
USCA1 Opinion

	




                            United States Court of Appeals                            United States Court of Appeals                                For the First Circuit                                For the First Circuit                                 ____________________        No. 92-1758                          FOCUS INVESTMENT ASSOCIATES, INC.,                                Plaintiff, Appellant,                                          v.                      AMERICAN TITLE INSURANCE COMPANY, ET AL.,                                Defendants, Appellees.                                 ____________________        No. 92-1766                          FOCUS INVESTMENT ASSOCIATES, INC.,                                 Plaintiff, Appellee,                                          v.                      AMERICAN TITLE INSURANCE COMPANY, ET AL.,                                Defendant, Appellant.                                 ____________________                    APPEALS FROM THE UNITED STATES DISTRICT COURT                           FOR THE DISTRICT OF RHODE ISLAND                 [Hon. Francis J. Boyle, Senior U.S. District Judge]                                         __________________________                                 ____________________                                        Before                               Torruella, Circuit Judge,                                          _____________                           Campbell, Senior Circuit Judge,                                     ____________________                              and Stahl, Circuit Judge.                                         _____________                                 ____________________            Steven E. Snow with  whom Partridge, Snow &  Hahn was on brief for            ______________            _______________________        appellant/cross-appellee Focus Investment Associates, Inc.            Max Wistow  with whom  Stephen P.  Sheehan and  Wistow &  Barylick            __________             ___________________      __________________        Inc.  were   on  brief  for  appellee/cross-appellant  American  Title        ____        Insurance Company.            William H.  Jestings with  whom Patricia A.  Buckley and  Carroll,            ____________________            ____________________      ________        Kelly & Murphy were on brief for appellees Tobak and Abrams & Verri.        ______________            Robert S. Bruzzi was on brief for appellee Owen B. Landman.             ________________                                 ____________________                                     May 11, 1993                                 ____________________                      STAHL, Circuit Judge.   In these cross-appeals,  we                             _____________            explore,  inter alia,  the  parameters of  a title  insurance                      _____ ____            company's duty  to disclose title  defects to its  insured, a            lender-mortgagee.   The district court, finding  that no such            duty existed, granted a  post-judgment motion for judgment as            a  matter  of  law  in  favor  of  defendant  American  Title            Insurance Co.  ("American"), thus  nullifying a  jury verdict            awarding $286,000 in  negligence damages  to plaintiff  Focus            Investment  Associates, Inc. ("Focus").1   Focus appeals that            ruling,  as  well  as  others  related   to  it.    American,            meanwhile,  argues that  the jury's  $49,000 damage  award on            Focus's  contract claim  may  have  resulted  from  erroneous            instructions  and  should  therefore  be vacated.    For  the            reasons that  follow, we  affirm the judgments  against Focus            and vacate the judgment against American.2                                            ____________________            1.  See generally  Focus Inv. Assocs. v.  American Title Ins.                ___ _________  __________________     ___________________            Co., 797 F. Supp. 109 (D.R.I. 1992).            ___            2.  Prior to trial, Fed. R. Civ.  P. Rule 50 had already been            amended to abolish the  different designations between a pre-            judgment "motion  for directed verdict"  and a  post-judgment            "motion  for judgment n.o.v."  Both motions are  now known as            "motions for judgment as a matter of law."  As the applicable            standards under the two denominations do not differ, we will,            for purposes of consistency, refer to the motions at issue as            though they were submitted  and ruled upon under  the amended            Rule.  See Davet v. Maccarone,  973 F.2d 22, 26 n.4 (1st Cir.                   ___ _____    _________            1992) (discussing amendment to federal rule and  substituting            appropriate nomenclature).                                         -3-                                          3                                          I.                                          I.                                          __                                   Background Facts                                   Background Facts                                   ________________                      Unless otherwise indicated, the following facts are            undisputed.    Focus,   a  family-owned  and   operated  Ohio            corporation,  invests money  from  a family  trust and  makes            loans  secured by interests in  real estate.   On December 6,            1988, Laurence  J. Shapiro, a now-deceased  Boston-based real            estate   developer  and  mortgage   broker,  contacted  Focus            President Edward  Sarbey3 to solicit placement  of a $250,000            short-term  loan  to  George  Marderosian,  a  Rhode   Island            attorney.    Shapiro  explained  that  Marderosian  was  lead            attorney in  a real estate enterprise,  which urgently needed            to fund  operational cash  shortfalls.  Shapiro  indicated to            Focus that  Guardian Mortgage  Corp., a loan  company Shapiro            operated,  would make and close the loan, and then assign all            loan documents to  Focus, in return  for Focus's funding  and            purchase of the loan.                      Shapiro represented to Focus that the loan would be            fully secured by second mortgages on twelve condominium units            valued at $1.14 million,  subject only to Attleboro Pawtucket            Savings   Bank's  ("Attleboro")   first   mortgage  with   an                                            ____________________            3.  Shapiro and  Sarbey became  acquainted when the  two were            neighbors in  Boston, prior  to Sarbey's relocation  to Ohio.            According  to  Sarbey, Shapiro  originally  recommended loans            secured by  real estate as  a safe and  profitable investment            idea.   Prior to the loan here at issue, Shapiro had arranged            several other loans for Focus.                                         -4-                                          4            approximate  balance  of $720,000.   As  additional security,            Focus  was to  be given  a  second mortgage  on Marderosian's            home, which,  according to  Shapiro, had  an equity  value of            $100,000 to  $150,000 over and above The  Boston Five Corp.'s            first mortgage.   Finally, Shapiro and  Marderosian agreed to            personally guarantee  the loan, and  to assign  to Focus  the            proceeds of  a consulting agreement between  Shapiro and Dean            Street  Development, a  Marderosian client.   Based  on these            representations, Focus agreed to purchase and fund the loan.                       Shapiro  hired defendant James Tobak, an associate            of  defendant law  firm Abrams  and  Verri, to  represent the            lender's  interests4 and close the loan deal.  On December 6,            1988,  Tobak   transmitted  to   Sarbey  facsimiles   of  the            promissory  notes,  mortgages,  and  guarantees  executed  in            connection with the loan.  The following day,  Tobak informed            Sarbey  that Focus's  mortgages  had been  recorded and  that            title insurance had been obtained.  He  then requested Sarbey            to  wire  the  loan proceeds  to  Abrams  and  Verri's escrow            account, which Sarbey did  the same day.    The loan  closing            took  place December 8,  1988.  The terms  of the loan called            for  an annual  interest  rate of  20  percent, with  monthly                                            ____________________            4.  Focus  claims  that  Tobak   was  hired  to  protect  its            interests,  while  Tobak  claims  he  was  hired  to  protect            Shapiro's and Guardian's interests.  We address this dispute-            -which  turns on  the identity  of the  actual "lender"--more            fully infra at 15.                  _____                                         -5-                                          5            interest payments of $4,166.67  to begin on January  6, 1989.            Final repayment was due on April 6, 1989.                      Among the loan documents, Focus received two  title            insurance  policies  issued   by  American's   policy-issuing            attorney, defendant  Owen Landman.  The  first policy insured            Focus's second mortgage on 12 condominium units.   The policy            showed title to the units to be vested in the  name of George            A.  Marderosian, Trustee  of the  River's Edge  Realty Trust.            Excepted  from coverage  under the  first policy was  a first            mortgage with a  principal balance of  $720,000.  The  second            policy insured Focus's second mortgage on Marderosian's home,            excepting  a  first  mortgage  in  the  principal  amount  of            $150,000.                      Near the  end of December  1988, Shapiro died.   In            January, February and  March 1989, Marderosian made  payments            to  Focus totalling  $23,200.   However, as  of the  April 6,            1988, due date, the balance of the principal and the interest            due under the terms  of the promissory note remained  unpaid.            In the  course of  considering its response  to Marderosian's            non-payment,  Focus discovered  that  its  mortgages did  not            occupy  a  second  position   on  either  of  the  collateral            properties.   With respect to the  condominium units, Focus's            mortgage  was  in  fifth   position.    Focus's  mortgage  on            Marderosian's home  was in fourth  position, behind mortgages            held by C & K Investments ($100,000) and Bank of New England-                                         -6-                                          6            Old Colony ($50,000), as  well as the first mortgage  held by            Boston  Five Corp.  In addition, at the time Focus's mortgage            was recorded,  title to the  condominium units was  vested in            Capital Center Development, not  Marderosian.  Neither of the            title  insurance policies  reflected  the  existence  of  the            senior mortgages  nor did the condominium  policy reflect the            actual ownership.                      The  title  insurance  policies  in  question  were            issued by defendant Landman, whom American had appointed as a            policy-issuing attorney  in April 1980.   Landman, who shared            office  space with Marderosian, was listed as "Of Counsel" on            the Marderosian law firm  letterhead.  Landman testified that            he issued the  title policies at  Marderosian's request.   He            conducted no independent title  search, but instead relied on            Marderosian's  representations   as  to  the   ownership  and            mortgage status of the collateral properties.                      In July 1989, Attleboro foreclosed its mortgage  on            the  condominium  units.    The foreclosure  sale  price  was            $220,000  less than  the  balance  of  Attleboro's  mortgage,            leaving nothing for a  second mortgagee.  Shortly thereafter,            Marderosian's  home  was  bid  in at  foreclosure  by  second            mortgagee C & K Investments, which assumed liability for  the            principal  balance  of  $150,000  remaining  on  Boston  Five            Corp.'s first mortgage and paid an additional $49,000,  for a            total purchase price  of $199,000.  Thus, $49,000 in proceeds                                         -7-                                          7            remained  after  satisfaction   of  the  Boston  Five   Corp.            mortgage.                      On  November  11,  1989,  Focus  filed  a diversity            action  against  American, Landman,  Tobak,  Abrams &  Verri,            Shapiro's estate,  and Marderosian.  The nine-count complaint            sought  damages  from  American   for  breach  of  the  title            insurance  contract, negligence in searching title, negligent            hiring,  retention  and  supervision  of  Landman,  negligent            misrepresentation of Focus's mortgage position, and bad faith            refusal to settle.   Focus accused  Landman of negligence  in            searching title and  negligent misrepresentation.   Tobak and            Abrams & Verri were charged with negligent misrepresentation,            legal malpractice, breach of contract and breach of fiduciary            duty.    Finally,  Focus   sought  to  enforce  the  personal            guaranties  tendered by  Shapiro and  Marderosian.   Prior to            trial, Marderosian filed  a motion to dismiss, to which Focus            did not object, apparently  because it thought Marderosian to            be  judgment-free.   The district  court granted  the motion,            with prejudice.                  At trial,  Focus  argued that  the  terms of  the  title            insurance  contract  obligated  American  to  pay  Focus  the            $49,000  that would  have  been  available  to Focus  had  it            actually been  the  second mortgage  holder on  Marderosian's            home.    In  addition,  Focus  sought  to  recover  the  loan            proceeds, plus costs  and interest from  defendants American,                                         -8-                                          8            Landman,  Tobak,  et  al.,  theorizing  that  but  for  their                              __  ___            tortious conduct,  Focus never  would have made  the loan  to            Marderosian.                        At  the close  of Focus's  case-in-chief, American,            Landman,  Tobak, and Abrams &  Verri moved for  judgment as a            matter of law.   The court reserved decision on  the motions.            The  defendants renewed their motions at the close of all the            evidence.   Focus also moved for judgment  as a matter of law            on American's affirmative defense of usury.  The court denied            Focus's  motion  and  reserved  decision on  the  motions  of            American and Landman.  The court granted the motions of Tobak            and Abrams  & Verri, ruling  that Focus's failure  to present            expert testimony  with respect  to an attorney's  standard of            care under the relevant circumstances  was fatal to the claim            of legal malpractice.                      The jury found American liable on both contract and            negligence grounds, awarding damages of $49,000 and $286,000,            respectively.   The  jury also  found Landman  negligent, but            awarded  no damages.    Following trial,  American moved  for            judgment  as a  matter  of  law  on  both  the  contract  and            negligence counts.  The  district court, ruling that American            owed  Focus no duty with respect to the title search, granted            the motion on the negligence  count, while denying the motion            on  the contract  claim.   On  June  18, 1992,  judgment  was            entered in accordance with these rulings.                                         -9-                                          9                      Both  Focus  and American  appealed.   Focus claims            that judgment  as  a  matter  of  law  was  improper  because            American  was under a duty  to Focus to  perform a reasonable            title search.   Focus  also  argues that  the district  court            incorrectly ruled  that expert testimony was  necessary on an            attorney's standard of care, and that even if  such testimony            was required, it  was supplied via the testimony of attorneys            Tobak and Marderosian.  American  appeals on the ground  that            the district court incorrectly charged the jury that it "may"            return  a  verdict  for American  if  it  found  the loan  to            Marderosian usurious,  when in  actuality a finding  of usury            would mean that a jury "must" rule in favor of American.5                                           II.                                         II.                                         ___                                    Focus's Appeal                                    Focus's Appeal                                    ______________            A.  Judgment as a Matter of Law            A.  Judgment as a Matter of Law            _______________________________                      The bulk of Focus's appeal is aimed at the district            court's grant of judgment as a matter of law against Focus on            its  various claims of negligence.   In reviewing  a grant of            judgment  as a matter of law, the evidence and all reasonable                                            ____________________            5.  Focus   also  argued   that  American   should  be   held            vicariously liable  for the negligence of  its alleged agent,            Landman.   The  district court  ruled  that Landman  was  not            American's agent,  and Focus  appeals that decision  as well.            The  only asserted  basis  for Landman's  negligence was  his            failure to  independently search  title prior to  issuing the            policies in question.   Because,  as will  be explained  more            fully, infra, we find that a title insurer owes no duty to an                   _____            insured with respect to  a title search, we need  not resolve            the agency issue.                                         -10-                                          10            inferences  therefrom  must be  examined  in  the light  most            favorable to the nonmovant.  Lowe v. Scott, 959 F.2d 323, 337                                         ____    _____            (1st Cir. 1992).  Judgment as  a matter of law is appropriate            only  when the evidence, so viewed, is such that a reasonable            jury could reach only one conclusion.  Id.                                                      ___            B. The Negligence Claims6            B. The Negligence Claims6            ________________________                 1.  The Title Search                 1.  The Title Search                 ____________________                      Focus essentially argues, as  it did at trial, that            American--via  its   agent,  Landman--failed  to   conduct  a            reasonable title search prior  to issuing the title insurance            policy  to  Focus.   Had  American  done  so, and  thereafter            disclosed to  Focus the correct number  of superior mortgages            on the proffered collateral, Focus claims it never would have            made the loan to Marderosian.   At the heart of this argument            is the question of  whether a title insurance company  can be            held liable for  failure to search  title and disclose  title            defects to its insured.  This is apparently an issue of first                                            ____________________            6.  We note that the jury was not given separate instructions            relative   to  each  of  Focus's  negligence  claims  against            American--e.g.,    searching    title,     misrepresentation,            supervision, etc.--but instead was given a verdict form which            asked only, "Do you find American Title liable for negligence            in issuing the title insurance policies?"  Therefore, because            the record  does not  indicate which  theory the  jury relied            upon to  make  its $286,000  negligence award,  we, like  the            district court,  must examine each theory  individually.  See                                                                      ___            Welsh  Mfg., Div.  Of Textron  v. Pinkerton's, 474  A.2d 436,            _____________________________     ___________            441-42 (R.I.  1984) (when multiple theories  of liability are            submitted to a jury, which then is asked  to return a general            verdict, each  theory must be tested  separately to determine            whether submission to the  jury is appropriate) (citing Davis                                                                    _____            v. Caldwell, 429 N.E.2d 741, 742 (N.Y. 1981)).               ________                                         -11-                                          11            impression in Rhode  Island, and thus  we will seek  guidance            from, inter alia, analogous decisions of other jurisdictions.                  _____ ____            See  Sainz Gonzalez  v. Banco  de Santander-Puerto  Rico, 932            ___  ______________     ________________________________            F.2d 999, 1001 (1st Cir. 1991) ("A diversity court faced with            a paucity of  apposite decisional law may  look to `analogous            decisions  . .  .  and any  other  reliable data  tending  to            convincingly  show  how the  highest  court  in the  relevant            jurisdiction  would decide the  issue.'")(quoting Redgrave v.                                                              ________            Boston Symphony  Orchestra, Inc., 855 F.2d 888, 903 (1st Cir.            ________________________________            1988) (en banc)).   We  review de novo  the district  court's            state law  determination.   Salve Regina College  v. Russell,                                        ____________________     _______            111 S. Ct. 1217, 1223-25 (1991).                      It is true, as Focus asserts, that some courts have            concluded that  a title  insurance company  may be  liable in            tort if it negligently fails to discover and disclose a title            defect  to its  insured.   See,  e.g.,  Red Lobster  Inns  of                                       ___   ____   _____________________            America v. Lawyers Title  Ins. Corp., 656 F.2d 381,  383 (8th            _______    _________________________            Cir.  1981) (applying  Arkansas law);  Bank of  California v.                                                   ___________________            First American Title  Ins. Co., 826  P.2d 1126, 1128  (Alaska            ______________________________            1992); White v.  Western Title  Ins. Co., 710  P.2d 309,  315                   _____     _______________________            (Cal. 1985);   Ford v.  Guarantee Abstract &  Title Co.,  553                           ____     _______________________________            P.2d  254, 266 (Kan. 1976);  Heyd v. Chicago  Title Ins. Co.,                                         ____    _______________________            354  N.W.2d 154, 158 (Neb. 1984).  See generally Joyce Dickey                                               ___ _________            Palomar, Title Insurance Companies' Liability for Failure  to                     ____________________________________________________            Search Title and  Disclose Record Title, 20 Creighton L. Rev.            _______________________________________                                         -12-                                          12            455  (1986-87).  In each  of those cases,  however, the title            insurance company  either had  expressly agreed to  provide a            title report or had issued to the insured a preliminary title            report which failed to disclose a title defect which was then            excluded from coverage under the policy.  In such situations,                      two distinct responsibilities are  assumed [by                      the insurer]; in rendering the  first service,                      the insurer  serves as an abstractor  of title                      and must  list all  matters  of public  record                      regarding   the   subject   property  in   its                      preliminary  report.   When  a  title  insurer                      breaches its duty to abstract title accurately                      it may be held liable  in tort for all damages                      proximately caused by such breach.             Ford, 553 P.2d at 266 (citations omitted).              ____                      In   the  absence   of  an   express   contract  or            preliminary  title report,  however,  courts  have  uniformly            declined  to hold  a  title insurance  company  liable for  a            negligent  title search.  See, e.g., Brown's Tie & Lumber Co.                                      ___  ____  ________________________            v.  Chicago Title  Co., 764  P.2d 423,  425-27  (Idaho 1988);                __________________            Roscoe v. United States  Life Title Ins. Co., 734  P.2d 1272,            ______    __________________________________            1274  (N.M. 1987);  Grunberger v.  Iseson, 429  N.Y.S.2d 209,                                __________     ______            210-11  (N.Y. App.  Div.  1980); Greenberg  v. Stewart  Title                                             _________     ______________            Guar. Co., 492 N.W.2d 147 (Wis. 1992); see also Walker Rogge,            _________                              ___ ____ _____________            Inc. v. Chelsea  Title and  Guar. Co., 562  A.2d 208,  217-19            ____    _____________________________            (N.J. 1989) (collecting cases).                      Here, American neither contracted to  provide Focus            with a  title report, nor  provided Focus with  a preliminary            title report.  Thus, we agree with the district court that in                                         -13-                                          13            trying to recover its  loan loss under negligence principles,            Focus seeks  to expand its relationship  with American beyond            the bounds of  the title insurance policy  and thereby impose            upon American a duty neither undertaken nor imposed by  law.7                                            ____________________            7.  The  cover sheet  of the  policies here  at issue  states            that:                      SUBJECT TO THE EXCLUSIONS  FROM COVERAGE,                      THE  EXCEPTIONS  CONTAINED IN  SCHEDULE B                      AND THE PROVISIONS  OF THE CONDITIONS AND                      STIPULATIONS   HEREOF,   AMERICAN   TITLE                      INSURANCE COMPANY .  . .   insures . .  .                      against loss or damage, not exceeding the                      amount of insurance stated in  Schedule A                      .  .  .  sustained  or  incurred  by  the                      insured by reason of:                      1.   Title  to  the  estate  or  interest                      described  in  Schedule  A  being  vested                      otherwise than as stated therein;                      2.  Any defect  in or lien or encumbrance                      on such title;                                       . . . .                       6.     The  priority   of  any  lien   or                      encumbrance over the  lien of the insured                      mortgage;                                       . . . .             Among  the  relevant  Conditions  and  Stipulations  are  the            following:                      6.  DETERMINATION AND PAYMENT OF LOSS                           (a)    The  liability of  [American]                      under this policy shall in no case exceed                      the least of:                           (i)  the actual loss  of the insured                      claimant; or                           (ii) the amount of  insurance stated                      in Schedule A . . . .                                       . . . .                                         -14-                                          14            See  Horn v. Lawyers Title Ins.  Co., 557 P.2d 206, 208 (N.M.            ___  ____    _______________________            1976) ("The rights and duties of the parties are fixed by the            contract  of title insurance.").8   In the absence  of a duty            to  search title,  as  a  matter  of law,  there  can  be  no            liability for failing to do so.  See Banks v. Bowen's Landing                                             ___ _____    _______________            Corp.,  522 A.2d 1222, 1224-25  (R.I. 1987) (if  no duty runs            _____            from  defendant to plaintiff, an issue which is to be decided            by  the court, the trier of fact  has nothing to consider and            judgment  as a matter of law must be entered).9  Accordingly,            we find that the district court correctly granted judgment as                                            ____________________                      11.  LIABILITY LIMITED TO THIS POLICY                           This  instrument  together with  all                      endorsements  and  other instruments,  if                      any, attached hereto by [American] is the                      entire  policy  and contract  between the                      insured and [American].                           Any claim of loss or damage, whether                      or  not based  on  negligence, and  which                      arises out  of the status of  the lien of                      the insured mortgage or  of the title  to                      the estate or  interest covered hereby or                      any action asserting such claim, shall be                      restricted   to    the   provisions   and                      conditions   and  stipulations   of  this                      policy.            8.    To the extent that a title insurer searches title prior            to issuing a policy, it does  so only for its own benefit, to            ascertain its risk of  liability under the policy as  it will            except from coverage any title defect it does discover and be            liable for  damages caused by  undiscovered--and unexcepted--            defects.  See Greenberg, 492 N.W.2d at 150.                       ___ _________            9.  To  the extent,  therefore,  that Focus  claims that  the            existence  of a  duty was  a question for  the jury,  such an            argument is legally incorrect.  Banks, 522 A.2d at 1225.                                            _____                                         -15-                                          15            a matter of law  on Focus's claim of negligence  in searching            title.                 2.  Negligent Misrepresentation                 2.  Negligent Misrepresentation                 _______________________________                      As  we  have  said,  each of  the  title  insurance            policies here at issue excepted  from coverage only one prior            mortgage,  thereby   insuring  Focus's  position   as  second            mortgagee  on  both  the condominium  units  and  Marderosian            residence.  Focus argues that the policies therefore amounted            to a false representation  that its mortgages were in  second            position,   which  representation   was  due   to  American's            negligence.  Consequently, Focus argues, because it relied on            these  representations  in  deciding  to  make  the  loan  to            Marderosian,  American is  liable for  Marderosian's default.            Although we agree with the district court that American, as a            matter  of  law,  was  not  liable  to  Focus  for  negligent            misrepresentation, our reasoning  differs somewhat from  that            of the district court.   See Banco Popular de Puerto  Rico v.                                     ___ _____________________________            Greenblatt, 964  F.2d 1227,  1230 (1st Cir.  1992) (appellate            __________            court can  affirm a judgment on  any independently sufficient            ground reflected in the record).                      We  have  stated  that   "[t]itle  insurance  is  a            contract of indemnity, not guarantee."  Falmouth Nat. Bank v.                                                    __________________            Ticor Title Ins.  Co., 920  F.2d 1058, 1062  (1st Cir.  1990)            _____________________            (applying Massachusetts law) (citations omitted).  Therefore,            by issuing a policy, "an insurer does not guarantee the state                                         -16-                                          16            of the title, but rather, agrees to indemnify the insured for            any loss." Id.  "Put another way, it is not the mortgage note                       ___            that  is insured,  but rather,  what is  insured is  the loss            resulting  from  a  defect  in  the  security."  Id.  (citing                                                             ___            Southwest Title Ins. Co. v. Northland Bldg. Corp., 552 S.W.2d            ________________________    _____________________            425, 430 (Tex. 1977)).   Moreover, a title insurer  "does not            guarantee either  that the  mortgaged premises are  worth the            amount  of the  mortgage or  that the  mortgage debt  will be            repaid."  Blackhawk Prod. Credit Assoc. v. Chicago Title Ins.                      _____________________________    __________________            Co., 423 N.W.2d 521, 525 (Wis. 1988) (citations omitted).  As            ___            the  title insurance  policies  issued by  American were  not            representations of  title, they cannot,  as a matter  of law,            form the basis of a claim of negligent misrepresentation.10                                            ____________________            10.  Not only  are the district  court's decisions  regarding            the title insurance  policies in accord  with those of  other            jurisdictions, they are supported  by logic as well.   In our            view, Focus's  position  is tantamount  to  a buyer  of  life            insurance  claiming that  his policy  is a  guarantee against            death.    Focus's  claim  that it  relied  on  the  insurance            policies  as  evidence  that no  undisclosed  superior  liens            existed  simply  flies  in the  face  of  the  fact that  the            policies were issued to  protect Focus against losses it  may            suffer   from  undisclosed  superior  liens.    Moreover,  an            insured's losses are limited to situations where the security            of  the insured lien is actually  impaired by the undisclosed            superior lien.  "The  mere fact of an undisclosed  prior lien            is  insufficient to establish this  claim; a showing that the            prior lien renders  the insured lien `insecure'  must be made            as  well."    Blackhawk,  423  N.W.2d  at  525-26.  (citation                          _________            omitted).   In other words, if  the lien held  by Focus would            have  been  valueless  without  the undisclosed  lien,  Focus            cannot  claim any loss due to the presence of the undisclosed            lien.    This explains  the  jury's $49,000  award  under the            contract, because between the two collateral properties, only            that  amount--left  over from  the  foreclosure  sale of  the            Marderosian residence--would have been  available to Focus as                                         -17-                                          17                 3.  Negligent Hiring, Retention and Supervision                 3.  Negligent Hiring, Retention and Supervision                 _______________________________________________                   In addition to claims of negligence in searching title            and  negligent  misrepresentation,  Focus asserted  at  trial            claims   directly  against  American  for  negligent  hiring,            retention  and supervision  of its  policy-issuing attorneys,            Landman and  Marderosian.  The  district court found  none of            these theories to be legally supportable.  We agree.                      Rhode   Island  law   does  recognize   the  direct            liability of  an employer to third parties for damages caused            by employees or agents who were negligently hired, trained or            supervised.  Welsh Mfg., 474 A.2d  at 438.  This liability is                         __________            based  on a failure to exercise reasonable care in hiring and            retaining a person who  the employer knows or should  know is            unfit for the job, and who therefore exposes third parties to            unreasonable risks of  harm.  Id.  at 440.   With respect  to                                          ___            American's selection  and retention  of Landman as  a policy-                                            ____________________            a second mortgagee.  With respect to the rest of  the loan to            Marderosian, Focus was simply  insufficiently collateralized.            In making this  last statement, we reject  Focus's claim that            American's negligence  resulted in a confused  state of title            that "chilled" the foreclosure  sales and thereby reduced the            equity  available  to a  second  mortgagee.   Although  Focus            presented  expert  evidence  at  trial  indicating  that  the            collateral  properties  had  a  market  value  exceeding  the            foreclosure sale price, those experts testified that although            foreclosure  itself would  reduce a property's  market value,            they  did not consider the  effects of a  foreclosure sale on            the  value  of the  property at  issue  in arriving  at their            appraisal.    Finally,  there   was  no  explanation  of  how            American's  alleged  negligence--as opposed  to Marderosian's            actions--created   the   title  confusion,   the  foreclosure            situation or the resulting depressed value.                                           -18-                                          18            issuing attorney,  however, the record is  devoid of evidence            that  American knew  or should  have  known that  Landman was            unfit  for the position.  Nor was any evidence presented that            Landman  exhibited  any job-related  deficiencies  during the            nine-year period  he served  American.  Accordingly,  we find            Focus's negligent  hiring and retention claims  to be legally            insufficient.                      Focus next argues  that American's failure to  give            Landman personal  instructions  or training  with respect  to            title  insurance  or  title  searching,  failure  to  conduct            seminars  or courses,  and  failure to  audit Landman's  work            constituted negligence  and resulted  in Focus's loss  on the            Marderosian  loan.    As  we have  stated  already,  however,            American  was under  no duty  to provide  Focus with  a title            report,  and  any  title  search  undertaken  by  Landman  or            American was for  American's benefit, not Focus's.  Thus, any            failure on American's part to train Landman is not actionable            by Focus.                        Finally,   to  support   its  claim   of  negligent            supervision,  Focus  argues that  if  American  had a  system            whereby it could have ascertained which property interests it            already insured,  it would  have discovered the  senior liens            not disclosed on the policies  issued to Focus, since earlier            policies on  the same properties  showed additional different            encumbrances.  Focus's  argument fails, however,  because, as                                         -19-                                          19            American  correctly  points  out,  title policies  issued  at            different times  may show different encumbrances  on the same            property  simply because  the  encumbrances may  have changed            over time due to refinancing or discharge.  Therefore,  Focus            has failed to indicate how such a cross-checking system would            have yielded any relevant information.                      In  the  end,  with   respect  to  all  of  Focus's            negligence claims, Focus received what it bargained  for -- a            title insurance policy which  promised to indemnify Focus for            any  losses suffered as a result of Focus not having a second            mortgage  on the relevant collateral properties.  As the only            equity available to  a second mortgagee was  $49,000 from the            foreclosure  of  the  Marderosian  residence,  that  was  the            "actual loss"  within the  meaning of  the policy,  see supra                                                                ___ _____            note  7,  and thus  the only  loss  American was  required to            indemnify.   Focus was not  legally entitled to anything else            from American.            C.  Legal Malpractice            C.  Legal Malpractice            _____________________                      The district court granted  judgment as a matter of            law in favor of Tobak and Abrams &  Verri, holding that Focus            needed to present  expert testimony to the  jury with respect            to the duty of care owed  by an attorney in Tobak's position.            Focus first argues that no such expert testimony was required            because the standard of care of an attorney  "in representing            a  lender" is  within a  layman's common  knowledge.   In the                                         -20-                                          20            alternative, Focus  argues that  the jury was  presented with            such  evidence  via  the  testimony  or cross-examination  of            Tobak, Landman  and Marderosian.  After  careful analysis, we            are unpersuaded by Focus's contentions.                        As an initial matter, we  note that in arguing that            no expert testimony was required relative to the duty owed by            a lender's attorney, Focus has, in our view, misapprehended a              ________            critical concern of the district court.   In granting Tobak's            motion,  the  court   emphasized  the  confusion  surrounding            Tobak's  actual  role in  the  loan process,  and  found that            Focus's failure to present  evidence which would have clearly            established Tobak's  role was  a serious  matter, as  was its            failure to  present evidence  indicating exactly what  is the            standard of care for an attorney performing that role.11                                            ____________________            11.  Specifically, the district court stated:                      My  understanding is that the argument is                      that  Mr. Tobac  (sic) allegedly  gave an                      opinion upon which  the Plaintiff  relied                      that  each of  the mortgages  in question                      were  second  mortgages.    There  is  an                      underlying factual issue here  of whether                      or not in the first  place the defendant,                      Tobac  (sic),  and   his  law  firm  were                      engaged  for the purpose  of providing an                      opinion with respect to the effect of the                      two mortgages.  I'm  satisfied . . . that                      this  is  a  circumstance  in  which it's                      necessary to have  available to the  jury                      expert opinion  with respect to  the duty                      of  an  attorney  in  Mr.  Tobac's  (sic)                      situation.   Particularly in light of the                      fact  that his  situation  is unclear  to                      begin with as to just exactly what he was                      hired to do.  What his engagement was.                                         -21-                                          21                 1.  The Need for Expert Testimony                 1.  The Need for Expert Testimony                 _________________________________                      It  is well settled  under Rhode Island  law that a            legal malpractice plaintiff must  prove the "want of ordinary            care and skill"  by the defendant.   Holmes v.  Peck, 1  R.I.                                                 ______     ____            242, 245  (1849).   While there is  no Rhode Island  case law            addressing  the   issue  of  expert  testimony   in  a  legal            malpractice case,  a review of other  jurisdictions indicates            that  the  most  widely  accepted   rule  is  that  a   legal            malpractice   plaintiff   must   present   expert   testimony            establishing  the appropriate  standard  of care  unless  the            attorney's  lack of  care and  skill is  so obvious  that the            trier of  fact can resolve  the issue as  a matter  of common            knowledge.  See generally, Michael A. DiSabatino, Annotation,                        ___ _________            Admissibility  and   Necessity  of  Expert  Evidence   as  to            _____________________________________________________________            Standards of Practice  and Negligence  in Malpractice  Action            _____________________________________________________________            Against  Attorney, 14 A.L.R. 4th  170 (1982) (and cases cited            _________________            therein).    Cases which  fall  into  the "common  knowledge"            category  are  those  where  the  negligence  is  "clear  and            palpable,"  or  where  no  analysis  of  legal  expertise  is            involved.  See   e.g.,  Collins v. Greenstein,  595 P.2d  275                       ___   ____   _______    __________            (Haw.  1979)  (no  expert  testimony  required  for  jury  to            evaluate attorney's failure  to file  suit within  applicable            limitations period); Suritz  v. Kelner, 155 So.  2d 831 (Fla.                                 ______     ______            Dist.  Ct. App.  1963)  (no expert  testimony required  where            attorney  directed clients not to answer interrogatories even                                         -22-                                          22            though judge had  directed clients  to answer  on penalty  of            dismissal), cert. denied, 165 So. 2d 178 (Fla. 1964); Olfe v.                        _____ ______                              ____            Gordon,  286  N.W.2d 573  (Wis.  1980)  (no expert  testimony            ______            required   where   attorney   failed   to   follow   client's            instructions because claim was not based on exercise of legal            expertise).                       On the  other hand, in cases  where legal expertise            is  an  issue, "a  jury  cannot  rationally apply  negligence            principles  to professional conduct  absent evidence  of what            the   competent  lawyer   would   have  done   under  similar            circumstances .  . . "   Lenius v. King, 294  N.W.2d 912, 914                                     ______    ____            (S.D. 1980).   See  also, Lentino  v. Fringe  Employee Plans,                           ___  ____  _______     _______________________            Inc., 611 F.2d 474 (3d Cir. 1979) (where attorney was accused            ____            of malpractice for failing to  properly advise a pension fund            on  the tax consequences of a  pension plan amendment, expert            testimony would be  required due to the necessary analysis of            the  tax code,  regulations,  and revenue  rulings) (applying            Pennsylvania  law);  Willage  v.  Law Offices  of  Wallace  &                                 _______      ___________________________            Breslow,  P.A., 415  So. 2d  767 (Fla.  Dist. Ct.  App. 1982)            ______________            (expert testimony  required where malpractice case  was based            on  attorney's failure  to  call a  particular witness,  when            attorney feared damaging cross-examination of witness).                      Here, Tobak testified that  he was hired by Shapiro            and Guardian, together referred to as "the lender," to review            loan  documents,  and  in  order  to  do  so,  he  relied  on                                         -23-                                          23            information provided to him by his client.  He testified that            nothing  he reviewed indicated to  him that the  loan was not            proceeding as planned.  Sarbey also testified that it was his            understanding that Tobak  was representing "the  lender," but            because, in his opinion, Focus was the lender, Sarbey thought            that Tobak was representing Focus.  Essentially, Focus argues            that Tobak was employed by Focus and committed malpractice by            relying  on the  documentation  he was  presented and  simply            reviewing it without making an independent investigation.  In            our view, regardless of who Tobak  represented, Focus's claim            clearly implicates  the issue  of Tobak's application  of his            legal  expertise to  the situation.  Accord, Fall  River Sav.                                                 ______  ________________            Bank  v. Callahan,  463  N.E.2d  555  (Mass. App.  Ct.  1984)            ____     ________            (approving  trial  court's  use of  supplemental  sources  to            augment  expert  testimony   in  malpractice  trial of  title            attorney).   Accordingly,  we  find that  the district  court            decided  correctly  that  expert  testimony  was  required to            establish the standard of  care applicable to an attorney  in            Tobak's position.                 2.  Trial Testimony as Expert Testimony                  2.  Trial Testimony as Expert Testimony                 _______________________________________                        On  appeal, Focus  asserts that  it "adduced  the            requisite standards of  care of a  closing attorney, a  title            attorney,  a settlement  agent  and a  fiduciary through  the            testimony   of  James   Tobak,   Owen  Landman   and   George            Marderosian."  This  argument misses the point, and serves to                                         -24-                                          24            highlight the controversy  surrounding Tobak,  for Focus  has            again, as  it  did  before  the  district  court,  failed  to            indicate which role Tobak occupied.  Thus, even assuming that            the testimony of the three defendants did adduce the  claimed            standards, the jury could only speculate as to which standard            applied to Tobak. See Lenius, 294 N.W.2d at 914 (jury may not                              ___ ______            be  permitted to  speculate  as to  standard of  professional            conduct).   Given  the parties'  dispute over  the employment            issue, we believe that the district court correctly concluded            that  the  jury should  have  been  presented with  testimony            concerning the role assumed by--and concomitant duties of--an            attorney  in Tobak's position; that is, hired by a party who,            on paper, is the lender,  but in reality is a  broker through            whom  the loan proceeds will  pass.  Because  Focus failed to            clear  that hurdle, we need  not address the  adequacy of the            testimony that  was introduced  at trial. Instead,  given the                            ___            factual and legal landscape, we find that  the district court            correctly concluded  that expert  testimony on the  nature of            Tobak's  role was  both required  and lacking,  and therefore            properly  granted judgment  as a  matter of  law in  favor of            Tobak and Abrams & Verri.12                                            ____________________            12.  Focus  argues  for the  first  time on  appeal  that the            district  court  erred  because if  the  jury  had  found for            American  on its  usury  claim, then  Tobak  would have  been            liable  to  Focus  for  failing  to   apprise  Focus  of  the            illegality.    We  do  not  reach  this  issue,  but  instead            reiterate  our familiar  position  that arguments  not raised            before  the district court "cannot  be surfaced for the first                                         -25-                                          25                                         III.                                         III.                                         ____                                  American's Appeal                                  American's Appeal                                  _________________            A.  Usury            A.  Usury            _________                      Under Rhode Island law, loans which call for annual            interest  payments in  excess  of 21  percent are  considered            usurious,  and are  therefore void  and uncollectible.   R.I.            Gen.  Laws      6-26-2,  6-26-4  (1956)  (1992  Reenactment);            DeFusco  v. Giorgio, 440 A.2d  727, 731-32 (R.I.  1982).  The            _______     _______            result is the same whether or not the lender intended to make            a  usurious loan.   In  re Swartz, 37  B.R. 776  (Bankr. R.I.                                _____________            1984).   Here, there is  no dispute that  the promissory note            given  to  Guardian  by  Marderosian and  assigned  to  Focus            provided for  20 percent  annual interest.   American claims,            however,  that Shapiro's  assignment  to Focus  of a  $56,500            consulting fee  paid to Shapiro by  Marderosian's client Dean            Street    Development--an     assignment    which    occurred            contemporaneously  with  the  Marderosian   loan  agreement--            constituted  a  separate,  hidden  interest  payment  on  the            Marderosian loan, bringing the actual annual interest rate on            the loan to 88 percent.                      According to American's theory,  as a result of the            usurious--and  therefore  void--mortgage,  Focus   failed  to            acquire an insurable property interest and therefore suffered                                            ____________________            time on appeal."   Goldman v. First National Bank  of Boston,                               _______    ______________________________            No. 92-1773, slip op. at 5, n.4 (Feb. 18, 1993).                                         -26-                                          26            no damage  as a result  of any title  defects.   The district            court denied Focus's motion  for judgment as a matter  of law            with respect  to usury, and  allowed the  issue to go  to the            jury, giving the following instruction in the context of  the            contract claim:                           Defendant  contends   that  payments                      under a consulting agreement  executed at                      the same time as  the loan agreement were                      in reality interest payments on the loan.                      If  you  find by  a preponderance  of the                      evidence  that  the consulting  agreement                      was  really a pretext  for the payment of                      an illegal rate of interest, then you may                                                            ___                      find  that  the  loan  was  unlawful  and                      return  a verdict  for  Defendant on  the                      contract claim.             (Emphasis added).  American timely objected, arguing that the            use of the word "may" impermissibly gave the jury  discretion            to find for Focus even  if it found the loan to  be usurious.            The court  did  not  change  the instruction,  and  the  jury            awarded  Focus  $49,000  under  the  title  insurance  policy            covering  the mortgage  on  Marderosian's home.   On  appeal,            American  claims that  the  "may" instruction  was clear  and            harmful error entitling  it to  a new trial.   After  careful            review, we agree.                      Interestingly, Focus does  not directly dispute the            central thesis of American's  appeal--the failure of the jury            instruction  to conform to the law  of usury as it relates to            insurable  interests.     Instead,  Focus   argues  that  (1)            American,  or  anyone else  other  than  the borrower,  lacks                                         -27-                                          27            standing to raise the  usury defense; (2) American  failed to            establish  a  prima  facie case  of  usury;  and,  (3) it  is            "obvious" that the jury found that the loan was not usurious,            therefore  rendering  any error  harmless.    Finding all  of            Focus's arguments unpersuasive, we address each in turn.                 1.  Standing                 1.  Standing                 ____________                      It is  ordinarily true, as Focus  asserts, that the            defense  of usury  is  personal to  the  borrower or  one  in            privity with  the borrower,  and unavailable to  strangers to            the  usurious  transaction. See  generally,  45  Am. Jur.  2d                                        ___  _________            Interest  and Usury    288 (1969) (and  cases cited therein).            ___________________            This  custom allows a debtor who  does not wish to invoke the            protections  of usury  laws to pay  off the debt  to which he            agreed.   See DeFusco, 440 A.2d at 732 (although Rhode Island                      ___ _______            usury  laws  manifest strong  public policy  against usurious            transactions,  "we  do  not  believe  that   the  Legislature            intended thereby to preclude a debtor from  waiving a defense            of usury under all circumstances"). Focus relies on a host of            cases, all  of which  restate the general  proposition stated            above.   E.g., Securities Exch.  Comm'n v. First  Sec. Co. of                     ____  ________________________    __________________            Chicago, 366 F. Supp. 367, 373 (N.D. Ill. 1973); Iamartino v.            _______                                          _________            Avallone, 477 A.2d  124, 128 (Conn.  App. Ct. 1984);  General            ________                                              _______            Electric Credit Corp. v. Best Refrigerated Express, Inc., 385            _____________________    _______________________________            N.W.2d  81, 83 (Neb. 1986); Pinnix  v. Maryland Casualty Co.,                                        ______     _____________________            200  S.E. 874, 879 (N.C.  1939); Benser v. Independent Banks,                                             ______    _________________                                         -28-                                          28            735 S.W.2d  566, 569 (Tex.  1987).  In  each of  these cases,            however, the  party asserting the usury  claim was attempting            to  avoid  repayment  of  a debt,  and  was  prohibited  from            interposing  the claim.  See,  e.g., Pinnix, 200  S.E. at 879                                     ___   ____  ______            ("to allow a  stranger to interpose the defense of usury to a            contract  with which the maker is  in all respects satisfied,            and by the terms of which he desires to abide, and upon which            he is liable for a deficiency judgment,  would be exceedingly            unfair to a debtor who  desires to perform his contract. .  .            .").  Unlike  the usury  theorists in  those cases,  however,            American  is not  attempting to  step into  the shoes  of the            borrower,  Marderosian,  and  void  the loan.    Rather  than            asserting  usury as  a  defense  to  repayment of  the  loan,            American  instead  argues that  the  usurious  nature of  the            Marderosian   loan   rendered   Focus's   mortgage   interest            uninsurable.  Indeed, there appears to be no dispute that had            Focus  not acquiesced  to  Marderosian's motion  to  dismiss,            Marderosian  would have  had the  right to interpose  a usury            defense.   Thus,  while American's  claim does  implicate the            question  of usury, Focus's  "personal defense" theory--while            accurate--is, in  our view, misplaced.   Accordingly, we turn            to the substance of American's argument.                      "In order for recovery  [on an insurance policy] to            be  had, it  is  essential that  the  claimant show  both  an            existing contract  of insurance and an  insurable interest in                                         -29-                                          29            the property.   No insurable interest  existing, the contract            is considered absolutely void . . . "  4 John A. Appleman and            Jean  Appleman, Insurance  Law  and Practice,    2121  (1969)                            ____________________________            (footnotes omitted);  Cronin v. Vermont Life Ins.  Co., 40 A.                                  ______    ______________________            497  (R.I. 1898).   In  what is  apparently the only  case to            address the  issue, the Minnesota  Supreme Court held  that a            usurious mortgage cannot give  rise to an insurable interest.            Phalen Park  State  Bank v.  Reeves, 251  N.W.2d 135,  138-39            ________________________     ______            (Minn.  1977).   Phalen  was a  mortgagee's  suit on  a  fire                             ______            insurance policy.  The court accepted the insurance company's            argument  that   the  bank,   by  charging  interest   on  an            undisbursed  portion  of  the  loan,  effectively  charged  a            usurious  rate  of  interest.    The  Phalen  court  used two                                                  ______            separate analytical  paths to  reach its conclusion,  both of            which  are applicable here and inevitably lead us to the same            determination.                      First, Phalen  restated the general  rule that  one                             ______            has an  insurable interest in  property "by the  existence of            which  he will gain advantage, or by the destruction of which            he  will suffer a  loss."  Id.  at 139 (quoting  Harrison  v.                                       ___                   _________            Fortlage, 161 U.S. 57, 65  (1896)); see also Appleman, supra,            ________                            ___ ____           _____               2123,  2188.   Because,  however, a  usurious mortgage  is            void, and the  mortgagee, therefore, has no  right to collect            principal  or interest, no loss will occur if the property is            destroyed.  Id.          The  second  rationale  employed  by                        ___                                         -30-                                          30            Phalen  follows from the premise  that where a  state views a            ______            particular legal scheme as reflecting the highest concern for            public welfare, strict adherence to that scheme applies, even            in  collateral  matters.    Thus, given  that  the  Minnesota            Legislature  declared usurious  transactions to  be  void, an            obvious  expression of  high public  welfare concern,  Phalen                                                                   ______            held  that no insurable interest  could arise from a usurious            mortgage. Id.  The Phalen  court relied in part on   Mackie &                      ___      ______                            ________            Williams Food Stores, Inc.  v. Anchor Casualty Co., 216  F.2d            __________________________     ___________________            317  (8th Cir. 1954), a case in which an automobile purchaser            failed  to comply  with statutory  conveyancing requirements.            Where Missouri's transfer documentation requirement was found            to reflect public welfare  concern in preventing transfers of            stolen automobiles, the court held that the purchaser did not            obtain  an  insurable  interest.    Id.  See  also,  Cherokee                                                ___  ___  ____   ________            Foundries,  Inc. v.  Imperial Assurance  Co., 219  S.W.2d 203            ________________     _______________________            (Tenn. 1949) (purchaser of real property pursuant  to an oral            sales contract  did not  acquire  insurable interest  because            contract was unenforceable under the statute of frauds).                      Here, under either approach,  a finding of usury in            the   Marderosian-Focus  transaction   would   lead  to   the            inexorable conclusion that the mortgages received by Focus as            collateral were  not insurable  interests.   As to  the first            theory, as  we have already noted,  usurious transactions are            void under  Rhode Island law.   Thus,  if the loan  is indeed                                         -31-                                          31            usurious,  Marderosian could  legally  avoid  repayment,  and            recoup any  sums already paid.   Cf. Keenan v.  Coppa, 195 A.                                             ___ ______     _____            485 (R.I.  1937).  Therefore,  because a usurious  loan would            leave  Focus with  no enforceable right  in the  mortgages at            issue, a jury finding of  usury would necessarily leave Focus            with no insurable interest.                       As  to  Phalen's  second  path,  the  Rhode  Island                              ________            Supreme Court  has  unequivocally acknowledged  that  state's            strong  public  policy  against  usurious  transactions.  See                                                                      ___            DeFusco, 440 A.2d  at 732.   Therefore, if Focus's  mortgages            _______            were acquired through a  usurious transaction, violative of a            strong public policy, that public policy would apply to other            matters.   Under  those  circumstances, Focus  would have  no            insurable interest.   Accord Bankers  & Shippers Ins.  Co. v.                                  ______ _____________________________            Blackwell,  51 So. 2d 498 (Ala.  1951) (trucking company held            _________            to  have  no insurable  interest  in  freight where  carriage            contract was illegal). See also, Mackie &  Williams, 216 F.2d                                   ___ ____  __________________            at  320;   Cherokee  Foundries, 219  S.W.2d  at 206.    Focus                       ___________________            counters by arguing that Phalen is, by its own terms, limited                                     ______            to  its  facts,   and  that  a  later  Minnesota   case  both            distinguished and  minimized the  importance of Phalen.   See                                                            ______    ___            Midwest Fed. Sav. and Loan Ass'n  v. West Bend Mut. Ins. Co.,            ________________________________     _______________________            407 N.W.2d 690 (Minn. Ct. App. 1987).  We are unpersuaded.                       It is  true, as Focus  points out, that  the Phalen                                                                   ______            majority concluded its opinion  by stating: "[W]e stress that                                         -32-                                          32            our  holding has resulted from  and is limited  to the unique            facts  and circumstances presented in  this case.   We do not            intend  by this decision to  depart from the  general rule in            this  state  that the  defense of  usury  is personal  to the            borrower."    Id. at  141.    Nowhere, however,  does  Phalen                          ___                                      ______            indicate   what  "unique   facts   and  circumstances"   were            presented.    Irrespective   of  this  qualifying   language,            however,  Phalen's  holding   remains  inescapable--that   no                      ________            insurable  interest can  arise  out of  a usurious  mortgage.            Moreover,  as   we  previously  noted,   the  "general  rule"            regarding usury is inapposite to this case, where American is            not asserting a usury  defense, as such. Finally, even  if we            were   to   accept  Focus's   argument   concerning  Phalen's                                                                 ________            limitations, we note that Phalen's conclusion with respect to                                      ________            usury  was but  a  small part  of  a broader  inquiry;  i.e.,            whether  an insurable  interest can  arise out  of a  void or            unenforceable contract.   The answer generally  appears to be            negative.   See  supra  pp. 27-29.    Nor does  Midwest  help                        ___  _____                          _______            Focus's cause.  In Midwest, the  court precluded an insurance                               _______            company  from asserting  a usury  defense in  an action  by a            mortgagee seeking recovery under a fire policy.  Although the            court  cited  Phalen for  the  "general  rule" regarding  the                          ______            personal nature of the usury defense, Id. at 695, the court's                                                  ___            decision--and that  of the trial  court, see id.  at 695--was                                                     ___ ___            based on a Minnesota statute which precluded all corporations                                                             ____________                                         -33-                                          33            from invoking a usury  defense. Id.  Notably,  the "insurable                                            ___            interest" aspect  of Phalen  was never addressed  in Midwest,                                 ______                          _______            much less limited  or distinguished.  Finally,  to the extent            that Midwest can be  construed to run counter to  Phalen, the                 _______                                      ______            latter  remains  the  pronouncement  of  Minnesota's  highest            court.   Based on the foregoing, we find that American could,            under these circumstances, properly raise its usury argument.                 2.  Prima Facie Case                 2.  Prima Facie Case                 ____________________                      To support its claim of usury, American argues that            Shapiro's assignment  of rights under  a consulting agreement            with  Dean Street Development  constituted hidden, additional            interest,  apart from  the  20 percent  rate  charged in  the            Marderosian  loan documents.   Under  American's theory,  the            actual  interest rate  was  88 percent.    Focus responds  by            relying on the apparent separateness  between Marderosian and            the parties to  the consulting fee.  Implicitly, the district            court rejected Focus's prima facie argument, as it denied its            motion for directed verdict on the usury issue.  We reject it            as  well.    In  short, Focus's  argument  ignores  authority            holding that                       "[u]sury is not  determined merely  from                      what    the    parties   represent    the                      transaction  to  be, but  the  court will                      look  to  the   whole  transaction,   the                      surrounding       circumstances,      the                      occurrences  at  the time  of  making the                      agreement,  and  the  instruments  drawn.                      Whether  a transaction legal  on its face                      is, in  fact, merely  a  device to  cover                                         -34-                                          34                      usury generally is a question of fact for                      the jury."             45 Am. Jur.  2d Interest  and Usury    112 (1969) (and  cases                            ___________________            cited therein) (footnotes omitted).                      Here, there is evidence that the loan proceeds were            intended for Dean Street Development, a Marderosian client in            need  of "discreet" funding and there is no question that the            assignment from  Shapiro to Focus  was finalized at  the same            time as the loan from Focus to Marderosian.  Finally, the sum            payable under the assignment  were due to be repaid  April 6,            1989, the same  day as the loan.  Focus  argues that the loan            and   assignment   were   entirely   separate   transactions,            characterizing  the assignment as  nothing more  than Shapiro            sharing his  broker's commission with  Focus, a  non-usurious            transaction.   While the jury, of course, is entirely free to            accept  either version of the  facts, it is  quite clear that            American has at least made out a prima facie case of usury.                 3.  The Instruction                 3.  The Instruction                 ___________________                      As the  above discussion makes clear,  if, in fact,            the jury were to find the loan to Marderosian usurious, then,            as a matter of law, Focus would have no insurable interest in            the  collateral mortgages.  Therefore, the instruction, which            used the  permissive "may,"  allowed for  both  a finding  of                                                      ____            usury and a verdict  for Focus on  its contract claim.   This                                         -35-                                          35            was  error.13   Accordingly,  American is  entitled to  a new            trial   on  Focus's  contract   claim,  accompanied   by  the            appropriate instruction on usury.                                           IV.                                         IV.                                         ___                                      Conclusion                                      Conclusion                                      __________                      For the  reasons stated herein, the  judgment below            is  vacated insofar  as it  awarded damages  to Focus  on its                vacated                _______            contract claim, and affirmed in all other respects.                                affirmed                                ________                                            ____________________            13.  We find  nothing in the  record to support  Focus's bald            assertion  that the error was harmless because "it is obvious            that the jury found that the loan was not usurious."                                         -36-                                          36
