitt et al., Couch on Insurance § 159:93 (3d ed. June 2016) (same).
Morrison aptly illustrates a situation where Section 9(c) is triggered, as well as the
effect of the clause’s plain meaning. 711 F. Supp. 2d at 374. In that case, a couple “executed
a mortgage that purported to impose a lien on property owned by the plaintiff, whose name
was identical to that of the man who signed the mortgage.” RNT Holdings, 230 Cal. App.
4th at 1298. “In connection with the mortgage, an insurer issued a lender’s title policy,
which contained” the Section 9(c) coverage condition. Id. (citing Morrison, 711 F. Supp.
at 388–89). “After the plaintiff initiated a tort action against the lender, the lender
commenced a cross-action against the [title] insurer.” RNT Holdings, 230 Cal. App. 4th at
1298 (citing Morrison, 711 F. Supp. at 388–89).
“Later, while the plaintiff’s action was pending, the mortgage was paid in full, and
the insurer declined to provide any further defense to the lender in the plaintiff’s action.”
RNT Holdings, 230 Cal. App. 4th at 1298 (citing Morrison, 711 F. Supp. at 375–76). “The
lender then amended its complaint to assert claims for breach of insurance contract and bad
faith predicated on that denial.” RNT Holdings, 230 Cal. App. 4th at 1298 (citing Morrison,
711 F. Supp. at 375–76). “Relying on the policy’s coverage condition,” the district court
“granted summary judgment in the insurer’s favor on those claims, concluding that the
insurer’s obligations ended when the mortgage was paid in full.” RNT Holdings, 230 Cal.
App. 4th at 1298 (citing Morrison, 711 F. Supp. at 386–90).

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As in Morrison, the terms of the Settlement Agreement indicate that Section 9(c)
was triggered when the agreement was executed, and so FATIC’s liability under the two
title insurance policies terminated at that time. 711 F. Supp. 2d at 374. The Settlement
Agreement is abundantly clear that the Ecoland “requested BPPR to accept the amount of
$1,400,000.00 (the ‘Settlement Amount’) as full payment and satisfaction of the Debt”
which arose from the Loan Documents, and that Banco Popular “agreed to do so.” CSUF
¶¶ 42, 43 (emphasis added). In addition, Article 3 of the Settlement Agreement, which is
titled “Release of Obligations,” states that “[i]n consideration of the payment . . . made by
the Debtors to BPPR, as full payment and satisfaction of the Debt, BPPR . . . release[d]
the Debtors from any and all further obligations and liabilities with respect to the Debt.”
CSUF ¶ 44 (emphases added). What is more, Article 5 provides that Banco Popular
released the debtors from claims relating to “the Debt, the Loans, [and] the Loan
Documents.” CSUF ¶ 44. These clauses of the Settlement Agreement could hardly be more
pellucid, and unambiguously establish that Section 9(c) of the title insurance policies was
triggered when the Settlement Agreement was executed.4
Notwithstanding the above, Joglor contends that it received the endorsed mortgage
notes from Banco Popular per Article 4 of the Settlement Agreement, that the mortgage
notes were never cancelled, and that FATIC’s insurance policies remained valid when the
notes were assigned to Joglor. But under Puerto Rico law, “the mortgage contract
presupposes the existence of two legal concepts”: “a principal obligation and the mortgage
itself, which serves as security to the . . . creditor. A mortgage cannot be thought of without
a secured obligation.” Liechty v. Descartes Sauri, 9 P.R. Offic. Trans. 660 (P.R. 1980).
Because “a mortgage is accessory to a principal debt,” it “automatically falls when the

In this vein, Joglor argues that FATIC “relies on obscure, ambiguous or confusing
language of the Policies to deny liability.” Docket No. 77 at 8. In First Midwest Bank, the court
considered a similar argument within the context of a title insurance policy containing a clause
similar to Section 9(c), and held “that the policy is not ambiguous or contradictory.” 355 Ill. App.
3d at 556.
4

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underlying debt does.” FDIC v. Bracero & Rivera, Inc., 895 F.2d 824, 827 (1st Cir. 1990).
Put another way, the “mortgage effectively subsists while the credit it secures is
outstanding. When the credit is extinguished, the mortgage is extinguished; when the credit
is transmitted, the mortgage is transmitted; the voidness or ineffectiveness of the credit
causes the voidness or ineffectiveness of the mortgage.” Liechty, 9 P.R. Offic. Trans. 660.
Puerto Rico law provides that a person entitled to enforce an instrument (i.e., Banco
Popular and the mortgage notes) “may discharge the obligation of a party to pay the
instrument . . . by agreeing not to sue or otherwise renouncing rights against the party by a
signed writing.” P.R. Laws Ann. tit. 19, § 754(a). In addition, the “obligation of a party to
pay the instrument is discharged . . . by an act or agreement with the party which would
discharge an obligation to pay money under a simple contract.” Id. § 751(a).
Here, the terms of the Settlement Agreement indicate that Banco Popular accepted
as “full payment” the settlement amount in exchange for releasing Ecoland and the other
debtors from their obligations under the Loan Documents, which included the two
mortgage notes. Accordingly, the mortgage notes and mortgage liens were discharged
when the Settlement Agreement was executed. See P.R. Laws Ann. tit. 19, §§ 751(a),
754(a); Bracero & Rivera, 895 F.2d at 827 (promissory note and mortgage lien were
“discharged by the payment and cancellation of the underlying debt”). And this is so even
if the notes themselves were not marked “cancelled” or “void.” See id. (“fact that the public
registration of the mortgage was not formally cancelled does not automatically mean that
[debtor] would have remained liable on the note to [the trust company], and subsequently
to FDIC,” which acquired the note as the trust company’s receiver).
Moreover, Joglor cannot claim that it acquired rights of a holder in due course of
the mortgage notes without notice of their discharge because it readily acknowledged
awareness of the terms of the Settlement Agreement. See P.R. Laws Ann. tit. 19, § 751(b)
(discharge ineffective as to person “acquiring rights of a holder in due course of the
instrument without notice of the discharge.”). In light of the foregoing, the mortgage notes

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that Joglor received per Article 4 of the Settlement Agreement were effectively
extinguished obligations that did not carry valid title insurance policies as a result of
Section 9(c)’s plain meaning.
In a last-ditch attempt to buttress its position, Joglor relies on Eastern Sands, Inc.
v. Roig Commercial Bank, 140 D.P.R. 703 (1996). Docket No. 135-1 (certified translation).
In that case, the Puerto Rico Supreme Court held that “when a debt is paid off by a third
party, this may cause such third party to be subrogated to the rights of the original creditor,
in which case the obligation and its guarantees are not extinguished. Such novation is of a
modifying nature,” and “despite the changes, the principal obligation subsists and no other
obligation is created to substitute it.” Id. at 713. But importantly, the Eastern Sands court
made clear that “the manner in which the payment is made will determine whether the
novation is extinctive or merely modifying; that is, whether the principal obligation is
extinguished or not.” Id. “The payment that leads to the subrogation is treated as a
modifying novation, where the only resulting change is in the identity of the creditor, not
the effectiveness of the principal obligation.” Id. (emphasis in original).
Joglor’s reliance on Eastern Sands is misplaced because the terms of the Settlement
Agreement––which disclose “the manner in which the payment” was made to Banco
Popular by Joglor––indicates that Banco Popular released Ecoland and the other debtors
from the obligations created by the Loan Documents, which included the mortgage notes.
140 D.P.R. at 712–13 (generally, “[o]nce the debt [is] paid off, the pledge [can] not be
returned to any party other than [the debtor-mortgagor] or a representative designated to
receive it”). Accordingly, Ecoland’s principal obligations under the mortgage notes were
extinguished, as opposed to modified, and so the rule in Eastern Sands is inapposite here.
See id. at 713. In sum, because the unambiguous language of Section 9(c) terminated
FATIC’s two title insurance policies when the Settlement Agreement was executed, and
because the authority on which Joglor relies is not to the contrary, Joglor is not entitled to

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be indemnified by the Company. Therefore, the Company is entitled to summary judgment,
and Joglor’s motion for summary judgment is denied.
CONCLUSION
For the foregoing reasons, the Company’s motion for summary judgment is
GRANTED, and Joglor’s motion for summary judgment is DENIED. The claims in
Joglor’s complaint are DISMISSED WITH PREJUDICE.
IT IS SO ORDERED.
In San Juan, Puerto Rico, this 27th day of September 2016.
S/Bruce J. McGiverin
BRUCE J. MCGIVERIN
United States Magistrate Judge