                    IN THE COURT OF APPEALS OF TENNESSEE
                                  AT JACKSON
                 ______________________________________________

COMMERCIAL CREDIT PLAN, INC.,

       Plaintiff-Appellee,

Vs.                                                 Shelby Chancery No. 106149
                                                    C.A. No. 02A01-9708-CH-00204
ESTATE OF ARTHUR SMITH, JR.,
EARLINE BRAWLEY,

       Defendants,

T.R.W. TITLE INSURANCE
                                               FILED
CORPORATION OF NEW YORK,                          June 12, 1998
a corporation,
                                       Cecil Crowson, Jr.
      Defendant-Appellant.             Appellate C ourt Clerk
____________________________________________________________________________

                  FROM THE SHELBY COUNTY CHANCERY COURT
                   THE HONORABLE NEAL SMALL, CHANCELLOR



                              W. Ray Jamieson of Memphis
                        For Appellee, Commercial Credit Plan, Inc.

                           Randy S. Gardner, Apperson, Crump,
                             Duzane & Maxwell of memphis
                     For Appellant, T.R.W. Title Insurance Corporation



                             REVERSED AND REMANDED

                                       Opinion filed:




                                                           W. FRANK CRAWFORD,
                                                           PRESIDING JUDGE, W.S.


CONCUR:

DAVID R. FARMER, JUDGE

HOLLY KIRBY LILLARD, JUDGE


       This appeal involves a suit to recover under a policy of title insurance.

Defendant/Appellant TRW Title Insurance Corporation of New York (TRW) appeals the

judgment of the trial court awarding plaintiff Commercial Credit Plan, Inc. (CCP) $23,500.00.
       A written stipulation of facts filed in this cause states:

               1. On December 7, 1993, Commercial Credit Plan, Inc. made a
               loan to Arthur Smith, Jr. in the principle amount of Twenty-Five
               Thousand Seven Hundred Sixty-Nine and 11/100 Dollars
               ($25,769.11). The number of payments was 120 payments at
               $427.69 per month commencing on January 11, 1997. The loan
               was evidenced by a Promissory Note dated December 7, 1993
               signed by Arthur Smith, Jr. and attached hereto as Exhibit “A”.

               2. To secure the loan, Commercial Credit Plan, Inc. took a
               mortgage against the real property known as 3415 Outlet,
               Memphis, Shelby County, Tennessee.

               3. A Deed of Trust perfecting Commercial Credit Plan’s
               mortgage against the above described property was signed by
               Arthur Smith, Jr. and filed with the Shelby County Register’s
               Office at Instrument No. EA 5904 and EC 8580. The Deed of
               Trust is attached hereto as Exhibit “B”.

               4. On December 4, 1993, T.R.W. Title Insurance Corporation of
               New York issued a Mortgage Title Insurance Policy on the above
               referenced property. A copy of the policy is attached hereto as
               Exhibit “C”.

               5. Arthur Smith, Jr. defaulted on the Note and Deed of Trust
               described above and sometime thereafter Commercial Credit
               Plan, Inc. commenced foreclosure proceedings on the above
               described property. The foreclosure was scheduled for Monday,
               February 20, 1995 at 12 o’clock noon.

               6. Sometime between December, 1993 and August, 1996, Arthur
               Smith died.

               7. Prior to the foreclosure sale described above, documentation
               was produced to Commercial Credit Plan, Inc. indicating that the
               estate of Arthur Smith, Jr. does not have clear title to the subject
               property, but only a partial interest. The property secured by the
               Deed of Trust is owned jointly by the Estate of Arthur Smith, Jr.
               and Earline Brawley, each owning an undivided one-half (½)
               interest in the subject property as devised by the Last Will or
               Arthur Smith (Sr.) dated July 29, 1972. A copy of the Will is
               attached hereto as Exhibit “D”.

               8. The appraised value of the subject property as a whole is
               Twenty-Three thousand Five Hundred and No/100 dollars
               ($23,500.00). A copy of the appraisal is attached hereto as
               Exhibit “E”.

               9. The lien of Commercial Credit Plan, Inc. against the subject
               property as described above, is valid and enforceable as to an
               undivided one-half interest in the subject property.

       The following testimony was introduced at trial: After receiving proof of Ms. Brawley’s

interest, CCP canceled the foreclosure sale which had been scheduled for February 20, 1995.

Approximately five months later, in July of 1995, Robert Castile of CCP contacted Dave Davis



                                                2
of Strategic Mortgage Services, Inc., the policy issuing agent for TRW, to discuss a possible

claim under the policy of title insurance. Castile testified that during a subsequent conference

call between Davis, Castile, and W. Ray Jamieson, CCP’s attorney, Davis denied the claim on

behalf of TRW. TRW’s officer, Mark Pfeiffer, testified, however, that Strategic Mortgage

Services and Mr. Davis are not agents for claims on the policies issued by TRW.

       After the conversation with Mr. Davis, CCP filed suit in Shelby County Chancery Court

against TRW to recover under the policy of title insurance.1 TRW asserts that it did not become

aware of CCP’s claim until it was served with a copy of the lawsuit. TRW contends that it was

prejudiced by CCP’s failure to timely notify it of a potential claim under the policy and that the

suit should be dismissed because CCP failed to comply with the policy provisions regarding

notice and proof of loss.

       The trial court found that CCP provided notice of the claim to Strategic Mortgage

Services and that TRW had imputed notice of the claim through its agent. The court also found

that CCP had not failed to fulfill a condition precedent under the terms of the title insurance

policy. Furthermore, the court found that CCP had a valid and enforceable lien against an

undivided one-half interest in the property. The court also found that this interest had value, but

that the amount was not established at trial. The trial court granted judgment to CCP in the

amount of $23,500.00, the stipulated value of the property.

       TRW appeals the judgment of the trial court and has raised three issues for review:

               1. Whether the trial court erred in failing to dismiss plaintiff’s
               case for failure to fulfill a condition precedent.

               2. Whether the trial court erred in finding that the plaintiff CCP
               met its burden of proving damages in the amount of $23,500.00.

               3. Whether the trial court erred in finding that the defendant
               TRW was not prejudiced due to plaintiff’s failure to provide
               notice of the claim and proof of loss as specified in the policy of
               title insurance.

       Since this case was tried by the court sitting without a jury, we review the case de novo

upon the record with a presumption of correctness of the findings of fact by the trial court.

Unless the evidence preponderates against the findings, we must affirm, absent error of law.


       1
         The suit also sought recovery against the estate of Arthur Smith, Jr., for the
balance due on the indebtedness. Although somewhat ambiguous, we construe the trial
court’s judgment to resolve the question of the estate’s liability in favor of the estate.

                                                3
T.R.A.P. 13(d).

        Issues number one and three relating to conditions precedent to coverage and prejudice

will be addressed together. TRW asserts on appeal that CCP “failed to make proper demand to

TRW for coverage under the subject policy as required under its conditions and stipulations.”

Specifically, TRW argues that because CCP failed to give notice of the claim and proof of loss

in writing to the address specified in the policy, “TRW was not given the opportunity to either

indemnify, defend or refuse to do so.” As a result, TRW was denied “the opportunity to take

actions prior to litigation which could have mitigated damages to the parties and/or avoided the

cost of litigation.”

        The relevant policy provisions on notice are as follows:

                3. NOTICE OF CLAIM TO BE GIVEN BY INSURED
                CLAIMANT

                     The insured shall notify the Company promptly in writing . .
                . (ii) in case knowledge shall come to an insured hereunder of any
                claim of title or interest which is adverse to the title to the estate
                or interest or the lien of the insured mortgage, as insured, and
                which might cause loss or damage for which the Company may
                be liable by virtue of this policy . . . If prompt notice shall not be
                given to the Company, then as to the insured all liability of the
                Company shall terminate with regard to the matter or matters for
                which prompt notice is required; provided however, failure to
                notify the Company shall in no case prejudice the rights of any
                insured under this policy unless the Company shall be prejudiced
                by the failure and then only to the extent of the prejudice.

                        *               *                *               *

                5. PROOF OF LOSS OR DAMAGE

                    In addition to and after the notices required under Section 3 of
                these Conditions and Stipulations have been provided the
                Company, a proof of loss or damage signed and sworn by the
                claimant shall be furnished to the company within 90 days after
                the insured claimant shall ascertain the facts giving rise to the loss
                or damage. The proof of loss or damage shall describe the defect
                in or lien or encumbrance on the title, or other matter insured
                against by this policy which constitutes the basis of loss or
                damage and shall state, to the extent possible, the basis of
                calculating the amount of the loss or damage. If the Company is
                prejudiced by the failure of the insured claimant to provide the
                required proof of loss or damage, the Company’s obligations to
                the insured under the policy shall terminate, including any
                liability or obligation to defend, prosecute, or continue any
                litigation with regard to the matter or matters requiring such proof
                of loss or damage.

                        *               *                *               *



                                                  4
                16. NOTICES, WHERE SENT

                     All notices required to be given the Company and any
                statement in writing required to be furnished the Company shall
                include the number of this policy and shall be addressed to the
                Company at its Kansas Corporate Headquarters, 8800 College
                Blvd., Suite 700, Overland Park, Kansas 68211.

       TRW asserts that the case should have been dismissed because CCP failed to fulfill the

conditions precedent of providing adequate notice and proof of loss as required under the

conditions and stipulations of the policy.

       Upon review of the pertinent policy provisions, we conclude that the notice and proof of

loss requirements in this particular policy do not create conditions precedent to coverage. It is

true that provisions requiring “prompt” or “immediate” notice to an insurer have been held to

create conditions precedent whose failure to fulfill will justify the denial of coverage even in the

absence of prejudice to the insurer. See Hartford Accident & Indem. Co. v. Creasy, 530 S.W.2d

778 (Tenn. 1975); Allstate Ins. Co. v. Wilson, 856 S.W.2d 706, 709 (Tenn. App. 1992).

However, the language of Section 3 of the instant policy is at odds with such a strict construction

because this section provides that “failure to notify the Company shall in no case prejudice the

rights of any insured under this policy unless the Company shall be prejudiced by the failure and

then only to the extent of the prejudice.” (emphasis added). In other words, failure to provide

prompt notice does not, in and of itself, negate coverage. Therefore, strictly speaking, it is not

a condition precedent. Section 5 requiring proof of loss or damage contains similar language and

must be interpreted accordingly.

        Nevertheless, if TRW can show that it has been prejudiced by the delay in notice, it may

escape liability, at least to the extent of the prejudice. TRW asserts that it did not receive notice

of CCP’s claim until it was served with this lawsuit in August of 1995, more than five months

after CCP learned of the defect in title. However, the trial court found that TRW had imputed

notice of CCP’s claim through its agent, Strategic Mortgage Services, and that TRW had “not

been prejudiced by its liability to its own attorneys for fees and court costs in this cause by any

failure of [CCP] to follow the terms of the policy.”

        We note that CCP had knowledge of the title problem in February 1995, but first

contacted the agent in July 1995, some five months later. Even if we construe the verbal notice

to the agent as compliance with the policy provisions, we cannot accept a finding that a five


                                                 5
month delay is “giving notice promptly.”

       The issue then becomes whether the five month delay in giving notice, or CCP’s failure

to provide written notice and proof of loss in accordance with the terms of the policy, prejudiced

the rights of TRW. TRW asserts that it has incurred attorney fees in the instant litigation that

it would not have otherwise incurred if it had received proper notice. It is undisputed that CCP

did not comply with the policy provisions requiring written notice of the claim and written sworn

proof of loss. It appears that such policy provisions are designed, at least in part, to provide the

insurer an opportunity to assess its options without incurring litigation expenses. In this case,

TRW did not have that opportunity and was prejudiced to the extent of the extra expense

incurred. We respectfully disagree with the chancellor’s finding on this issue.

        In its remaining issue, TRW asserts that CCP did not prove its damages as required by

the policy. The policy provides:

                7. Determination and Extent of Liability.
                   This policy is a contract of indemnity against actual monetary
                loss or damage sustained or incurred by the insured claimant who
                has suffered loss or damage by reason of matters insured against
                by this policy and only to the extent herein described.

                (a) The liability of the Company under this policy shall not
                exceed the least of:

                        (i) the Amount of Insurance stated in Schedule A,
                        or, if applicable, the amount of insurance as
                        defined in Section 2(c) of these Conditions and
                        stipulations;

                        (ii) the amount of the unpaid principal
                        indebtedness secured by the insured mortgage as
                        limited or provided in Section 8 of these
                        Conditions and Stipulations or as reduced under
                        Section 9 of these Conditions and Stipulations, at
                        the time the loss or damage insured against by this
                        policy occurs, together with interest thereon; or

                        (iii) the difference between the value of the
                        insured estate or interest as insured and the value
                        of the insured estate or interest subject to the
                        defect, lien or encumbrance insured against by
                        this policy.

        CCP introduced the testimony of Ray Hoover, real estate appraiser, as an expert witness.

He testified that the property involved was worthless, that it had no value whatsoever. However,

we note from his testimony that he was under the impression that there could be no foreclosure

of an undivided one-half interest. Moreover, it is apparent from his testimony that he had no


                                                 6
understanding that once the property was foreclosed the successful bidder would be a tenant in

common with Mrs. Brawley. As such a tenant in common the bidder is entitled to a partition

or sale for partition. T.C.A. § 29-27-101 (1980) and T.C.A. § 29-27-201 (1980); Yates v. Yates,

571 S.W.2d 293 (Tenn. 1978).

       The trial court did not accept Mr. Hoover’s testimony and found that the property had

some value but that the value was not established by the proof. We agree with the trial court in

that regard. The proof simply did not prove a measure of damages as required by the policy

provisions.

       Accordingly, the judgment of the trial court is reversed, and the case is remanded to the

trial court for further proceedings to establish the damages due the plaintiff as provided in the

policy. Defendant, TRW, is entitled to credit against the amount of damages incurred for such

sums it was required to expend by virtue of CCP’s failure to comply with the policy provisions

regarding notice and proof of loss. Costs of the appeal are assessed equally to CCP and TRW.

                                                      _________________________________
                                                      W. FRANK CRAWFORD,
                                                      PRESIDING JUDGE, W.S.

____________________________________
DAVID R. FARMER, JUDGE

____________________________________
HOLLY KIRBY LILLARD, JUDGE




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