EXCERPT: In a noteworthy decision for the title insurance industry, the Minnesota Court of Appeals recently held on April 10, 2017 that a title insurance company had no duty to defend its insured in a boundary line dispute when the policy contained defective-description and survey exceptions.
In the case, in conjunction with the purchase of a property, the insured sought title insurance from defendant title insurance company. The title insurance company issued a title commitment that included exceptions, including (i) a defective-description exception, because the insured’s proposed legal description of the property was based on acreage and not metes and bounds, and (ii) a survey exception.
The insured did not remedy either exception before the title insurance company issued the policy. The insured later became involved in litigation with its neighbor over the insured’s claim that it had obtained a gap parcel located between the parties’ properties via adverse possession. The neighbor contested the claim and later amended his counterclaim to challenge the boundary between the insured’s parcel and the gap parcel. The insured prevailed in the litigation, then sought reimbursement of its attorneys’ fees incurred in the boundary-line dispute. The title insurance company denied coverage, citing the policy’s defective-description and survey exceptions. The insured sued the title insurance company for breach of contract, and the trial court granted the title insurance company’s motion for summary judgment.
On appeal, the appellate court affirmed the lower court’s decision. The Court held that the neighbor’s claims had “evolved continuously throughout the litigation,” but could be grouped into two categories: claims relating to the insured property’s allegedly improper legal description and claims relating to a historic fence that the neighbor claimed set the boundary between the properties. For the legal description claims, the Court affirmed that the title commitment provided the insured notice that the acreage description was defective, but the insured nonetheless chose not to provide a metes and bounds description. Thus, rather than rectifying the issue, the insured accepted the policy without this coverage. For the boundary fence claims, the Court held that an accurate survey would have disclosed the proper boundary between the parcels. As with the legal description, the insured was given notice of this deficiency in the title commitment but elected not to rectify it. Accordingly, the title insurance company did not have to provide coverage for these excepted issues.
Finally, the Court rejected the insured’s claim that these exceptions rendered coverage under the policy illusory. The insured did not proffer any evidence that it reasonably believed that a portion of the premium was allocated to these issues, nor could it contest the fact that the policy still covered other title issues. The fact that the policy “clearly states that [the title insurance company] would not cover claims like those in [this] litigation [proves] there was no illusion of coverage.”