The office of General Counsel issued the following informal opinion on November 16, 2001, representing the position of the New York State Insurance Department.
Re: Title insurance policy coverage
1) Does the title insurance policy issued to the inquirer in 1997 by the a Title Insurance Company provide coverage for damages to the inquirer resulting from defects in the title insured, and costs and expenses of defending the title, in connection with the assertion of a right by another to use, or limit the inquirers use, of a road adjacent to the inquirers property?
2) If the inquirer refinances the inquirers home and obtains a new title insurance policy from another insurance company, would the 1997 title policy issued to the inquirer by the Title Insurance Company still provide coverage should the title to the inquirers property be affected by the existence of the Private Road?
1) If the road is not excluded or otherwise excepted from coverage under the insurance policy then the policy provides coverage for damages to the inquirer resulting from defects in the title insured, and costs and expenses of defending the inquirers title in connection with the assertion of a right to use, or limit your use, of a road adjacent to the inquirers property.
2) Yes, assuming the inquirers policy provides coverage for roads adjacent to the inquirers property.
Inquirer purchased a newly constructed home there on April 4, 1997 and at the time received a "clear title" a Title Insurance Company ("Title Co."), which issued a title insurance policy to the inquirer (an "owners policy of title insurance"). On February 10, 2001 inquirer received an e-mail from inquirers neighbor ("neighbor") (a copy of which is included with the inquiry), forwarding one page of what purports to be a "Private Rod [sic] agreement" the neighbor claims was filed by the builder with the neighbors final survey. The neighbor asserts in its e-mail that "you do not own any part of the road on either side [of your property]". The single page of the Private Road agreement that the inquirer sent us is dated March 14, 1996. It includes clauses first through fifth but does not bear any signatures and, although it makes reference to a Schedule A attached, the schedule is not included. The inquirer is, of course, concerned that if the purported Private Road agreement is proven to be a valid and properly filed agreement, it adversely affects the title to the property. Further, the inquirer states that the inquirer is thinking of refinancing its home and is concerned that the purchase of a new title insurance policy in connection with the refinancing might relieve Title Co. of its obligations under the inquirers 1997 title insurance policy.
The inquirers attorney brought this matter to the attention of Title Co. by letter of August 10, 2001 and, although the inquirer has not sent us a copy of this letter, it appears that the inquirers attorney, on the inquirers behalf, therein made a claim against inquirers title insurance policy. The inquirer does not state the exact nature of inquirers claim. Title Co. responded to the inquirers notice and claim by a letter from a claims attorney, dated September 26, 2001, a copy of which the inquirer sent us. It indicates that both attorneys had discussed the inquirers claim submission. The position of Title Co., as stated in the letter, is that the neighbors e-mail does not constitute a formal challenge to the insured premises. It is stated therein that, "The agreement dated March 14, 1996 enclosed [by the neighbor] does not contain a Schedule A and is not in the insureds chain of title. If there is a formal challenge to the title as insured, please notify me immediately so that we may take appropriate action under the policy."
The copy of the single page of the Private Road agreement that the inquirer has sent us and that the neighbor sent to the inquirer, is only part of a document. From just this first page, we can only tell that it purports to be an agreement between X Construction Co., and the neighbor to make the road in question a private road, as described in the missing Schedule "A", for the purposes of ingress and egress leading from the premises to the Road and the closest public roadway. The first page recites that X Construction, Company is the owner of Lots 1, 2 and 3 and that the neighbor is to become the owners of Lot 4 simultaneously with the execution of the agreement. We can surmise that the inquirer purchased one of the remaining lots thereafter. The purported Private Road agreement would, apparently, make the road that adjoins the inquirers property and which provides the inquirer with access to the main road out of the community private and accessible to the inquirer and to the owners of the other lots. The inquirer enclosed with the inquiry a portion of a survey of the property that the inquirer obtained, showing the road in question and surrounding areas but in not very great detail.
"Title insurance" is defined in N.Y. Ins. Law § 1113(a)(18) (McKinney 2000), as insurance:
Insuring owners of, and other persons lawfully interested in, real property and chattels real against loss by reason of defective titles and encumbrances and insuring the correctness of searches for all instruments, liens or charges affecting the title to such property, including power to procure and furnish information relative thereto, and such other incidental powers as are specifically granted in this chapter.
A "Title insurance policy" is defined in N.Y. Ins. Law § 6401(b) (McKinney 2000) as follows:
(b) "Title insurance policy" means any policy or contract insuring or guaranteeing the owners of real property and chattels real and other persons interested therein, or having liens thereon, against loss by reason of encumbrances thereon and defective titles.
Title insurance policies offer protection against: 1) monetary loss by reason of defects, liens and encumbrances (if they are not excepted in the policy or otherwise excluded from the policy) and 2) expenses of title litigation. 3 New York Insurance Law, (Bender) § 37.02(2). The right to use the road in question may constitute an encumbrance which term is defined as "A claim or liability that is attached to property or some other right that may lessen its value, such as a lien or mortgage; any property right that is not an ownership interest." Blacks Law Dictionary, 7th Ed. (West Group, Pub. 1999) The contract is both an indemnity agreement and it binds the insurance company to pay the costs and expenses of defending the title insured. As to its indemnity aspect, the insurance company's obligation goes beyond liability if the title search it conducted was incorrect to cover monetary loss resulting from defects in title even if the defect is not discovered by the title search. "It is well settled that the title insurers obligation to indemnify is defined by the policy itself and limited to the loss in value of the title as a result of title defects against which the policy insures." Citibank, N.A. v. Chicago Title Insurance Company, 214 A.D.2d 212, 221, 632 N.Y.S.2d 779 (App. Div. 1995), affd. 87 N.Y.2d 896 (1995). The other coverage aspect covers costs and expenses of defending the title insured, such as in title litigation, whether or not the asserted claim has any merit. As to the extent of coverage, title insurance insures the condition of the title to a piece of real property at a point in time. See 3 New York Insurance Law, (Bender) § 37
The title insurance policy provides the inquirer with coverage as to the title status of the property at the time of its issuance in 1997, when the inquirer purchased the property. The inquirer states that in 1997 Title Co. gave the inquirer "clear title", from which we can infer that at the time of the policys issuance the title search of the records did not reveal the purported Private Road agreement affecting the use of the road. This is not to say, however, that the policy covers rights to the use of the road in question as an abutting roadway. It may or may not. The ALTA (American Land Title Association) policy form, which is a standard form used widely in the title industry, excludes from coverage rights or easements in abutting roadways. If inquirers policy is based upon the ALTA form it may not cover the road at all, unless the form was modified to expressly provide the coverage. 3 New York Insurance Law, (Bender) § 37.04(4)(g) Inquirer should carefully review the insurance policy to determine the extent of its coverage and whether or not it contains any exceptions or exclusions from coverage which are applicable to the road in question.
In the event the policy covers the road, the inquirer must also check to see whether covenants, easements and restrictions affecting the use of the property (which could include the purported road agreement) are nevertheless stated as exceptions from coverage under the policy. 3 New York Insurance Law, (Bender) § 37.04(5)(c) Exceptions from coverage relate to the specific title to, or interest in, the property being insured. Exclusions from coverage enumerate matters with may be included within the general insuring clauses of the policy but for which the insurance company does not assume liability due to a specific exclusionary provision. 3 New York Insurance Law, (Bender) § 37.04(4)(a)
Even if we were to assume, for purposes of this response only, that the use of the road in question is covered under your policy, at this point it does not appear that, based upon The neighbors e-mail assertions alone, the inquirer has a claim against the inquirers title insurance policy. The partial purported Private Road agreement, in and of itself, does not prove that there is a defect in the title or that there exists an easement, which adversely affects the value of the inquirers property. Further, the inquirer does not state that there is any litigation extant. Moreover, the inquirer has not demonstrated that there exists any proof that such agreement was ever executed nor is there any indication that the agreement was ever properly filed in the public records of the township or county in which the property is located. Thus, Title Co.s denial of the inquirers claim based upon its position that the neighbors e-mail does not constitute a formal challenge to the title insured is a reasonable one. If your title to the property is formally challenged, assuming the policy affords coverage, a claim could be successfully asserted by the inquirer under the title policy, giving rise to the Title Co.s duty to defend challenges to the inquirers title.
Should the inquirer refinance the inquirers home and obtain a new title insurance policy, the 1997 Title policy provides coverage for a cloud on the title that existed at the time the policy was issued in 1997 and the insurers liability thereunder continues so long as the insured has an interest in the property and sustains a loss covered by the property. Unlike other insurance, premiums are paid upon title insurance policies when issued and not, periodically thereafter. Thus, the coverage of the Title Co.s policy would extend beyond the time any new title insurance policy is issued to you upon refinancing, for defects in title that existed at the time the Title Co.s policy was issued to the inquirer. In other words, the issuance of the new title policy would not affect the inquirers coverage under the 1997 policy.
For further information you may contact Associate Attorney Barbara Kluger at the New York City Office.