                  IN THE COURT OF APPEALS OF TENNESSEE
                               AT JACKSON
                                 OCTOBER 16, 2003 Session

      FORREST L. WHALEY & MARGARET ANN WHALEY v. FIRST
            AMERICAN TITLE COMPANY OF MID-WEST

                   Direct Appeal from the Circuit Court for Shelby County
                           No. 94890 T.D.    Rita L. Stotts, Judge



                        No. W2002-01940-COA-R3-CV - March 30, 2004


This case involves a claim under a title insurance policy. Plaintiffs purchased a residence located
on a two acre lot, which, they later discovered, had been improperly subdivided from a preexisting
74 acre tract. As a result of the improper subdivision of their lot, Plaintiffs are unable to obtain a
building permit to construct any improvements upon the property. Plaintiffs then filed a claim under
their title insurance policy with Defendant. The claim was denied, and the Plaintiffs subsequently
filed suit. After considering pleadings, affidavits, and deposition transcripts, the lower court granted
Defendant’s motion for summary judgment, finding as a matter of law that the policy at issue does
not cover the improper subdivision of land. For the following reasons, we affirm the ruling of the
trial court.


      Tenn. R. App. P. 3; Appeal as of Right; Judgment of the Circuit Court Affirmed

ALAN E. HIGHERS, J., delivered the opinion of the court, in which W. FRANK CRAWFORD , P.J., W.S.,
and HOLLY M. KIRBY , J., joined.

Richard M. Carter, Curt R. Soefker, Memphis, TN, for Appellants

Michael C. Patton, Thomas F. Barnett, Memphis, TN, for Appellee

                                              OPINION

                                   Facts and Procedural History

                On August 28, 1985, Jim Ann Perkins (“Mrs. Perkins”) applied for and received a
building permit to construct a residence on her 74 acre tract of land in Shelby County, Tennessee.
Two months later, Mrs. Perkins transferred a two acre portion, which included the site for the
residence, to her daughter and son-in-law, Terry and Albert Beshires (collectively “Beshires”). Then,
on December 12, 1985, Mrs. Perkins transferred an additional two acres, adjoining the first two acre
parcel, to the Beshires. On May 27, 1988, Forrest and Margaret Whaley (collectively “Plaintiffs”)
purchased the original two acre parcel, containing the residence, from the Beshires for $125,000.
Plaintiffs subsequently purchased a title insurance policy from First American Title Insurance
Company of the Mid-West (“Defendant”) that insured, among other things, against unmarketability
of the title to the property.

          In 1995, Plaintiffs discovered that their residence sat on a lot subdivided in violation of
section 105(c) of the Subdivision Regulations of Memphis and Shelby County, which requires the
approval of the regional planning commission prior to the division of land into parcels of four acres
or less. As a result of the improper subdivision, neither Plaintiffs, nor any subsequent purchaser, can
obtain a building permit for construction or improvements on the property. On August 13, 1997,
Plaintiffs advised Defendant that they believed the improper subdivision gave rise to a claim under
their title insurance policy. Defendant denied the claim in two letters, dated September 10, 1997 and
May 15, 1998. Plaintiffs disagreed with the denial of their claim, and subsequently filed suit for
breach of contract and negligence in Shelby County Circuit Court on May 26, 1998.

        On September 2, 1998, Defendant filed a motion to dismiss or, alternatively, for summary
judgment, alleging that, as a matter of law, the title insurance policy does not protect against the
improper subdivision of Plaintiffs’ property. Defendant maintained that title insurance policies only
insure legal ownership of property, not its economic value, and that the Plaintiffs clearly own the
property at issue free of any competing claims of ownership. It also alleged that exception 1(a)(iii)
of the policy specifically excludes coverage for damages arising from any division of the property.
Plaintiffs responded with their own motion for partial summary judgment, arguing that the policy
does, as a matter of law, insure against damages arising from the improper subdivision. In December
1999, the trial court conducted a hearing on the two motions. The lower court denied both motions,
finding that genuine issues of material fact still remained. On February 26, 2001, following a year
of additional discovery, Defendant renewed its motion for summary judgment. On March 1, 2001,
Plaintiffs likewise renewed their motion for summary judgment. The trial court, on February 15,
2002, granted Defendant’s motion for summary judgment, stating that “[t]he court cannot find as a
matter of law that the Whaley’s claim should have been covered under the terms of the insurance
contract at issue. It appears that the purpose of the title policy was to address issues relating to legal
ownership not value.” Plaintiffs filed a motion for reconsideration on March 8, 2002, which the
lower court denied on August 7, 2002. As part of its order denying Plaintiffs’ motion, the lower
court also certified the dismissal of the claims against Defendant as a final judgment. Plaintiffs
then timely filed the instant appeal, challenging the ruling of the trial court.

                                           Issues on Appeal

        Plaintiffs raise the following issues, as we perceive them, for our consideration:

        I.      Whether the trial court erred by granting summary judgment to Defendant on
                Plaintiffs’ breach of contract claim.



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               A.      Whether the trial court erred in finding that the scope of the policy extends
                       only to legal ownership of the Plaintiffs’ property, and not to its value.

               B.      Whether the trial court erred by failing to find that exclusion 1(a)(iii) of the
                       policy is inapplicable where notice of a defect in title is apparent in the chain
                       of title.

       II.     Whether the trial court erred by granting summary judgment to Defendant on
               Plaintiffs’ negligence claims.

                                        Standard of Review

       In Staples v. CBL & Associates, Inc., 15 S.W.3d 83 (Tenn. 2000), the Tennessee Supreme
Court set forth the standards governing an appellate court’s review of a grant of summary judgment:

       Since our inquiry involves purely a question of law, no presumption of correctness
       attaches to the lower court’s judgment, and our task is confined to reviewing the
       record to determine whether the requirements of Tenn. R. Civ. P. 56 have been met.
       See Hunter v. Brown, 955 S.W.2d 49, 50-51 (Tenn. 1997); Cowden v. Sovran
       Bank/Central South, 816 S.W.2d 741, 744 (Tenn. 1991). Tennessee Rule of Civil
       Procedure 56.04 provides that summary judgment is appropriate where: (1) there is
       no genuine issue with regard to the material facts relevant to the claim or defense
       contained in the motion; see Byrd v. Hall, 847 S.W.2d 208, 210 (Tenn. 1993); and
       (2) the moving party is entitled to a judgment as a matter of law on the undisputed
       facts. See Anderson v. Standard Register Co., 857 S.W.2d 555, 559 (Tenn. 1993).

Staples, 15 S.W.3d at 88.

                                         Law and Analysis

                                   I. Breach of Contract Claim

        Plaintiffs allege that the trial court erred in granting Defendant summary judgment as to their
breach of contract claim. They allege two bases of error, each relating to the scope of coverage
afforded by the title insurance policy at issue. We will address each alleged basis in turn.

                                      General Scope of Policy

        In its order granting summary judgment to Defendant, the trial court found that “[i]t appears
that the purpose of the title policy was to address issues relating to legal ownership not value.” The
court then found, as a matter of law, that Plaintiffs were not entitled to recovery under the policy
because there was no dispute that Plaintiffs held the property free of any competing claims of
ownership. Plaintiffs disagree with this characterization of the policy’s scope. They maintain that


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this represents an overly technical interpretation of the policy that violates the rules governing
construction of an insurance policy. Specifically, Plaintiffs emphasize the rule that ambiguous terms
in an insurance contract are to be construed in favor of the insured. Sturgill v. Life Ins. Co. of Ga.,
465 S.W.2d 742, 744 (Tenn. Ct. App. 1970). They argue that there is nothing on the face of the
policy that limits its coverage to issues of legal ownership, and that any ambiguous terms in the
policy must be construed to favor the insured. Plaintiffs contend that, under this approach, the
improper subdivision of their property constitutes a defect in the title or, in the alternative, renders
their title unmarketable. Plaintiffs argue, accordingly, that their damages fall within the policy’s
scope of coverage1 and that they are entitled to recovery. We respectfully disagree.

         Title insurance policies are to be interpreted under the same rules of construction as any other
contract. Humphreys v. W. End Terrace, Inc., 795 S.W.2d 128, 133 (Tenn. Ct. App. 1990) (citing
Swanson v. Mid-South Title Ins. Corp., 692 S.W.2d 415, 419-20 (Tenn. Ct. App. 1984)). It is the
duty of the court to interpret the contract as written, even those terms which may seem harsh or
unjust, in the absence of fraud or mistake. Humphreys, 795 S.W.2d at 133 (citing E.O. Bailey & Co.
v. Union Planters Title Guar. Co., 232 S.W.2d 309, 314 (Tenn. Ct. App. 1949)). As noted by
Plaintiffs, ambiguous terms in an insurance contract will be construed most favorably to the insured.
Sturgill, 465 S.W.2d at 744. In the instant case, the only possible ambiguity involves technical terms
such as “defect in title” and “unmarketability of title,” which involve legal concepts that may be
unfamiliar to average consumers such as Plaintiffs. However, language in a contract is not rendered
ambiguous simply because it happens to be technical or complex to the layman. Humphreys, 795
S.W.2d at 133 (citing Bartlett v. Philip-Carey Mfg. Co., 392 S.W.2d 325, 328 (Tenn. 1965)).
Consequently, we do not find the title policy contains any ambiguous terms. We will, therefore,
enforce the contract as it is written, without any preference for an interpretation that favors the
insured. This requires us to determine whether the improper subdivision of the property in question
falls within one of the coverage provisions relied upon by Plaintiffs. These provisions, as stated
earlier, extend coverage to those losses arising from a defect in the title or unmarketability of the
title.

        The lower court found that the improper subdivision does not constitute a defect in title or
an unmarketable title, because those concepts concern issues of legal ownership, while an improper
subdivision pertains to the value of property. We agree. It does not appear that a Tennessee court
has yet addressed this precise issue, but our conclusion is supported by the weight of other
jurisdictions and treatises that have covered this issue. “Title refers to the legal ownership of a
property interest so that one having title to a property interest can withstand the assertion of others
claiming a right to that title. But title to property does not characterize the property itself as valuable,
merchantable, or even usable.” Haw River Land & Timber Co., Inc. v. Lawyers Title Ins. Corp., 152
F.3d 275, 278 (4th Cir. 1998) (citations omitted); see also D. Barlow Burke, Law of Title Insurance
§ 3.2.3 (2d ed. 1993) (“An insured can have perfect legal title, worth nothing.”). In the instant case,


         1
                   The policy includes coverage for losses arising from “any defect in or lien or incumbrance on the title
. . . [and] unmarketability of the title . . . .”



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there is no dispute that Plaintiffs own their property free of any competing claims of ownership and
free of liens or encumbrances. We find, therefore, as a matter of law, that the improper subdivision
does not constitute a defect in title.

       Likewise, the improper subdivision of Plaintiffs’ property does not render the title
unmarketable. Instead, it constitutes a defect in the physical condition of the property that makes
the property economically difficult to sell. Several courts have addressed the distinction between
economic lack of marketability and unmarketability of title, including the Georgia Court of Appeals.
In Chicago Title Ins. Co. v. Investguard, Ltd., 449 S.E.2d 681 (Ga. Ct. App. 1994), the difference
between the two doctrines was succinctly stated:

        [T]hose courts which have addressed the issue of whether defects in the physical
        condition of the property are covered by title insurance have generally held that such
        defects do not constitute unmarketability of title. See Chicago Title Ins. Co. v.
        Kumar, 506 N.E.2d 154 (1987); Title & Trust Co. of Florida v. Barrows, 381 So. 2d
        1088 (Fla. Ct. App. 1979); Hocking v. Title Ins. & Trust Co., 234 P.2d 625 (Cal.
        1951); Sperling v. Title Guar. & Trust Co., 236 N.Y.S. 553 (N.Y. 1929), aff’d, 170
        N.E. 163 (1930). We agree with the above-cited decisions that a difference exists
        between economic lack of marketability, which relates to physical conditions
        affecting the use of the property, and title marketability, which relates to defects
        affecting legally recognized rights and incidents of ownership. See Kumar, 506
        N.E.2d at 157. “One can hold perfect title to land that is valueless; one can have
        marketable title to land while the land itself is unmarketable.” Hocking, 234 P.2d at
        629.

Chicago Title Ins. Co., 449 S.E.2d at 683. We agree with the foregoing analysis differentiating
economic unmarketability from title unmarketability, and we find that Plaintiffs’ title has not been
rendered unmarketable by reason of the improper subdivision of the property at issue. Although it
is unfortunate that Plaintiffs are unlikely to realize the full use and value of their property, they
simply have not alleged facts which indicate any deficiency in their title, as they enjoy undisputed
legal ownership of the property. Accordingly, we find that Plaintiffs’ title policy with Defendant
does not insure against losses occasioned by the improper subdivision of property. We note that, as
a consequence of this finding, the applicability of exclusion 1(a)(iii) is rendered moot. As such, we
decline to address that issue.

                                        II. Negligence Claim

        In their final issue on appeal, Plaintiffs argue that the lower court erred in granting Defendant
summary judgment as to their negligence claim. Under Tennessee law, a plaintiff must prove each
of the five elements that comprise a negligence claim:

        (1) a duty of care owed by the defendant to the plaintiff; (2) conduct of the defendant
        that fell below the applicable standard of care, amounting to a breach of the duty


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        owed to the plaintiff; (3) an injury or loss sustained by the plaintiff; (4) causation in
        fact; and (5) proximate, or legal, cause.

Burroughs v. Magee, 118 S.W.3d 323, 327-28 (Tenn. 2003). According to Plaintiffs, Tenn. Code
Ann. § 56-39-129 (2003) creates the applicable duty of care, requiring a title insurer to conduct a
reasonable examination of the title to a property and to disclose any defects that may be found.
Plaintiffs claim that Defendant breached this duty by failing to disclose the improper subdivision and
that this breach constitutes negligence. We disagree.

        Tenn. Code Ann. § 56-39-129 provides that “[n]o policy or contract of title insurance shall
be issued until and unless the title insurance company has caused to be conducted a reasonable
search and examination of the title.” Assuming, arguendo, that this language places a duty of care
upon a title insurer in the conduct of a title examination, Plaintiffs have not alleged any facts that
would constitute a breach. As we have already noted, title is a concept referring to legal ownership
rather than value, merchantability, or use. See Haw River Land & Timber Co., Inc. v. Lawyers Title
Ins. Corp., 152 F.3d 275, 278 (4th Cir. 1998). It naturally follows that the duty of a title insurer, in
conducting a title search, would only extend to the discovery and disclosure of those defects in the
chain of title that affect ownership. Here, it is undisputed that Plaintiffs hold their property free of
any competing claims of ownership and, further, that no defects exist in the chain of title that affect
ownership. The fact that the property is not as valuable as Plaintiffs’ initially believed, due to certain
use restrictions, does not affect the quality of their ownership. As a result, Plaintiffs cannot show
that Defendant breached its duty of care, and their negligence claim must fail.

                                              Conclusion

         For the foregoing reasons, we affirm the judgment of the lower court. Costs of this appeal
are taxed to the Plaintiffs, Forrest and Margaret Whaley, and their surety, for which execution may
issue if necessary.




                                                                 ALAN E. HIGHERS, JUDGE




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