Following the Fifth Circuit’s Lodestar to Maximize Title Insurance Coverage
by J. Edwin Martin
Who remembersPalsgraf v. Long Island R.R. Co., 248 N.Y. 339, 162 N.E. 99 (N.Y. 1928)? It is the hidden-firecrackers case (not the hairy hand case, the monkey trial, or the trees-have-standing case).
Anywho, there is, admittedly, an odd analogy between that landmark case and the recently-decided Lawyers Title Insurance v. Doubletree Partners, LP, 739 F.3d 848 (5th Cir. 2014).
Palsgraf is best described as a torts exam for the New York Court of Appeals, and the opinion sets forth a lodestar for torts analysis.
Doubletree is best described as a title-insurance exam for the Fifth Circuit, and the opinion sets forth a lodestar for: (a) scrutinizing title commitments, exception documents, surveys, and title policies; (b) lodging title objections; (c) negotiating and drafting contracts of sale and closing documents; and (d) purchasing Endorsement Form T-19.1.
This lodestar includes these practice pointers:
1. When it comes to title-and-survey review, never settle for any survey designation as “approximate;” that word is a giant red flag. Indeed, if an easement is material to the development or intended use of the property, then procuring and scrutinizing a meets and bounds description of that easement to determine its exact location and magnitude is integral to the title-and-survey review.
2. Scrutinize the title policy. If it appears “too good to be true,” then it is; notify the insurer.
3. For survey coverage, in addition to modifying the survey exception, have each survey identified exception be modified to read “, but only to the extent shown on survey.”
4. Disclaim the application of the Acts-of-the-Insured Exclusion at every opportunity, particularly with regard to “subject to” conveyances. Amplify the phrase “subject to,” akin to the way the “as is, where is” clause was amplified after the Texas Supreme Court decided Prudential Ins. Co. of Am. v. Jefferson Assocs., Ltd., 896 S.W.2d 156, 161 (Tex. 1995).
5. Never call the title exceptions “permitted.” Instead, use no descriptor whatsoever or describe the exceptions as “without warranty” or “with reservation of rights by Grantee.”
6. In the vesting deed, designate the title exceptions as warranty exceptions only (rather than exceptions to conveyance and warranty), and quitclaim the grantor’s rights to those exceptions.
7. To avoid warranting the survey’s accuracy, when representing a seller, do not reference the survey in the deed unless each survey-identified exception is modified to read “, but only to the extent shown on survey.”
8. To avoid warranting the survey’s accuracy, when representing a buyer, do not reference the survey in the deed of trust unless each survey-identified exception is modified to read “, but only to the extent shown on survey.”
9. To buttress the disclaimer of the application of the Acts-of-the-Insured Exclusion, when representing a buyer, reference the survey in the vesting deed using the qualifier “, but only to the extent shown on survey.” This lingo will limit the scope of the seller’s warranty, but it will add gravitas to the disclaimer of the application of the Acts-of-the-Insured Exclusion. Caveat: When representing a buyer, referencing the survey in the deed runs the risk of clouding the chain of title (because the survey is an unrecorded document referenced in the buyer’s chain of title). Thus, this practice pointer is debatable. To the author, strengthening title-insurance coverage trumps the title cloud, which can be overcome through due diligence.
10. To avoid any conflicts between Endorsement Form T-19.1 and the body of the title policy, follow the Fifth Circuit’s lodestar regarding survey coverage and purchase the endorsement.
Kudos to the Fifth Circuit for peppering its opinion with practice pointers—whether intentionally or as a byproduct of its extensive analysis.
J. Edwin Martin is a solo practitioner. He may be reached at firstname.lastname@example.org.