First American Title Insurance Company v. Columbia Harbison LLC

Filing 84

ORDER granting 61 Motion for Summary Judgment by Columbia Harbison LLC on Plaintiff's second, third, and fourth causes of action, granting Columbia Harbison LLC's counterclaim to the extent Columbia Harbison LLC se eks to prove consequential damages based on First American's breach of contract at trial and on First American's liability for attorneys' fees for this action; denying 62 Motion for Summary Judgment by First American Title Insurance Company as to Columbia Harbison LLC's breach of contract counterclaim and finding moot Columbia Harbison LLC's estoppel defense; and notifying parties the case will will proceed to trial on the question of damages for breach of the title policy and on Columbia Harbison LLC's counterclaim for bad faith with jury selection to occur on 05/07/2013. Signed by the Honorable Joseph F Anderson, Jr on 04/11/2013.(bshr, )

IN THE UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH CAROLINA
COLUMBIA DIVISION
First American Title Insurance Company,

C/A No. 3:12-cv-00800-JFA

Plaintiff,
vs.

ORDER ON MOTIONS
FOR SUMMARY JUDGMENT

Columbia Harbison LLC,
Defendant.

I.

INTRODUCTION
This matter is before the court on the parties’ cross motions for summary judgment.

More particularly, Plaintiff First American Title Insurance Company’s (First American’s)
amended complaint sets forth six causes of action, the last five of which are based on certain
provisions of a title insurance policy First American issued to Defendant Columbia Harbison,
LLC (Columbia Harbison). Based on one or more of these provisions, First American requests
that the court declare that no coverage is afforded to Defendant Columbia Harbison under the
title policy.1 See ECF No. 13. Columbia Harbison has moved for summary judgment on these
five causes of action and on two “aspects” of one of its counterclaims, breach of contract. See
ECF No. 61. First American has moved for summary judgment on its cause of action numbers
two and four, on Columbia Harbison’s counterclaim for breach of contract, and on Columbia
Harbison’s affirmative defense of estoppel. See ECF No. 62.
During briefing on these motions, First American acknowledged that its cause of action
number five is moot and stated that it was not pursuing its cause of action number six.
Therefore, this Order addresses First American’s remaining causes of action (numbers two,
1

First American has withdrawn its first cause of action, rescission of the title policy. See ECF No. 62-1, at 12 n.9.

1

three, and four); Columbia Harbison’s counterclaim for breach of contract; and Columbia
Harbison’s defense of estoppel.
II.

FACTUAL OVERVIEW
In general, this case involves Columbia Harbison’s commercial development on a parcel

which fronts Harbison Boulevard in Lexington County, South Carolina. The parcel is subject to
a recorded easement for ingress, egress, and parking in favor of the adjoining landowner, B&L
Harbison, LLC (B&L Harbison). Columbia Harbison obtained from First American a title
insurance policy for its parcel, which later included an endorsement specifically directed to
violation of the easement by the proposed commercial development. After construction began
on the development to the extent that most of a large retaining wall had been completed, B&L
Harbison sued Columbia Harbison in the South Carolina Court of Common Pleas, seeking
among other things injunctive relief based on alleged violation of the easement. First American
assumed Columbia Harbison’s defense. The state court issued a temporary injunction halting
construction, and while the state court suit was pending, First American filed the instant suit in
this court seeking a declaration of no coverage or right of defense. Columbia Harbison asserted
counterclaims for breach of contract and bad faith. Following a trial in the state court action, the
state court issued a permanent injunction in favor of B&L Harbison.

Columbia Harbison

removed the construction that had been completed to that date, restored the easement area, and
proceeded with a smaller project.
Thus, in this case on the title insurance policy, First American asserts that there is no
coverage while Columbia Harbison claims approximately $4.5 million in losses based on First
American’s breach of its duty to indemnify its insured. Although the parties strongly dispute the
correct interpretation of the title insurance policy, the material facts in this case do not appear to

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be in dispute.

In their briefs, both parties assert that the title policy is unambiguous.

Notwithstanding these assertions, both parties have submitted mountains of parol evidence which
allegedly support their preferred constructions. However, “[u]nder South Carolina law, the parol
evidence rule generally excludes evidence which would give a perfectly clear agreement a
different meaning or effect than that indicated by the plain language of the agreement.” Harbour
Town Yacht Club Boat Slip Owner’s Ass’n v. Safe Berth Mgmt., Inc., 421 F. Supp. 2d 908, 911
(D.S.C. 2006) (citing Taylor v. Taylor, 353 S.E.2d 156 (S.C. 1987)). Where, as here, the writing
in question has an integration clause, “the parol evidence rule is particularly applicable.” Id.
(citing U.S. Leasing Corp. v. Janicare, Inc., 364 S.E.2d 202, 205–06 (S.C. 1988)). As discussed
in more detail below, the court agrees that the title insurance policy is unambiguous, and thus the
extensive parol the parties submitted is not admissible to vary its plain meaning. Accordingly, it
is not discussed in this Order.
The relevant provisions of the title insurance policy are as follows. First, the policy
enumerates certain “exclusions” from coverage, of which Exclusion 3 is particularly relevant.
“The following matters,” among others,
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:
....
3. Defects, liens, encumbrances, adverse claims, or other matters
(a) created, suffered, assumed, or agreed to by the Insured Claimant;
(b) not Known to the Company, not recorded in the Public Records at Date of
Policy, but Known to the Insured Claimant and not disclosed in writing to the
Company by the Insured Claimant prior to the date the Insured Claimant became
an Insured under this policy.
(emphasis added).
Next, the policy is subject to eighteen “conditions.” In Condition 8, the policy states that
it is “a contract of indemnity against actual monetary loss or damage sustained by the Insured

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Claimant who has suffered loss or damage by reason of matters insured against by this policy.”
This condition further states that
(a) The extent of liability of the Company for loss or damage under this policy
shall not exceed the lesser of
(i) the Amount of Insurance; or
(ii) the difference between the value of the Title as insured and the value
of the Title subject to the risk insured against by this policy.
Additionally, the policy sets forth a number of “exceptions” from coverage. Specifically,
the “policy does not insure against loss or damage . . . that arise [sic] by reason of,” among other
things,
29. Easements, restrictions, terms and conditions set forth in Indenture Limited
Warranty Deed from Baptist Healthcare System of South Carolina, Inc. dated
October 31, 1996, recorded November 1, 1996 in Deed Book 3930, Page 113,
Lexington County records. (affects Easement Parcel 2)
The easement referred to in Exception 29 is the easement in favor of B&L Harbison.
Finally, the policy also includes several endorsements.

Condition 15 of the policy

includes an integration clause, providing that “[t]his policy together with all endorsements, if
any, attached to it by the Company is the entire policy and contract between the Insured and the
Company. In interpreting any provision of this policy, this policy shall be construed as a whole.”
This Condition further provides, “[e]ach endorsement to this policy issued at any time is made a
part of this policy and is subject to all of its terms and provisions. Except as the endorsement
expressly states, it does not (i) modify any of the terms and provisions of the policy, (ii) modify
any prior endorsement, (iii) extend the Date of Policy, or (iv) increase the Amount of Insurance.”
(emphasis added). Endorsement 3 to the policy states:
With regard to the non-exclusive easement for parking over the Fee Parcel
established by Exception #29 hereof (the “Parking Easement”) the Company (i)
insures against loss or damage resulting from an Order of a Court of competent
jurisdiction requiring the removal of all or a portion of the structures (including
but not limited to all extensions, vertical improvements, supports, and
4

loading/turn around areas) designated as Homegoods, Ulta, DSW and/or Staples
(the “Structures”) as shown on the site drawing dated 5-20-11, last revised 9-111 (the “Plans”), a copy of which is attached to this Endorsement and made a
part hereof; and (ii) agrees to provide a legal defense to the Insured in the event
that legal proceedings are brought against the Insured alleging a violation of the
Parking Easement, which, if said allegations are adjudicated in favor of the
plaintiff, would cause the removal of the Structures constructed in accordance
with the Plans.
This endorsement is made a part of the policy and is subject to all of the terms
and provisions thereof and of any prior endorsements thereto. Except to the
extent expressly stated, it neither modifies any of the terms and provisions of the
policy and any prior endorsements, nor does it extend the effective date of the
policy and any prior endorsements, nor does it increase the face amount thereof.
(emphasis added). Thus, Endorsement 3, the interpretation of which is at the center of this case,
provides affirmative coverage for certain losses or damages related to a violation of the easement
referred to in Exception 29 caused by the proposed commercial development.
III.

LEGAL STANDARD
Rule 56(a) of the Federal Rules of Civil Procedure provides that summary judgment shall

be granted when a moving party has shown that “there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law.” The court must determine
whether the evidence presents a sufficient disagreement to require submission to a jury or
whether it is so one-sided that one party must prevail as a matter of law. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 251–52 (1986). When evaluating a motion under Rule 56, the court
must construe all “facts and inferences to be drawn from the facts . . . in the light most favorable
to the non-moving party,” Miller v. Leathers, 913 F.2d 1085, 1087 (4th Cir. 1990), and summary
judgment should be granted in those cases where it is perfectly clear that there remains no
genuine dispute as to material fact and inquiry into the facts is unnecessary to clarify the
application of the law. McKinney v. Bd. of Trustees of Md. Cmty. College, 955 F.2d 924, 928
(4th Cir. 1992). In deciding a motion for summary judgment, “the judge’s function is not
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himself to weigh the evidence and determine the truth of the matter but to determine whether
there is a genuine issue for trial.” Anderson, 477 U.S. at 249.
IV.

DISCUSSION
Columbia Harbison has moved for summary judgment on First American’s second, third,

and fourth causes of action and on certain aspects of its breach of contract counterclaim. First
American has also moved for summary judgment on its second and fourth causes of action and
on Columbia Harbison’s breach of contract counterclaim. Further, First American has moved for
summary judgment on Columbia Harbison’s defense of estoppel.

Each of these issues is

discussed in detail separately below.
A. First American’s Second Cause of Action
In the underlying state court lawsuit, B&L Harbison asserted causes of action for both
breach of contract and trespass against Columbia Harbison, and B&L Harbison sought both
injunctive and monetary relief.

After First American filed the instant lawsuit, Columbia

Harbison and B&L Harbison settled the claim for monetary relief in the underlying state court
lawsuit for $300,000 while allowing the claim for injunctive relief to proceed to trial. First
American’s Amended Complaint seeks a declaration that “no coverage is provided to Columbia
Harbison under the Policy for the trespass and breach of contract causes of action” B&L
Harbison asserted against Columbia Harbison in the underlying state court lawsuit. See ECF No.
13, at 11. In its motion, First American also seeks a declaration that the title insurance policy
does not cover Columbia Harbison’s settlement with B&L Harbison.
First American asserts that it is entitled to summary judgment on this claim because
Exception 29 to the title policy states that it does not cover “loss or damage” that “arise[s] by
reason of” the easement. Thus, according to First American, Exception 29 excludes all coverage

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related to the easement. Then, because Endorsement 3 states that “with regard to the nonexclusive easement for parking over the Fee Parcel established by Exception #29 hereof . . . the
Company (i) insures against loss or damage resulting from an Order of a Court of competent
jurisdiction requiring the removal of all or a portion of the structures . . . ,” Endorsement 3
returns some coverage related to the easement, but not for breach of contract or trespass. In
short, the argument appears to be that the policy does not cover any cause of action against
Columbia Harbison that seeks monetary damages. B&L Harbison sought monetary damages
based on its breach of contract and trespass causes of action, so the policy does not cover them.
Likewise, it does cover the settlement of these causes of action.
This argument is somewhat confusing, to say the least, as it fails to appreciate that a
plaintiff may seek both monetary and injunctive relief based on a particular cause of action.
Moreover, it ignores the language of Endorsement 3, which is written in terms of a particular
type of relief a court may order—i.e., injunctive, as opposed to monetary—not in terms of any
particular cause of action a plaintiff asserts. It is the state court’s mandatory injunction order in
the underlying lawsuit that is the “Order of a Court of competent jurisdiction” at issue in the
instant lawsuit. However, that order is premised on Columbia Harbison’s interference with B&L
Harbison’s right to ingress, egress, and parking in the easement area. This interference was the
basis of B&L Harbison’s breach of contract and trespass causes of action. Thus, First American
is not entitled to a broad declaration that the title insurance policy does not cover the breach of
contract or trespass causes of action asserted in the underlying state court lawsuit.
First American also seeks a declaration that the policy does not cover Columbia
Harbison’s $300,000 settlement. As an initial matter, Columbia Harbison has stated that it is not
seeking this amount via its breach of contract claim, see ECF No. 61-1 at 11, and thus First

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American’s claim regarding the $300,000 settlement is moot. First American acknowledged
this, but it stated that, “[t]o the extent that any additional damages sought by Columbia Harbison
are money damages relating to the breach of contract and trespass causes of action, these
damages are . . . not recoverable.” ECF No. 70 at 32 (emphasis added). As explained above, this
is not correct. It may very well be that the title policy does not cover certain money damages
Columbia Harbison seeks, but it is not because the damages are “related to” the breach of
contract and trespass causes of action. Again, B&L Harbison sought injunctive relief pursuant to
those same claims, and the language of Endorsement 3 contemplates loss or damage resulting
from such injunctive relief. If money damages Columbia Harbison seeks are excluded from
coverage, it is because they are not “loss or damage resulting from an Order of a Court of
competent jurisdiction requiring the removal of all or a portion of the structures” within the
meaning of Endorsement 3.
Based on the above, First American’s motion for summary judgment on its second cause
of action is denied. Columbia Harbison asserts that it is entitled to summary judgment on this
cause of action “because there is no relief to be granted to First American” thereon. ECF No. 611, at 11. The court agrees, and thus Columbia Harbison’s motion for summary judgment on this
claim is granted.
B. First American’s Third Cause of Action
First American’s third cause of action asks for a declaration of no coverage or defense
based on Exclusions 3(a) and 3(b) in the title insurance policy. As noted above, these provisions
respectively exclude loss or damage, costs, attorneys’ fees, or expenses that arise by reason of
“[d]efects, liens, encumbrances, adverse claims, or other matters” which were “(a) created,
suffered, assumed, or agreed to by the Insured Claimant;” or “(b) not Known to the Company,

8

not recorded in the Public Records at Date of Policy, but Known to the Insured Claimant and not
disclosed in writing to the Company by the Insured Claimant prior to the date the Insured
Claimant became an Insured under this policy.” Columbia Harbison argues that cases construe
this language as being read in the disjunctive, and First American did not disagree. See Nat’l
Credit Union Admin. v. Ticor Title Ins. Co., 873 F. Supp. 718, 728–29 (D. Mass. 1995). Thus,
the court analyzes each exclusion separately below. See Auto Owners Ins. Co. v. Newman, 684
S.E.2d 541, 546 (S.C. 2009).
Exclusion 3(a) can be readily disposed of. In its Amended Complaint, First American
asserted that the matters set forth in the underlying state court action by B&L Harbison “were
assumed or agreed to by Columbia Harbison.” Columbia Harbison acknowledges that it may
have assumed or agreed to the easement when it purchased the land, but it notes that it did not
assume or agree to any other defect, lien, encumbrance, adverse claim, or other matter.
Columbia Harbison argues that the state court lawsuit was based on the violation of the
easement, a risk that First American expressly assumed or agreed to via Endorsement 3. Thus,
Columbia Harbison asserts that First American cannot exclude coverage based on an
encumbrance Columbia Harbison agreed to while at the same time itself agreeing to insure
against the risk that that same encumbrance is violated.2 Notably, First American did not
respond to this argument, and it has not sought summary judgment on this claim. Therefore, the
court grants summary judgment to Columbia Harbison that Exclusion 3(a) does not exclude or
limit coverage.
Next, First American contends that Exclusion 3(b) excludes coverage and defense
because Columbia Harbison knew of and failed to disclose in writing certain “critical” matters
2

Columbia Harbison also argues that case law construing similar exclusions holds that the exclusion only applies to
intentional misconduct in causing a title defect. See Ticor, 873 F. Supp. at 728. This argument is unnecessary to
dispose of First American’s claim with respect to Exclusion 3(a), so the court expresses no opinion thereon.

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before the issuance of Endorsement 3, which occurred on August 31, 2011. Columbia Harbison
generally acknowledges that it did not disclose these matters before the endorsement was issued,
but it states that this does not matter for the purposes of Exclusion 3(b). Rather, it says,
Exclusion 3(b) by its express terms only applies to matters not disclosed in writing “prior to the
date the Insured Claimant became an insured under this policy,” which occurred on March 30,
2011. According to Columbia Harbison, because the allegedly critical matters did not occur until
after this date, Exclusion 3(b) is inapplicable. First American’s response is essentially that
although Columbia Harbison became an insured under the policy on March 30, 2011, because
there was no agreement providing coverage related to the easement until August 31, 2011,
Columbia Harbison did not become an insured “under the Endorsement” until August 31, 2011.
First American’s argument is unavailing.

Exclusion 3(b) does not refer to when

Columbia Harbison became an insured under the endorsement, but rather when it became an
insured under the policy. Thus, First American is attempting to change the language of the
agreement. Moreover, Condition 15 and Endorsement 3 expressly state that endorsements do not
extend the “Date of Policy” or the “effective date of the policy,” respectively. There appears to
be only one effective date—the date of the policy—regardless of whether the policy includes an
endorsement.
Accordingly, the court hereby grants Columbia Harbison’s motion for summary
judgment on the applicability of Exclusions 3(a) and 3(b).
C. First American’s Fourth Cause of Action
First American’s fourth cause of action focuses primarily on the interpretation of the
language of Endorsement 3. Endorsement 3 “insures against loss or damage resulting from an
Order of a Court of Competent jurisdiction requiring the removal of all or a portion of the

10

structures (including but not limited to all extensions, vertical improvements, supports and
loading/turn around areas) designated as Homegoods, Ulta, DSW and or Staples (the
‘Structures’) as shown on the site drawing dated 5-20-11, last revised 9-1-11 (the ‘Plans’).”
Essentially, First American argues that the court should construe this language to provide
coverage to Columbia Harbison only when the structures of the proposed commercial
development are “completed.” According to First American, because no structure within the
meaning of Endorsement 3 was completed due to the state court injunction, the court should
grant it summary judgment on the issue of coverage.
As an initial matter, and as noted above, the parties submitted a great deal of parol
evidence with their motions, most of which is directed to the intended meaning of Endorsement
3. Again, this seems odd, as both parties also argue that the endorsement is unambiguous. In
any event, the court finds Endorsement 3 to be unambiguous, and thus it is neither necessary nor
proper to consider the parol evidence the parties submitted on this issue.
More particularly, First American’s somewhat philosophical and semantic argument goes
something like the following. A contemplated structure cannot exist until it has been built or
constructed. Take, for example, construction of the Empire State Building. Although it is true
that something existed during construction of that building, it was not the Empire State Building
until it was complete. Thus, when Endorsement 3 refers to “the structures . . . designated as
Homegoods, Ulta, DSW and or Staples . . . as shown on the site drawing,” it is referring to the
complete structures only. Similarly, when Endorsement 3 mentions a “portion,” an “extension,”
a “vertical improvement,” a “support,” or a “loading/turn around area” of the structures, it is
referring to a portion, extension, vertical improvement, support, or loading/turn around area of
the complete structures only. Consequently, even though a very large retaining wall was built on

11

the site, it was not the structures shown on the site drawing because what the wall was designed
to support was never finished. Likewise, the retaining wall might have been a portion, an
extension, a vertical improvement, a support, or a loading/turn around area of the structures
within the meaning of Endorsement 3, but only once the structures were complete.
The court disagrees. As the South Carolina Supreme Court has explained, “[t]he judicial
function of a court of law is to enforce contracts as made by the parties and not to re-write or
distort, under the guise of judicial construction, the terms of an unambiguous contract.” Dobyns
v. S.C. Dep’t of Parks, Recreation and Tourism, 480 S.E.2d 81, 84 (S.C. 1997) (citation omitted).
Thus, the courts “are without authority to alter a contract by construction or to make a new
contract for the parties. Their duty is limited to interpretation of the contract made by the parties
themselves . . . regardless of its wisdom or folly, apparent unreasonableness, or failure to guard
their rights carefully.” Gilstrap v. Culpepper, 320 S.E.2d 445 (S.C. 1984) (citations omitted).
Under the plain meaning of Endorsement 3, there is coverage for loss or damage resulting from
the state court mandatory injunction. Importantly, Endorsement 3 is not limited to “completed”
structures, as the term “completed” is not found therein. Rather, Endorsement 3 refers to an
order requiring removal of “all or a portion of” the structures.
The injunction ordered removal of the retaining wall, and this is clearly “a portion of” the
structures designated as Homegoods, Ulta, DSW and/or Staples shown on the site drawing.
Moreover, because the agreement includes a definition of the term “structure,” First American’s
argument that a structure cannot exist until it is complete ignores the plain language of the title
policy. Even if First American were to respond that a retaining wall only supports the structures
shown on the site drawing (and thus it is not really a “portion” thereof), there is still coverage
because the Endorsement specifically defines the term “structures” to include supports. As

12

Columbia Harbison notes, the retaining wall could also be thought of as a vertical improvement
or an extension within the meaning of Endorsement 3. Accordingly, Endorsement 3 covers
losses or damages resulting from the state court injunction in the underlying case.
Because the court finds that there is coverage under Endorsement 3, First American
breached its duty to indemnify Columbia Harbison when it filed this action seeking a declaration
of no coverage. Based on the above, the court grants summary judgment to Columbia Harbison
and denies it to First American on the issue of coverage for loss or damage arising from the state
court’s permanent injunction under Endorsement 3.
D. Columbia Harbison’s Breach of Contract Counterclaim
Both parties have moved for summary judgment on Columbia Harbison’s breach of
contract counterclaim. First American asserts that it is entitled to summary judgment on this
counterclaim because there is no coverage under the title policy. As discussed above, there is
coverage, and thus First American’s motion for summary judgment on this counterclaim is
denied. Columbia Harbison requests a ruling (1) that the language of the endorsement covers
consequential damages; and (2) that it is entitled to attorneys’ fees in this action as a matter of
South Carolina law. The court addresses each of these aspects of Columbia Harbison’s motion
separately below.
1. Consequential Damages
South Carolina courts have recognized that “[t]itle insurance is unique in that it is
retrospective, not prospective.” Firstland Village Assocs. v. Lawyer’s Title Ins. Co., 284 S.E.2d
582, 583 (S.C. 1981) (citation omitted). In other words, it “operates to protect a purchaser or
mortgagee against defects in or encumbrances on title which are in existence at the time the
insured takes title.” Id. (citation omitted). More particularly,

13

The risks of title insurance end where the risks of other kinds begin. Title
insurance, instead of protecting the insured against matters that may arise during a
stated period after the issuance of the policy, is designed to save him harmless
from any loss through defects, liens, or encumbrances that may affect or burden
his title when he takes it.
Id. (quoting Nat’l Mortgage Corp. v. Am. Title Ins. Co., 261 S.E.2d 844, 847–48 (N.C. 1980)).
Thus, in general, a title insurer is “liable for losses or damages caused by defects in the
property’s title, and defects for which title insurance provide coverage may generally be defined
as liens and encumbrances that result in loss in the title’s value.” Stanley v. Atlantic Title Ins.
Co., 661 S.E.2d 62, 65 (S.C. 2008) (citations omitted); see Whitlock v. Stewart Title Guaranty
Co., 732 S.E.2d 626, 628 (S.C. 2012).
Still, as evidenced by the title policy at issue in this case, it is possible for applicants for
title insurance to insure risks not covered in traditional title insurance policies.

1 JOYCE

PALOMAR, TITLE INSURANCE LAW § 9:1 (2012–2013 ed.). For example, applicants may obtain
an endorsement insuring against “loss resulting from damage to improvements on the insured
land as a consequence of their being found to encroach on an easement” listed in the policy. Id.
§ 9:4. Endorsement 3 to the title insurance policy in this case appears to be of this ilk, in that it
provides coverage for court-ordered removal of certain improvements to the insured property on
the grounds that the improvements violate a specific risk that is excepted to in the base policy.
The “loss or damage” First American insured against in Endorsement 3—whatever its scope may
be—is not insurance against a failure of title, but rather affirmative coverage of a different type.
Indeed, the title defect at issue in Endorsement 3, the parking easement, was known by the
parties prior to issuance of the policy. Thus, as an initial matter, the discussion of damages with
respect to traditional title policies in Stanley and Whitlock does not appear applicable to the
insurance provided in Endorsement 3.
14

In any event, and regardless of the type of coverage at issue, it appears that the types of
damages available to an insured in a case on a title insurance policy depend on the precise issue
before the court. As noted above, Columbia Harbison’s request for consequential damages is
made pursuant to the terms of the title policy, in particular Endorsement 3. This is puzzling,
however, because Columbia Harbison’s counterclaim is for breach of contract. As Palomar
explains, confusion often exists where title insurers (and, in this case, the insured) incorrectly
argue that policy terms should govern the insurer’s obligations both when the insurer performs
the contract and when it has breached the contract. See id. § 10:18. “[W]here a covered loss
occurs and the issue is what amount the insurer must pay to perform the contract to indemnify,”
the terms of the policy govern. Id. (citing First Am. Bank v. First Am. Transp. Title Ins. Co., 585
F.3d 833, 839 (5th Cir. 2009); Miller v. Ticor Title Ins. Co., 93 P.3d 88, 91 (2004)). Thus, if a
particular policy excludes consequential damages, they will not be available where performance
under the policy is the issue.
In contrast, courts routinely and properly order consequential damages “as part of the
standard measure of damages for breach of contract when an insurer failed to indemnify or act to
defend or clear the title according to policy terms.” Id.; see, e.g., Eureka Inv. Corp. v. Chicago
Title Ins. Co., 743 F.2d 932, 938–40 (D.C. Cir. 1984); Premier Tierra Holdings, Inc. v. Ticor
Title Ins. Co., 2011 WL 2313206, at *8–*9 (S.D. Tex. Jun. 9, 2011); Bohr v. First Am. Title Ins.
Co., 2008 WL 2977353, at *6–*7 (M.D. Fla. Jul. 30, 2008); Morgan v. Chicago Title Ins. Co.,
2007 WL 3332820, at *2 (D. Haw. Nov. 8, 2007); La Minnesota Riviera, LLC v. Lawyers Title
Ins. Co., 2007 WL 3024242, at *4 (M.D. Fla. Oct. 15, 2007); Mattson Ridge, LLC v. Clear Rock
Title, LLP, 2011 WL 2175832, at *5–*6 (Minn. Ct. App. Jun. 6, 2011), aff’d in part, rev’d in
part on other grounds, 824 N.W.2d 622 (Minn. 2012); Dreibelbiss Title Co. v. MorEquity, Inc.,

15

861 N.E.2d 1218, 1222 (Ind. Ct. App. 2007); Safeco Title Ins. Co. v. Reynolds, 452 So. 2d 45, 48
(Fla. Dist. Ct. App. 1984); Burks v. Louisville Title Ins. Co., 121 N.E.2d 94, 97 (Ohio Ct. App.
1953); see also V. Woerner, Annotation, Measure, Extent or Amount of Recovery on Policy of
Title Insurance, 60 A.L.R.2d 972, § 8 (1958) (“[I]t is implicit in all the cases which involve [a
breach of the insurer’s covenant to defend] as well as a loss or damage to an insured owner or
mortgagee resulting from a defect in the insured title that damage for breach of the covenant to
defend are separate and distinct from damages for a defect in title, and that damages for breach
of the covenant to defend may be recovered without regard to the usual policy provision limiting
the insurer’s liability to a specified amount, such limitation upon liability being tacitly deemed
applicable only to loss or damage resulting from a defect in title.”). Notably, “[i]t is an axiom of
general insurance law that an insurer who has materially breached its contract to defend and
indemnify cannot require its insured to comply with other contract terms.” PALOMAR, supra,
§ 10:18. Permitting title policies to limit insurers’ damages when they breach their contract
would give insurers no incentive to comply with their contractual duties. Id. Courts have
recognized that lost profits, see La Minnesota Riviera, 2007 WL 3024242, at *4; Mattson Ridge,
824 N.W.2d at 633, lost rents, see Hedgecock v. Stewart Title Ins. Co., 676 P.2d 1208, 1211
(Colo. App. 1983); Nebo, Inc. v. Transamerica Title Ins. Co., 98 Cal. Rptr. 237 (Cal. Ct. App.
1971), and costs from delays in construction, changing grading, and re-locating improvements,
see Burks, 121 N.E.2d at 97, among other types of special damages, may be awarded in
appropriate circumstances.
In this case, as described above, a covered loss occurred and First American breached the
title policy by failing to indemnify Columbia Harbison according to policy terms. Thus, it is not

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necessary for the court to determine whether consequential damages are available according to
the terms of the policy. The issue is the appropriate measure of damages for breach of contract.
Based on the above discussion, to the extent Columbia Harbison seeks a ruling that it
may attempt to prove consequential damages based on First American’s breach of its duty to
indemnify, it is entitled to summary judgment. The court wishes to emphasize, however, that
consequential damages are not automatically awarded.

Rather, they must be proven in

accordance with the requirements of South Carolina law. For example, the South Carolina
Supreme Court has explained that “[s]pecial damages are by their very nature conditioned by the
particular circumstances of each case.” Stern & Stern Assocs. v. Timmons, 423 S.E.2d 124, 125
(S.C. 1992) (citation omitted). It noted that “consequential damages occasioned by breach of
contract may be recovered when such damages may reasonably be supposed to have been within
the contemplation of the parties at the time the contract was made.” Id. at 126 (quoting Goodwin
v. Hilton Head Co., 259 S.E.2d 611, 613 (S.C. 1979)) (internal quotation marks omitted). For
special damages to be “within the contemplation of the parties at the time the contract was
signed,” the court stated that the party claiming such damages must show
that the defendant was clearly warned of the probable existence of unusual
circumstances or that because of the defendant’s own education, training, or
information, the defendant had reason to foresee the probable existence of such
circumstances. While it is true that the defendant need not foresee the exact
dollar amount of the injury, the defendant must know or have reason to know the
special circumstances so as to be able to judge the degree of probability that
damage will result from delayed performance. The special circumstances must
exist when the contract was made.
Id. at 125 (citations and internal quotation marks omitted). Although Columbia Harbison set
forth several examples of damages which it asserts that it will attempt to prove at trial, this court
expresses no opinion thereon. Again, Columbia Harbison will have the burden to prove at trial
all damages for breach of contract, actual or special, in accordance with South Carolina law.
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2. Attorneys’ Fees
Columbia Harbison has also moved for summary judgment on First American’s liability
for attorneys’ fees in this action as an element of its damages for breach of contract pursuant to
Hegler v. Gulf Ins. Co., 243 S.E.2d 443 (S.C. 1978). As discussed below, Hegler is directly
applicable to this case, and First American’s attempt to distinguish it is wholly unpersuasive.
Because coverage existed under the title insurance policy, First American breached its contract
with Columbia Harbison by bringing the instant action to avoid coverage and defense.
Therefore, First American is obligated to pay Columbia Harbison’s attorneys’ fees to defend the
instant action.
More particularly, Hegler involves an exception to the general rule that attorneys’ fees
are only recoverable when authorized by contract or statute. In Hegler, the appellant was insured
under a general automobile liability insurance policy issued to him by the respondent, Gulf
Insurance Company, and under which the respondent was obligated to defend appellant against
any suit seeking damages on account of bodily injury or property damage. While the policy was
in force, the appellant’s vehicle struck a tree, resulting in injuries to a passenger. An action was
filed against the appellant, and respondent subsequently notified the appellant that defense of the
action for damages had been undertaken with a reservation of rights under the policy.
Respondent did in fact defend appellant in the underlying damages suit, but it then brought a
declaratory judgment action to determine its liability under the insurance policy. As a result,
appellant had to retain independent counsel. The court decided the declaratory judgment action
in the appellant’s favor after the judge found that coverage existed under the policy. Respondent
settled that action for damages, but it denied appellant’s demands for payment of attorneys’ fees.

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The South Carolina Supreme Court held that the lower court should have allowed
attorneys’ fees against the respondent. Specifically,
While respondent agreed, under a reservation of rights, to defend the action for
damages brought against appellant, it simultaneously brought the declaratory
judgment action seeking a determination that it was not liable under the policy or
obligated to defend. Appellant was, therefore, forced to employ counsel to defend
against respondent’s denial of any obligation to continue the defense of the
damage action.
The declaratory judgment action established respondent’s obligation under the
policy to defend the action for damages. If respondent had refused initially to
defend, it would undoubtedly have been liable for the payment of counsel fees
incurred by appellant in the defense of the damage action. Instead however of
refusing initially, respondent began the defense and then sought, through the
declaratory judgment action, to avoid any obligation to continue to defend. In
order to obtain respondent’s continued defense of the action for damages, it was
necessary for appellant to employ counsel to resist the contention by respondent
of lack of coverage. There is no material difference in the legal effect between an
outright refusal to defend and in undertaking the defense under a reservation of
rights until a declaratory judgment is prosecuted to resolve the question of
coverage. In either event, an insured must employ counsel to defend in the first
instance in the damage action and in the second in the declaratory judgment
action to force the insurer to provide the defense. In both, the counsel fees are
incurred because of the insurer’s disclaimer of any obligation to defend.
The action of respondent amounted to a wrongful breach of its contractual
obligation to defend. The legal fees incurred by appellant, in successfully
asserting his rights against respondent’s attempt in the declaratory judgment
action to avoid its obligation to defend, were damages arising directly as a result
of the breach of the contract. . . . .
Id. at 444 (emphasis added).
First American attempts to distinguish Hegler by arguing that Hegler is only applicable
where the insurer breached its obligation to defend the insured in the underlying action. It argues
that because it did not refuse to defend Columbia Harbison in the state court action, hired
counsel of Columbia Harbison’s choice, and paid the bill for that counsel to defend the state
court action to completion, this case does not fall under the Hegler exception.

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This is clearly incorrect. Hegler involved an almost identical set of facts. As Columbia
Harbison notes, First American reserved the right to unilaterally quit funding the defense at any
time. It filed a declaratory judgment complaint seeking a ruling that no coverage is provided to
Columbia Harbison and that First American is not required to defend Columbia Harbison in the
action. As a result, Columbia Harbison was forced to retain independent counsel to defend the
instant lawsuit.

Because coverage existed under the title insurance policy, First American

breached its contract with Columbia Harbison by filing the instant suit. Under Hegler, then,
Columbia Harbison is entitled to an award of attorneys’ fees, and the court grants its motion for
summary judgment in this regard.
E. Columbia Harbison’s Defense of Estoppel
In its Answer, Columbia Harbison asserted as a defense that First American should be
estopped from asserting certain of its causes of action based on First American’s knowledge at
the time the claim was presented, based on its conduct in accepting the defense without issuing a
reservation of rights letter, and based on the knowledge of First American’s appointed insurance
agent at the time the contract was entered into. Essentially, Columbia Harbison alleges that First
American changed its position on interpretation of Endorsement 3 from prior to the instant
litigation, and its estoppel argument relates to whether First American should be allowed to
advance an argument that First American’s new interpretation is the only way Endorsement 3 can
be interpreted. First American has moved for summary judgment as to this defense.
Based on the above discussion, however, this aspect of First American’s motion for
summary judgment is moot. In particular, the court has already determined that Columbia
Harbison is entitled to coverage under Endorsement 3 and that First American breached its

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contract with Columbia Harbison by denying coverage.

Therefore, the court denies First

American’s motion for summary judgment on Columbia Harbison’s defense of estoppel.
V.

CONCLUSION
Columbia Harbison has moved for summary judgment on First American’s second, third,

and fourth causes of action and on certain aspects of its breach of contract counterclaim. First
American has also moved for summary judgment on its second and fourth causes of action and
on Columbia Harbison’s breach of contract counterclaim. Further, First American has moved for
summary judgment on Columbia Harbison’s defense of estoppel.
Based on the foregoing, the court grants Columbia Harbison’s motion for summary
judgment on First American’s second, third, and fourth causes of action and denies First
American’s motion for summary judgment on its second and fourth causes of action. Regarding
Columbia Harbison’s breach of contract counterclaim, the court denies First American’s motion
for summary judgment. The court grants Columbia Harbison’s motion for summary judgment
on its counterclaim both to the extent Columbia Harbison seeks to prove consequential damages
based on First American’s breach of contract at trial and on First American’s liability for
attorneys’ fees for this action. Finally, First American’s motion for summary judgment on
Columbia Harbison’s estoppel defense is denied as moot.
This case will proceed to trial on the question of damages for breach of the title policy
and on Columbia Harbison’s counterclaim for bad faith. Jury selection is scheduled for May 7,
2013.
IT IS SO ORDERED.
April 11, 2013
Columbia, South Carolina

Joseph F. Anderson, Jr.
United States District Judge

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