Vestin Mortgage, Inc., v. First American Title Insurance Company

2006 UT 34
This opinion is subject to revision before final
publication in the Pacific Reporter.
IN THE SUPREME COURT OF THE STATE OF UTAH
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Vestin Mortgage, Inc., No. 20041132
Plaintiff and Petitioner,
v.
First American Title F I L E D
Insurance Company,
Defendant and Respondent. June 2, 2006
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Third District, Salt Lake
The Honorable Frank G. Noel
No. 030312242
Attorneys: John A. Snow, Stephen K. Christiansen, Cassie J.
Wray, Salt Lake City, for plaintiff
Alan L. Sullivan, Brett P. Johnson, Salt Lake City,
for defendant
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On Certiorari to the Utah Court of Appeals
WILKINS, Associate Chief Justice:
¶1 Vestin Mortgage, Inc. (Vestin) sought to recover under
two policies of title insurance issued by First American Title
Insurance Company (First American). The claim arises from the
adoption of a special improvement district (SID) by the
municipality in which the real property lies. First American
said the notice of intent to create the SID recorded by the
municipality was not a defect in title covered by the policies
and moved to dismiss Vestin’s complaint. The district court
agreed and granted the motion. Vestin appealed to the court of
appeals, which affirmed. Vestin now challenges the decision of
the court of appeals on certiorari. We affirm.
BACKGROUND
¶2 Vestin, or its predecessor, made two loans to The
Ranches, L.C., each secured by trust deeds on real property
located in Eagle Mountain, Utah. In connection with the loans,

No. 20041132 2
First American issued two title insurance policies that insured
Vestin’s interest under the trust deeds.
¶3 Between the dates of the two loans, Eagle Mountain
adopted a resolution declaring its intention to create a SID,
adopted a resolution creating the SID, and recorded a “Notice of
Intention” with the county recorder’s office in Utah County, in
accordance with Utah Code section 17A-3-307. The notice
disclosed that the town council had adopted a resolution
declaring the council’s intention to create the SID, the
project’s total anticipated cost, and the council’s intention to
assess real property within the boundaries of the SID to pay for
the improvements. The notice also included a copy of the
ordinance that was adopted creating the SID. The property
securing the Vestin loans lies within the SID.
¶4 Some months after the title policies were issued, Eagle
Mountain adopted the “Assessment Ordinance” which levied the
assessment on real property within the SID. This ordinance
included a provision which indicated, for the first time, that if
the property were sold, the property’s share of the assessment
would be accelerated and due in full upon the sale instead of
being payable in small annual amounts over an extended period of
time.
¶5 About two years after the second policy was issued by
First American, The Ranches defaulted on the two loans and Vestin
took title to the property pursuant to its trust deeds through a
nonjudicial foreclosure. Vestin then entered into a contract to
sell the property, and in conjunction with this potential sale,
Vestin received an updated title report regarding the property.
Vestin alleges that it is at this time that it first learned of
the assessment levied against the property by the SID and that
the assessment became immediately due and payable upon the sale
of the property. After Vestin disclosed this information to the
buyer, the buyer refused to proceed with the sale of the
property. Vestin filed a claim with First American in which
Vestin contended that the policies insured against the
assessment. First American denied the claim.
¶6 Vestin filed suit alleging breaches of the two
insurance policies. First American moved to dismiss for failure
to state a claim under which relief could be granted pursuant to
rule 12(b)(6) of the Utah Rules of Civil Procedure. The district
court granted the motion, dismissing the complaint with
prejudice. Vestin appealed. The court of appeals affirmed the
district court and concluded that “[t]he applicable provisions of
the policies are not ambiguous under the facts of this case, and

1 Vestin Mortgage, Inc. v. First Am. Title Ins. Co., 2004 UT
App 379, ¶ 20, 101 P.3d 398.
2 Alf v. State Farm Fire & Cas. Co., 850 P.2d 1272, 1274
(Utah 1993).
3 WebBank v. Am. Gen. Annuity Serv. Corp., 2002 UT 88, ¶ 22,
54 P.3d 1139.
4 See Fairbourn Commercial, Inc. v. Am. Hous. Partners,
Inc., 2004 UT 54, ¶ 10, 94 P.3d 292.
5 Saleh v. Farmers Ins. Exch., 2006 UT 20, ¶ 17, 133 P.3d 428.
3 No. 20041132
Vestin’s claims are not covered under the policies.”1 We granted
the petitioner’s request for certiorari to review the decision of
the court of appeals.
ANALYSIS
¶7 The sole issue before us is whether the title insurance
policies unambiguously applied only to actual assessments for a
special improvement district and did not include an obligation to
provide notice of an intent to create the district and levy the
assessments. We conclude that only actual assessments are
covered and therefore affirm the decision of the court of
appeals.
¶8 “An insurance policy is merely a contract between the
insured and the insurer and is construed pursuant to the same
rules applied to ordinary contracts.”2 Whether an ambiguity
exists in a contract is a question of law to be reviewed for
correctness.3 When interpreting a contract, we must first look
within the contract’s four corners in order to determine the
parties’ intentions.4 Additionally, we have said that
[a]lthough this court has left some
discretion to courts in determining whether
ambiguity exists, at a minimum one universal
standard applies to this determination: words
and phrases do not qualify as ambiguous
simply because one party seeks to endow them
with a different interpretation according to
his or her own interests.5
¶9 We begin our analysis by looking at the plain language
of the policies, paying particular attention to the insuring

6 See Vestin Mortgage, Inc. v. First Am. Title Ins. Co.,
2004 UT App 379, ¶ 9, 101 P.3d 398.
7 See 43 Am. Jur. 2d Insurance § 529 (2003).
No. 20041132 4
clauses as did the court of appeals.6 There are three insuring
clauses within the policies that are relevant to Vestin’s claim.
These are the policy jacket cover, F.A. Form 31, and CLTA Form
104. We will review them in turn.
I. THE POLICY JACKET COVER
¶10 The policy jacket cover states that First American
“insures . . . against loss or damage . . . sustained or incurred
by the insured by reason of” and then goes on to list nine
insurable events or conditions. The condition at issue here is
number two, addressing “[a]ny defect in or lien or encumbrance on
the title.” Vestin argues that the creation of the SID and the
filing of the Notice of Intention did in fact create a defect in
the title. First American, on the other hand, argues that
neither the creation of the SID nor the filing of the Notice of
Intention created a defect. Instead, the actual levying of the
assessment created the defect in the title, and the assessment
was actually levied by the city of Eagle Mountain after the
policies had been issued and thus falls outside the coverage of
the policies.
¶11 Unlike other insurance contracts, title insurance does
not insure against future events.7 Thus, in order for a defect,
lien, or encumbrance to fall within the insurance policy’s
coverage, it must have been in existence as of the effective date
of the policy. At a minimum, an existing assessment that has
been recorded would be considered a defect in the title and would
be covered unless it had been otherwise exempted or excluded.
The more difficult question, and the one before us now, is
whether the recorded notice of the possibility of a future
assessment also rises to the level of a defect, lien, or
encumbrance. We conclude that it does not.
¶12 Neither the creation of the SID nor the filing of the
Notice of Intention creates a lien on real property that affects
the title. Utah Code section 17A-3-323 (2005) provides that an
assessment becomes a lien on the property assessed on the day the
ordinance levying the assessment becomes effective. In Vestin’s
case, the effective date of the ordinance that levied the
assessment was after the date on which the policies were issued
by First American. No lien could have attached as a result of
this SID at the time First American provided the policies.

8 See Black’s Law Dictionary 547 (7th ed. 1999) (defining an
encumbrance as “[a] claim or liability that is attached to
property or some other right that might lessen its value, such as
a lien or mortgage”).
9 Vestin Mortgage, Inc. v. First Am. Title Ins. Co., 2004 UT
App 379, ¶ 14, 101 P.3d 398.
5 No. 20041132
¶13 Additionally, neither the creation of the SID nor the
Notice of Intention is an encumbrance on the property. No claim
or liability attached to the title or property arises by virtue
of the creation of the SID or Notice of Intention.8 Likewise, no
defect in the title is occasioned by the creation of the SID or
the Notice of Intention. Vestin argues that the term defect
should be defined broadly so as not to give it the same meaning
as lien or encumbrance. However, as the court of appeals
explained,
While we hold that neither the SID nor the
notice in this case constituted defects in
Vestin’s title, we also recognize that
“defect” may be defined as something less
than a “lien” or “encumbrance.” The fact
that the SID and notice did not amount to a
“defect,” “lien,” or “encumbrance,” does not
mean that all three terms are given the same
meaning.9
¶14 It is important to remember that the “defect,” “lien,”
or “encumbrance” mentioned in the policy jacket cover had to be
in or on the title. The SID and Notice of Intention simply had
no affect in or on the title. The policies unambiguously applied
only to actual assessments and did not include an obligation to
disclose the SID or Notice of Intention.
II. F.A. FORM 31 AND CLTA FORM 104
¶15 We also look to the other two insuring clauses for any
obligation to provide notice of the creation of a SID and
possible assessment. The first, F.A. Form 31, provides in part
that First American will insure
against loss which the Insured shall sustain
by reason of any of the following matters:
(1) Any incorrectness in the assurance which
the Company hereby gives:

No. 20041132 6
(a) That there are no covenants,
conditions, or restrictions under
which the lien of the mortgage
referred to in Schedule A can be
cut off, subordinated, or otherwise
impaired[.]
¶16 In addition, the CLTA Form 104, as it appears in the
policy at issue, states that First American will insure
against loss or damage which such insured
shall sustain by reason of any of the
following . . .
5. The existence of any subsisting tax
or assessment lien which is prior
to the insured mortgage except:
NONE
6. The existence of other matters
affecting the validity or priority
of the lien of the insured
mortgage, other than those shown in
the policy except: NONE
¶17 Neither of these forms obligated First American to
disclose information regarding the SID or the possibility of a
future assessment. We find no ambiguity in this regard in either
of these two forms. The forms, at their core, insure the
mortgage liens that Vestin held in the property. Specifically,
the forms insure against loss or damage that Vestin would sustain
due to the mortgage being “cut off, subordinated, or otherwise
impaired,” the loss of priority, and “other matters affecting the
validity” of the mortgage lien.
¶18 Neither the creation of the SID nor the Notice of
Intention affected the priority or validity of the mortgage lien,
nor was the mortgage lien “cut off, subordinated, or otherwise
impaired.” Once The Ranches defaulted on the loans, Vestin was
able to exercise its rights under the trust deeds without any
consequence arising from the SID and to take ownership through a
nonjudicial foreclosure. Nothing in the Notice of Intention or
in the SID affected the mortgage lien or affected the title
Vestin acquired. Only the actual assessment ordinance has
affected Vestin in any way, and only as to the ability to sell
the property, not as to the validity of title. Vestin still
holds a valid title to the property.

10 Vestin Mortgage, Inc. v. First Am. Title Ins. Co., 2004
UT App 379, ¶ 18, 101 P.3d 398.
7 No. 20041132
¶19 F.A. Form 31 and CLTA Form 104 both unambiguously
applied only to actual assessments, and neither of the forms
imposed an obligation on First American to disclose the SID or
possible future assessment.
III. THE EXCLUSION AND EXCEPTION SECTIONS OF THE POLICIES
¶20 Vestin also seeks to extend coverage through the
exclusions and exemptions that are enumerated in the policies, in
particular through the governmental police power exception. As
the court of appeals concluded, “Because the existence of the SID
and the notice of Eagle Mountain’s intention to levy assessments
do not affect Vestin’s title and, therefore, are not covered by
the policies, the exclusions to the policies and the recorded
police power exception to those exclusions are not applicable.”10
We agree. If there is no coverage, then an exception that
prevents application of an exclusion from coverage has no
application.
CONCLUSION
¶21 A notice of intent to create a special improvement
district and to levy assessments in the future did not give rise
to coverage under the title policies or to an obligation on the
title insurer to disclose that notice as part of the contract of
insurance. The decision of the court of appeals is affirmed.
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¶22 Chief Justice Durham, Justice Durrant, Justice Parrish,
and Justice Nehring concur in Associate Chief Justice Wilkins’
opinion.