Prudential Federal Savings & Loan Ass'n v. St. Paul Insurance Companies

ERICKSON, District Judge: In the court below plaintiff, respondent, sought a declaratory judgment against St. Paul, appellant, and on motion of appellant, respondent First American Title Insurance And Trust Company was joined as a defendant. The trial court entered a summary judgment declaring appellant was liable to Prudential upon its policy and dismissing respondent First American Title Insurance And Trust Company. From this judgment St. Paul appealed. The parties in this cause will be referred to as Prudential, St. Paul, First American, Security Title and First Federal. The fact situation is . as follows: One Rowley was a loan officer for Prudential. ITe owned and sold to Parker in 1962 realty on a contract. Pie (Rowley) had given First Federal a first mortgage on this realty of some $14,000. In December of 1962 Parker applied to Prudential for a mortgage loan of $16,300, to be secured by a first lien on this realty purchased from Rowley. Prudential obtained from Security Title a Preliminary Title Report showing the mortgage to First Federal and advising Prudential a title policy for $16,300 would be issued on vesting of Prudential’s interest. Prudential later loaned Parker $16,300, and Rowley took $14,600 to liquidate his contract with Parker and the balance was paid to Prudential to cover loan costs. Prudential’s Trust Deed was dated December 26, 1962. The first mortgage to First Federal was not discharged, hence it retained its first lien. In 1965, Prudential discovered Rowley had embezzled sizeable sums over past years and learned for the first time that First Federal held a first mortgage on the Parker property. This, doubtless, prompted the instant case. Security Title recorded the Parker Trust Deed on January 22, 1963, insuring same as a first lien. Prudential contends that Rowley’s peculations were the sole and proximate cause of their deprivation of a first lien on the Parker property. St. Paul urges that the title insurance must respond, since Prudential’s claim is limited to the lack of a first lien, and this deprivation is the primary responsibility of title policy. Counsel for St. Paul contends that its blanket bond with extended coverage contains this provision: “If the insured holds [97] other valid or collectible indemnity against any loss, covered hereunder, the underwriter shall be liable hereunder only for such amount of such loss as is excess of the amount of such other indemnity, not exceeding the amount of coverage hereunder.” The apparent meaning of the quoted provision is that St. Paul provides excess coverage only, if another bears primary liability for the loss so suffered. (See Allied Mutual Cas. Corp. v. General Motors Corp., 10 Cir., 279 F.2d 455-457.) Who then is the primary insurer ? The title policy covered plaintiff against any loss or damage from liens or encumbrances, not therein excluded. The title policy further provides: The company, at its own cost without undue delay, shall provide, among other things * * * (2) for such action as may be appropriate to establish the title or the lien of the mortgage as insured, which litigation or action in any of such events is founded upon an alleged defect, lien or encumbrance insured against by this policy and may pursue any litigation to final determination in the Court of last resort. Plaintiff’s contention that its loss resulted from the embezzled funds is without merit, since it was never intended that Prudential should have the funds, but any such loss would be borne by the Parkers. As here-inbefore indicated, Prudential’s loss was its entitlement to a first lien and this loss must of necessity fall on Security Title and its insurer, First American. 9 Appleman’s Insurance Law and Practice, par. 5210, page 15 provides: Where at the time a policy was delivered the title was defective by reason of a lien or incumbrance, the contract was breached and the company was immediately liable to the insured for the loss actually suffered. It is of little consequence to cogitate how or why Security Title failed, as it did, to note the first mortgage. It was of record and its failure in this behalf imposes any loss covered by its own neglect. The rule having wide applicability provides that where a blanket policy contains a provision limiting its liability to an excess over specific insurance, the blanket policy must respond, only if the specific fails to satisfy the loss. (See 169 A.L.R. 390; Russell v. Paulson, 18 Utah 2d 157, 417 P.2d 658.) It is interesting to note that had Security Title examined the record as it was obliged to do, Prudential would have suffered no loss and Rowley would have escaped, in part, the penalty of his peculations. Since Prudential’s complaint is its loss of a first lien, such loss cannot be equated with St. Paul, since Security Title and its insurer, First American, were primarily responsible for such loss. [98] The decision of the trial court is therefore reversed and remanded consonant with this opinion. CALLISTER, J., concurs.