52 F.

3d 1575

LAWYERS TITLE INSURANCE CORP., Plaintiff-Appellee,

v.
JDC (AMERICA) CORP., Defendant-Appellant.
No. 93-4436.

United States Court of Appeals,

Eleventh Circuit.
May 31, 1995.

Hugo L. Black, Jr., Kelly Black Black Byrne & Beasley, P.A., Miami, FL,
for appellant.
Stuart H. Singer, Kirkpatrick & Lockhart, Ronald M. Rosengarten,
Greenberg Traurig Hoffman, Lipoff Rosen & Quintel, P.A., Miami, FL,
John E. McDonald, Jr., Lawyers Title Ins. Corp., Richmond, VA, D.
Daniel Barr, Peter Glatz Rush, Bell, Boyd & Lloyd, Chicago, IL, for
appellee.
Appeal from the United States District Court for the Southern District of
Florida.
Before TJOFLAT, Chief Judge, COX, Circuit Judge, and YOUNG * ,
Senior Circuit Judge.
TJOFLAT, Chief Judge:

This diversity case involves a dispute between Lawyers Title Insurance

Corporation ("Lawyers Title") and JDC (America) Corporation ("JDC").
Lawyers Title issued two title policies insuring mortgages held by JDC as
mortgagee. JDC sought to foreclose on the two mortgages in state court; one of
the defendants filed a motion and several affirmative defenses that, in JDC's
opinion, triggered Lawyers Title's duty to defend under the two title policies.
Lawyers Title disagreed and filed this suit seeking a declaration that it had no
duty to defend. The district court concluded that Lawyers Title had no duty to
represent JDC in the foreclosure action and, therefore, granted summary
judgment in favor of Lawyers Title. Because we also conclude that none of the

defenses asserted in the foreclosure action are covered by either of the two
policies, we affirm.
I.
A.
2

Lawyers Title furnished the two title policies at issue in this case as a result of
an agreement between JDC and Brickell Station Towers, Inc. ("BST") to
develop a parcel of real property near downtown Miami, Florida. AmeriFirst
Florida Trust Company ("AmeriFirst") held fee simple title to the property as
trustee pursuant to a warranty deed executed under an unrecorded trust
agreement. The unrecorded trust agreement to which the warranty deed referred
named BST as the sole beneficiary with the right to direct AmeriFirst's
disposition of the property. In November 1984, JDC and BST signed an
agreement to develop the property. JDC agreed to finance the first of two
phases of development by borrowing funds from The Saitama Bank, Ltd.
("Saitama") and Mitsui Trust & Banking Co., Ltd. ("Mitsui"), two Japanese
lenders, and reloaning the money to BST. The parties contemplated that a third
lender, Citicorp Real Estate, Inc. ("Citicorp"), would furnish a "take-out loan"
paying off JDC's short-term construction loan when construction of the first
phase of the development was completed. In exchange for JDC's arranging the
financing of the first phase of development, BST agreed to give JDC twentyfive percent of BST's beneficial interest in the AmeriFirst land trust and
appointed JDC as the general contractor for the first and second phases of
development. JDC and BST also agreed to form a joint venture to implement
their development agreement.

The parties formed their joint venture as planned on January 17, 1985. BST
assigned its beneficial interest in the AmeriFirst land trust to the joint venture
and took a seventy-five percent interest in the joint venture; JDC took the
remaining twenty-five percent interest. The joint venture agreement provided
that the parties were to exercise equal control over the joint venture's
development activities, but gave BST specific authority to sign, on behalf of the
joint venture, the loan documents necessary to finance the first phase of
development.

The day after the parties formed their joint venture, BST, on behalf of the joint
venture, executed two promissory notes in favor of JDC. The total principal
value of the two notes was $38,000,000.1 Both notes were to become due in full
on July 18, 1988, but each note provided that, if it were assigned to Citicorp,
the take-out lender, its maturity date would be sixty days from the date of the

assignment. In conjunction with the execution of each note, AmeriFirst and

BST, on behalf of the joint venture, executed a mortgage and security
agreement that: (1) established a mortgage on the trust's property as security for
each note; and (2) created a security interest in all fixtures and personalty
located on the property as security for each note.2 Although each mortgage
acknowledged that AmeriFirst was the fee simple owner of the mortgaged
property, each mortgage referred to both AmeriFirst and BST collectively as the
"Mortgagor." JDC assigned the mortgages, security interests, and notes to
Saitama the day JDC received them.3 The mortgages were filed in Dade County
on January 24, 1985, and, pursuant to its previous commitments to insure the
mortgages, Lawyers Title issued two title policies to JDC.
5

The development of the property did not proceed as planned. After making at
least forty-five loan disbursements for construction, Saitama reassigned the
mortgages, security agreements, and notes to JDC in exchange for payment of
JDC's loans in a document dated July 18, 1988.4 On September 30, 1988, JDC
filed a four-count complaint in the Circuit Court for Dade County against
AmeriFirst, the joint venture, and BST as a general partner (with JDC) of the
joint venture [hereinafter the "Foreclosure Action"]. JDC's complaint alleged
that the joint venture and AmeriFirst had defaulted on the notes and sought to
foreclose on the mortgages and security interests in fixtures and personalty.
Counts I and III of the complaint sought to foreclose on the mortgages; Counts
II and IV sought to foreclose on the security interests. On October 11, 1988,
BST, on behalf of the joint venture, filed a self-styled "Motion to Quash
Mortgage and Memorandum of Law in Support Thereof" [hereinafter the
"Motion to Quash"]. BST argued in its Motion to Quash that JDC's status as a
general partner of the joint venture prevented JDC from foreclosing.5 5] In its
combined answer and affirmative defenses, filed on December 21, 1988, BST
made similar claims based on the same premise: that JDC's status as a general
partner prevented it from foreclosing.6 BST later filed a counterclaim that
contained claims for, among other things, usury, breach of contract,
racketeering, breach of fiduciary duty, and fraud. JDC does not argue that any
of these claims implicate the title policies. Unlike BST, AmeriFirst did not
actively seek to defeat the foreclosure action; it eventually filed an answer
admitting that it owned the property as a trustee and that it had executed the
mortgage documents, but denying for lack of knowledge all other paragraphs of
JDC's complaint. AmeriFirst did not assert any affirmative defenses.

On November 4, 1988, JDC notified Lawyers Title by letter of BST's Motion to

Quash, stating that "[BST] is seeking to have the two mortgages declared
invalid and unenforceable because JDC is the lender/insured mortgagee and is
likewise a general partner in [the] Joint Venture...." Lawyers Title responded by

retaining a law firm to defend JDC and notified JDC by letter that it had done
so. In this letter, Lawyers Title reserved its rights to deny coverage under the
title policies.
7

A dispute quickly ensued over the law firm Lawyers Title had chosen to
represent JDC.7 The parties exchanged numerous letters and met on several
occasions in efforts to resolve their dispute, but these efforts were unsuccessful.
In early 1989, the parties' impasse expanded to include a disagreement over the
scope of defense that Lawyers Title was obligated to provide. Lawyers Title
contended that, because many of the issues in the Foreclosure Action were
separable from the issues raised in the "covered" claims, the cost of defense
was readily apportionable and Lawyers Title should only have to provide a
defense for the covered claims. JDC countered that Lawyers Title was
obligated under Florida law to pay for the entire Foreclosure Action.

Meanwhile, JDC chose to file a separate lawsuit in the Circuit Court for Dade
County against BST and its stockholders concerning breaches of the joint
venture agreement [hereinafter the "Partnership Action"]. JDC filed the
Partnership Action on March 2, 1989 and the case was assigned to the same
trial judge assigned to the Foreclosure Action. Soon thereafter, JDC filed a
motion to consolidate the Foreclosure Action and the Partnership Action into a
single proceeding. The trial judge denied JDC's motion to consolidate, but then
granted JDC's motion for leave to amend its complaint in the Foreclosure
Action. On September 9, 1989, JDC filed an amended complaint that
contained: (1) the original four foreclosure claims; (2) all of the claims from its
complaint in the Partnership Action; and (3) one new claim related to the
partnership dispute. BST filed an amended answer in response to JDC's
amended complaint. In this amended answer, BST added two new affirmative
defenses to the fifteen it had previously asserted. BST contended in its
seventeenth affirmative defense that the mortgages should be quashed because
Florida law prohibits a joint venturer from acquiring a lien against a partner's
assets and attempting to foreclose on that lien.8

JDC and Lawyers Title never resolved their dispute. As we discuss more fully
below, on May 24, 1989, Lawyers Title brought this action seeking a
declaration that it had no duty to defend JDC in the Foreclosure Action.
Meanwhile, JDC notified Lawyers Title in late 1989 that, although the
possibility that BST's defenses would prevent JDC from foreclosing on the
mortgages was small, the potential loss was great because both promissory
notes were nonrecourse notes. JDC stated that, because of the magnitude of the
potential loss and the expense of pursuing the case, JDC would commence
settlement negotiations with BST. On October 27, 1990, JDC and BST settled

both the Foreclosure Action and the Partnership Action. In exchange for JDC's
payment of a seven-figure sum to BST, BST dismissed its affirmative defenses
and counterclaims, assigned all beneficial interests in the AmeriFirst trust to
JDC, and assigned all rights and interests in the joint venture to JDC. After JDC
and BST settled, JDC demanded that Lawyers Title indemnify JDC for the
costs of settlement in addition to reimbursing JDC for attorneys fees incurred in
pursuing the Foreclosure Action.
B.
10

As noted above, on May 24, 1989, Lawyers Title filed a complaint seeking a
declaration that it had no duty to defend and no duty to indemnify JDC with
respect to the Foreclosure Action. JDC filed an answer and a counterclaim with
a single claim in which JDC alleged that Lawyers Title breached the terms of
its title policies by refusing to defend JDC. On March 5, 1990, after filing an
amended complaint, Lawyers Title filed a motion for summary judgment as to
its claim; shortly thereafter, JDC filed a motion for partial summary judgment
as to Lawyers Title's claim and JDC's counterclaim.

11

After JDC settled the state court litigation and Lawyers Title refused JDC's
demand that Lawyers Title indemnify JDC for the cost of the settlement, JDC
obtained leave to amend its counterclaim and added a breach of contract claim
seeking indemnification. Lawyers Title filed a motion to dismiss this claim or,
in the alternative, for summary judgment on the claim. On March 18, 1993, the
district court issued a memorandum opinion and order granting summary
judgment in favor of Lawyers Title and denying JDC's motion for partial
summary judgment. See Lawyers Title Ins. Corp. v. JDC (Am.) Corp., 818
F.Supp. 1543 (S.D.Fla.1993). JDC now appeals.

II.
12

We review the district court's grant of summary judgment de novo, applying

the same legal standards that bound the district court. Reserve, Ltd. v. Town of
Longboat Key, 17 F.3d 1374, 1377 (11th Cir.1994), cert. denied, --- U.S. ----,
115 S.Ct. 729, 130 L.Ed.2d 633 (1995). Summary judgment is appropriate in
cases in which there is no genuine issue of material fact. Fed.R.Civ.P. 56(c).

13

The district court relied on two alternative theories in granting summary

judgment in favor of Lawyers Title. First, the district court concluded that
BST's claims did not attack the mortgage in a manner covered by the policies.
Lawyers Title, 818 F.Supp. at 1546-48. Second, the district court concluded
that, even if BST's claims were covered, a policy exclusion applied. Id. at

1546.9 Because we also conclude that the policies did not cover BST's attacks,
we need only address the district court's first ground of decision.
A.
14

Contract interpretation is generally a question of law. Gibbs v. Air Canada, 810

F.2d 1529, 1532 (11th Cir.1987); BankAtlantic v. Blythe Eastman Paine
Webber, Inc., 955 F.2d 1467, 1477 (11th Cir.1992), cert. denied, --- U.S. ----,
113 S.Ct. 966, 122 L.Ed.2d 122 (1993); Zaklama v. Mount Sinai Medical Ctr.,
906 F.2d 650, 652 (11th Cir.1990) (per curiam). Questions of fact arise only
when an ambiguous contract term forces the court to turn to extrinsic evidence
of the parties' intent, such as precontract negotiations, to interpret the disputed
term. Thornton v. Bean Contracting Co., 592 F.2d 1287, 1290 (5th Cir.1979);
see also In re Stratford, 635 F.2d 365, 368 (5th Cir.1981) ("[T]he determination
of the parties' intent from extrinsic evidence is a question of fact rather than one
of law.").10 Such an ambiguity, however, "does not exist merely because a
contract can possibly be interpreted in more than one manner." Shipner v.
Eastern Air Lines, Inc., 868 F.2d 401, 409 (11th Cir.1989) (applying Florida
law) (citing American Medical Int'l, Inc. v. Scheller, 462 So.2d 1, 7 (Fla. 4th
Dist.Ct.App.1984), review denied, 471 So.2d 44 (Fla.1985), cert. denied, 474
U.S. 947, 106 S.Ct. 345, 88 L.Ed.2d 292 (1985)); see also Saha v. Aetna
Casualty & Sur. Co., 427 So.2d 316, 317 (Fla. 5th Dist.Ct.App.1983) ("[T]his
principle applies only when there exists a genuine inconsistency, uncertainty or
ambiguity in meaning after resort to the ordinary rules of construction.").

15

JDC contends that Lawyers Title had a duty to defend against BST's assertions
in the Foreclosure Action because those allegations attacked the enforceability
of the covered mortgages. The duty to defend depends solely on the facts and
legal theories alleged in the pleadings and claims against the insured. National
Union Fire Ins. Co. v. Lenox Liquors, Inc., 358 So.2d 533, 536 (Fla.1977); see
also Baron Oil Co. v. Nationwide Mut. Fire Ins. Co., 470 So.2d 810, 813 (Fla.
1st Dist.Ct.App.1985) (collecting cases). The duty arises when the relevant
pleadings allege facts that "fairly and potentially bring the suit within policy
coverage." Lime Tree Village Community Club Ass'n, Inc. v. State Farm Gen.
Ins. Co., 980 F.2d 1402, 1405 (11th Cir.1993) (applying Florida law) (citing
Trizec Properties, Inc. v. Biltmore Constr. Co., 767 F.2d 810, 811-12 (11th
Cir.1985); Baron Oil, 470 So.2d at 815). " '[T]he "actual facts" of the situation
are not pertinent.' " Baron Oil, 470 So.2d at 814 (alteration added) (quoting
Federal Ins. Co. v. Applestein, 377 So.2d 229, 233 (Fla.3d Dist.Ct.App.1979);
citing Lenox Liquors, 358 So.2d at 536); see also id. ("When the actual facts
are inconsistent with the allegations in the complaint, the allegations in the
complaint control in determining the insurer's duty to defend."). Thus, the duty

to defend is broader than the duty to indemnify in the sense that the insurer
must defend even if facts alleged are actually untrue or legal theories unsound.
Trizec, 767 F.2d at 812; Grissom v. Commercial Union Ins. Co., 610 So.2d
1299, 1307 (Fla. 1st Dist.Ct.App.1992), review denied, 621 So.2d 1065
(Fla.1993); Logozzo v. Kent Ins. Co., 464 So.2d 605, 607 (Fla. 3d
Dist.Ct.App.1985); Klaesen Bros., Inc. v. Harbor Ins. Co., 410 So.2d 611, 61213 (Fla. 4th Dist.Ct.App.1982). If an examination of the allegations of the
complaint leaves any doubt regarding the insurer's duty to defend, the issue is
resolved in favor of the insured. Lime Tree, 980 F.2d at 1405; Baron Oil, 470
So.2d at 814 (citing New Amsterdam Casualty Co. v. Knowles, 95 So.2d 413
(Fla.1957)); Grissom, 610 So.2d at 1307. Thus, we turn to the question at hand:
whether the pleadings filed by BST in the underlying state case alleged facts
and legal theories within the coverage provisions of the two title policies.
B.
16

To determine whether the district court correctly held that, as a matter of law,
BST's claims did not attack the mortgages in a manner covered by the policies,
we must first decide whether the disputed terms of the policy are unambiguous.
If we find the provisions unambiguous, we then examine the facts and theories
alleged in the pleadings to determine whether, if BST had prevailed on its
affirmative defenses or its Motion to Quash, the loss would have been covered
under the relevant policy provisions.11

1.
17

The two policies are identical in all relevant respects. JDC contends that the
following provisions obligated Lawyers Title to defend JDC in the Foreclosure
Action:

18
SUBJECT
TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS
CONTAINED IN SCHEDULE B AND THE PROVISIONS OF THE
CONDITIONS AND STIPULATIONS HEREOF, LAWYERS TITLE
INSURANCE CORPORATION ... insures ... against loss or damage ... sustained or
incurred by the insured by reason of:
...
19
20

5. The invalidity or unenforceability of the lien of the insured mortgage upon

said estate or interest except to the extent that such invalidity or
unenforceability, or claim thereof, arises out of the transaction evidenced by the
insured mortgage and is based upon (a) usury, or (b) any consumer credit

protection or truth in lending law....

...
21
CONDITIONS AND STIPULATIONS
...
22
23

3. Defense and Prosecution of Actions--Notice of Claim to be given by an

Insured Claimant

24 The Company, at its own cost and without undue delay, shall provide for the
(a)
defense of an insured in all litigation consisting of actions or proceedings
commenced against such insured, or defenses, restraining orders, or injunctions
interposed against a foreclosure of the insured mortgage or a defense interposed
against an insured in an action to enforce a contract for a sale of the indebtedness
secured by the insured mortgage, or a sale of the estate or interest in said land, to the
extent that such limitation is founded upon an alleged defect, lien, encumbrance, or
other matter insured against by this policy.
25

(emphasis added).
Relevant parts of Schedule A stated:
Name of Insured:

JDC (AMERICA) CORP.

26
27 estate or interest in the land described in this Schedule and which is encumbered
The
by the insured mortgage is:
Fee Simple
The estate or interest referred to herein is at Date of Policy vested in:
28
29
AMERIFIRST
FLORIDA TRUST COMPANY, as Trustee, under unrecorded Trust
Agreement dated February 25, 1984
30 mortgage, herein referred to as the insured mortgage, and the assignments
The
thereof, if any, are described as follows:
[descriptions of the first and second mortgage agreements, respectively] 12
31

32

The Supreme Court of Florida has defined the scope of a coverage provision
similar to the provision at issue in this case. In Bank of Miami Beach v. Fidelity
& Casualty Co., 239 So.2d 97 (Fla.1970), the plaintiff mortgagee sought
coverage under a title policy that provided that "the insuror 'guarantees' that the
mortgage covered by the policy 'has been executed in accordance with law' and
'further guarantees' that said mortgage 'constitutes a valid mortgage lien on the
property described in said mortgage.' " Id. at 98. The plaintiff had sought to
foreclose on the insured mortgage in a previous action, and the mortgagor had
contended that, although she had executed the mortgage, her son had forged the
promissory note on which the mortgage was based. After settling the
foreclosure action, the plaintiff filed suit against the title company seeking
indemnification for its losses. Id. at 99.

33

At the outset, the supreme court rejected the defendant title company's
argument that the title policy insured only against defects in the mortgagor's
title. The court concluded that the language of the policy insured against an
invalidly executed mortgage as well. Id. at 99 (citing Ferrell v. Inter-County
Title Guar. & Mortgage Co., 213 So.2d 518 (Fla.3d Dist.Ct.App.1968)).13 The
court decided, however, that the forged note was not a covered risk. The court
explained its rationale in a critical passage:

34 mortgage lien and a mortgage debt are two entirely different legal concepts or
[A]
"species." A provision guaranteeing that the mortgage constituted a "valid mortgage
lien" might be held to cover a loss resulting from fraud, mistake, duress, or
misrepresentation in the procurement of the mortgage--a point that is not presented
nor decided here; but such a guarantee of the validity of the mortgage lien cannot
and should not be construed as guaranteeing that the insuror has made a careful
investigation of the origin of the mortgage debt and guarantees its payment or
validity. If such coverage is contemplated, the policy should specifically so provide.
35

Id. at 99; cf. Goode v. Federal Title & Ins. Corp., 162 So.2d 269, 270 (Fla.2d
Dist.Ct.App.1964) ("[I]t must be borne in mind that a title policy insuring a
mortgagee insures only the title to the lands securing his debt and not the
debt...." (quoting 60 A.L.R.2d 972, 976 (1958))).

36

The supreme court's distinction between the validity of the mortgage and the
validity of the underlying debt has been applied in other jurisdictions. For
example, in McHenry Savings Bank v. Pioneer National Title Insurance Co.,
186 Ill.App.3d 238, 132 Ill.Dec. 617, 540 N.E.2d 357 (1989), a mortgage had
been deemed fraudulent because the mortgagor never signed the mortgage or
held title to the mortgaged property. The Illinois court held that the loss caused
by the fraudulent mortgage was covered, stating that "[n]otwithstanding that

the policy ... insured [the situation] where the title was vested otherwise than as
stated in schedule A ..., the policy also covered loss or damage resulting from
the invalidity or unenforceability of the mortgage lien." Id., 132 Ill.Dec. at 620,
540 N.E.2d at 360 (emphasis added) (citing Bank of Miami Beach, 239 So.2d
at 97); see also Citicorp Sav. v. Stewart Title Guar. Co., 840 F.2d 526, 529-30
(7th Cir.1988) (applying Illinois law) (holding that the mortgagor's legal
incompetence at the time of the execution of the mortgage was a covered risk
under the title policy's "invalidity or unenforceability" provision); Ferrell, 213
So.2d at 520 (holding that a forged mortgage was a "defect" covered by a
mortgage title policy). In Gerrold v. Penn Title Insurance Co., 271 N.J.Super.
50, 637 A.2d 1293 (App.Div.1994), on the other hand, the court held that the
mortgagee's failure to deliver the loan proceeds to the mortgagor, which
resulted in a failure of consideration, was not a covered risk under an invalidity
clause. See id., 637 A.2d at 1295 (citing Bank of Miami Beach, 239 So.2d at
98).
37

Bank of Miami Beach leads us to conclude that the "invalidity or

unenforceability" provision of the title policies is unambiguous. The provision
has been judicially defined and neither party presented to the district court
evidence that the parties intended any definition other than the one that the
Supreme Court of Florida set forth in Bank of Miami Beach. Cf. Guarantee
Abstract & Title Ins. Co. v. St. Paul Fire & Marine Ins. Co., 216 So.2d 255, 257
(Fla.2d Dist.Ct.App.1968) (determining that the phrase "actual possession" in a
title policy "is a term of art with a precise legal meaning, and must be examined
in that light"). Generally stated, the provision insures against defects in the
mortgage itself, but not against problems arising from or related to the
underlying debt.

38

An examination of the purpose of title insurance supports this conclusion.

Contracts of insurance should "receive a practical, reasonable, and fair
construction consonant with the apparent object and intent of the parties"
viewed in light of their purpose. 43 Am.Jur.2d Insurance Sec. 276, at 350
(1982). Florida law defines title insurance as "insurance ... against loss by
encumbrance, or defective titles, or invalidity, or adverse claim to title."
Fla.Stat.Ann. Sec. 624.608 (West 1984). Consistent with this purpose, an
insured should reasonably expect that a title company has examined the public
records pertaining to the insured interest before it issues a policy. 9 John A.
Appleman & Jean Appleman, Insurance Law & Practice Sec. 5201, at 8-9
(1981). The Bank of Miami Beach distinction between the mortgage and the
underlying debt, which relieves the title insurer of the burden of investigating
the origin of the debt and the relationship of the parties, is consistent with the
traditional role of title insurance.

2.
39

Having concluded that the coverage provision at issue here is unambiguous, we

now determine whether the facts and legal theories BST alleged in its pleadings
fell within the ambit of the provisions, thus triggering Lawyers Title's duty to
defend. We conclude that they did not.

40

It is certainly true that the joint venture, and BST as its general partner, were
properly joined and had standing to assert defenses on behalf of the AmeriFirst
land trust because the joint venture was the beneficiary of the trust. See Cowen
v. Knott, 252 So.2d 400, 402 (Fla.2d Dist.Ct.App.1971). The defenses asserted
by BST on behalf of the joint venture, however, all explicitly related to the
effect of the parties' relationship on the collectability of the debt underlying the
mortgage rather than the validity of the mortgage itself. Stated generally, BST's
Motion to Quash and its first, third, fourth, fifth, and seventeenth affirmative
defenses revolved around two key facts: (1) JDC and BST were joint venture
partners; and (2) JDC sought to foreclose on mortgages and security interests
that were based on partnership debts.14

41

A mortgagee's title policy protects that mortgagee against certain risks related
to the validity of the mortgage itself, such as fraud, incompetency of the
mortgagor, or failure to properly execute the mortgage. Here, however, JDC
requests that this court find that a title company had a duty to defend an action
in which JDC, in the end, asserted eleven claims, only two of which had to do
with the covered mortgages, and in which BST asserted seventeen affirmative
defenses, only five of which, even by JDC's contentions, had any relation to the
mortgages at all. In issuing the title policies, Lawyers Title did not insure the
validity or collectability of the debt underlying the mortgages; nor did Lawyers
Title make itself responsible for discovering the existence of, much less
predicting the ramifications of the collapse of, the partnership relationship
between the mortgagee and the beneficiary of the trust mortgagor. A finding
that Lawyers Title had a duty to wade into this partnership morass would be
inconsistent with Florida law as established in Bank of Miami Beach and would
force insurers to "underwrite risks not bargained for by either party." Pioneer
Nat'l Title Ins. Co. v. Fourth Commerce Properties Corp., 487 So.2d 1051,
1054 (Fla.1986); cf. Barczewski v. Commonwealth Land Title Ins. Co., 210
Cal.App.3d 406, 258 Cal.Rptr. 386, 388 (1989) (noting that accepting the
plaintiff's argument for coverage "would dramatically change the function and
purpose of title insurance with enormous social and financial repercussions").

42

If the alleged facts and legal theories do not fall within a policy's coverage, no
duty to defend arises. See, e.g., Lenox Liquors, 358 So.2d at 536 (holding that

allegations of intentional acts causing injury resulted in the complaint falling

outside the coverage of an insurance policy insuring only against accidental
injury); Chicago Title Ins. Co. v. CV Reit, Inc., 588 So.2d 1075, 1075-76 (Fla.
4th Dist.Ct.App.1991) (holding that the insurer had no duty to defend the
insured because "the allegations of the initial complaint did not allege facts
which would bring the case within the coverage of the title insurance policy").
We need not address whether, therefore, the policy exception on which the
district court also relied applies.
43

Because we conclude that Lawyers Title had no duty to represent JDC in the
state Foreclosure Action, the district court's judgment is AFFIRMED.

44

IT IS SO ORDERED.

Honorable George C. Young, Senior U.S. District Judge for the Middle District
of Florida, sitting by designation

One note, the "Ceiling Promissory Note," was for $28,000,000; the other, the
"Superseding Promissory Note," was for $10,000,000

The "Mortgage and Security Agreement" established a mortgage and security

interest in fixtures and personalty securing the joint venture's obligations under
the Ceiling Promissory Note. The "Consolidated Mortgage and Security
Agreement" established a mortgage and a security interest in fixtures and
personalty securing the joint venture's obligations under the Superseding
Promissory Note. JDC filed UCC-1 financing statements with the Secretary of
State for the security interests in fixtures and personalty. JDC also took as
security an assignment of the joint venture's 100% beneficial interest in the
AmeriFirst land trust and filed a UCC-1 financing statement covering that
security interest

Saitama took the assignment on behalf of itself and as an agent of Mitsui

The record does not reveal whether Saitama disbursed the funds to the joint
venture, BST, or JDC

BST argued in its Motion to Quash that "[JDC's] attempted foreclosure of the
mortgage breaches the duty of loyalty and good faith owed by one partner to
another" and "[b]ecause the attempted foreclosure violates [JDC's] fiduciary
obligations and wrongfully seeks to circumvent an accounting, the mortgage
must be quashed."

Specifically, BST disputed JDC's ability to foreclose in its first, third, fourth,
and fifth affirmative defenses. These affirmative defenses stated:
FIRST DEFENSE
FAILURE TO STATE A CAUSE OF ACTION
The Complaint fails to state a cause of action against BST and the Joint
Venture because JDC is jointly liable on the mortgage as a joint venture partner
and as such cannot foreclose a mortgage against the partnership.
...
THIRD DEFENSE
FAILURE TO STATE A CAUSE OF ACTION
The Complaint fails to state a cause of action because JDC failed to name each
partner of the Joint Venture as a defendant. Thus, JDC has failed to name an
indispensable party-defendant.
FOURTH DEFENSE
LACK OF SUBJECT MATTER JURISDICTION
This Court lacks subject matter jurisdiction because JDC as both plaintiff and as
a general partner of the Joint Venture is both plaintiff and defendant in this
action.
FIFTH DEFENSE
ESTOPPEL
JDC is estopped from foreclosing the mortgage because it caused the alleged
default creating the right to foreclose. Specifically, JDC as a general partner is
jointly liable on all partnership debts to creditors. JDC's refusal to repay the
loan as a general partner estops JDC from foreclosing the mortgage.

JDC was dissatisfied with Lawyers Title's choice of firm because the selected
firm often represented Lawyers Title in its affairs. This involvement with
Lawyers Title, combined with Lawyers Title's reservation of rights under the
title policies, made JDC uneasy about the firm's ability adequately to represent
JDC, and JDC wanted Lawyers Title to retain the firm that was already
representing JDC in the Foreclosure Action

BST's seventeenth affirmative defense stated:

SEVENTEENTH DEFENSE
QUASHING THE MORTGAGE

68

JDC obtained the mortgages which it seeks to foreclose by purchasing them

from Bank Saitama, Ltd. Under Florida law, a j[o]int venture partner may not,
consistent with its fiduciary duties to its partner, acquire a lien against the joint
venture and then attempt to foreclose the lien against the joint venture.
Therefore, mortgages should be quashed
The first, third, fourth, and fifth affirmative defenses remained essentially
unchanged.

The policies excluded "[d]efects, liens, encumbrances, adverse claims, or other

matters (a) created, suffered, assumed or agreed to by the insured claimant...."
The district court concluded that this exclusion applied because JDC and BST's
joint venture agreement provided the foundation for BST's defenses. Id

10

In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir.1981) (en banc),
this court adopted as binding precedent all decisions of the former Fifth Circuit
handed down prior to October 1, 1981

11

These two issues are not entirely independent of one another. We believe,
however, that they are best discussed separately

12

Because the Consolidated Mortgage and Security Agreement was superior to

the Mortgage and Security Agreement, the title policy for the Mortgage and
Security Agreement listed the Consolidated Mortgage and Security Agreement
as an exception on its Schedule B

13

The district court stated several times in its memorandum of decision and order
that the title policies insured only that the title to the property was properly
vested in AmeriFirst, the mortgagor. See Lawyers Title, 818 F.Supp. at 1546 ("
[T]he language of the insurance policy indicates that Lawyers Title only
guaranteed the validity of AmeriFirst's title to the property."); id. ("Essentially,
the title insurance policy addressed JDC's risk that AmeriFirst's title to the
property might be defective."); id. at 1547-48 ("[T]he policy insured only that
AmeriFirst held valid, unencumbered title to the mortgaged property."). It is
clear from the Supreme Court of Florida's statement in Bank of Miami Beach,
however, that the policies indemnified against more than the risk that
AmeriFirst did not hold good title to the property; decisions of other
jurisdictions are in accord. As we discuss below, however, the policies did not

insure against the defenses asserted by BST

14

For example, BST's memorandum of law in support of its Motion to Quash, the
filing that caused JDC to notify Lawyers Title and assert that Lawyers Title had
a duty to defend, stated:
The invalidity of the mortgage is based upon two fundamental tenets of
partnership law. First, as a general partner, [JDC] is jointly liable for debt of the
partnership.... Second, [JDC] owes its partners the highest duty of good faith
and loyalty.... [JDC] cannot create a default on an alleged joint venture debt to
itself and then attempt to use that default to misappropriate joint venture
property to itself.
(emphasis added) (citations omitted).