I would like to discuss Lawyers Title Insurance Corporation Vs. Doubletree Partners, L.P., as an example of how survey coverage can get complicated. The action, recently in the United States Court of Appeals for the Fifth Circuit (Case numbers 12-40692 and 12-407020), was on appeal from the United States District Court for the Eastern District of Texas.
The lawsuit relates to two consolidated appeals arising from a title insurance claim that was denied by Lawyers Title Insurance Corporation (“LTIC”) to its insured, Doubletree Partners, L.P. (“Doubletree”). The gist of the claim related to a flowage easement in favor of the United States, and “survey coverage” in the Owner’s Policy of Title Insurance relating to the location of the flowage easement on the subject property.
The Fifth Circuit affirmed in part and reversed in part the trial court’s order on motions for summary judgment, and reversed the trial court’s order of attorney’s fees to LTIC. The subject property was a 36-plus acre tract of land located in Highland Village, Denton County, Texas, on which Doubletree planned to develop a luxury senior community. The plan consisted of approximately eighteen multi-story buildings, together with a community center and other related amenities.
The flowage easement in question was granted in 1955, giving the United States the right to flood, overflow, and submerge parts of the property that lie below 537 feet in elevation. Construction of improvements is also prohibited below that elevation without prior written consent of the United States. The flowage easement was shown on the title commitment and the reformed title policy purchased by Doubletree.
Before closing, Doubletree hired a surveyor to prepare a survey of the property, including the location of the boundary lines and all exception documents affecting the subject property. The surveyor showed the approximate location of the flowage easement on the survey drawing as covering a small portion located near the property’s southern boundary. The surveyor relied upon flood insurance maps in preparing the survey, however it was discovered later that he did not measure the elevations, nor did he review the contour map from the city.
Doubletree began plans to develop the property, and shortly after submitting a zoning change application to the city, it learned that the flowage easement location was incorrectly noted on the survey, which caused a more substantial portion of the subject property to be subject to the flowage easement. Accordingly, Doubletree was unable to proceed with its plans to build several buildings near the lakeside portion of the property.
Several matters happened next – (1) Doubletree filed a complaint with the Texas Board of Professional Land Surveying against the surveyor; (2) Doubletree filed a title insurance claim with LTIC alleging the existence of the flowage easement on the property caused damage in diminution of the property’s value for its intended purpose; (3) LTIC sought to reform the final Owner’s Policy of Title Insurance (the “corrected policy”), to include the flowage easement exception and the survey coverage [which were omitted in the original policy issued by software printing error]; and (4) Doubletree was unable to meet its loan obligations, and lost the property to foreclosure in June 2009.
This discussion focuses on the title insurance claim as it relates to survey coverage and the flowage easement. LTIC and Doubletree clearly disagreed over the meaning of the survey coverage clause, the flowage easement exception, and whether Doubletree had knowledge of the easement that would permit it to be excluded from coverage in the Owner’s Policy.
The Fifth Circuit held quite broadly that it was reasonable for Doubletree to believe that the flowage easement, as an encroachment, was now excepted only to the extent it was shown on the survey. It agreed with Doubletree’s reading that the survey coverage purchased on the Owner’s Policy covers “encroachments,” and the flowage easement was an encroachment as noted on the survey.
As the approximate location of the flowage easement was shown on the survey, Doubletree’s argument was the coverage of the flowage easement would only be excluded to the extent disclosed and shown on the survey. Because the issue at hand had more than one reasonable interpretation, the Court adopted Doubletree’s interpretation since it was the insured. Thus, the survey coverage clause covered the survey error in identifying the location of the flowage easement in this instance.
The Fifth Circuit remanded the case back to the trial court for damages. So where does that leave the title agents and title underwriters giving survey coverage in title policies? Are title companies going to stop accepting “existing surveys”? Are title companies going to have to start approving and vetting out the surveyor before agreeing to give survey coverage in title policies? Are title companies going to stop referencing survey matters on title commitments and title policies, and thereby only refer to the documents as recorded in the real property records? Are title companies going to refuse to accept surveys showing an “approximate location” of an exception document? The questions go on and on.
Unfortunately, title companies and title insurers will now have to make some hard decisions on underwriting guidelines relating to survey coverage in title policies in light of this case. I don’t think the Court understood this issue in its clear language as it relates to the survey policy coverage (and exclusions) of a noted instrument.