Lawyers Title Insurance v. Knopf

PAUL E. ALPERT, Judge, Specially Assigned. This appeal involves questions concerning a title insurance company’s obligation to defend its insureds. It marks the second attempt by the insurer, Lawyers Title Insurance Corporation (“Lawyers Title”), to obtain review by this Court of the trial court’s rulings on the insurer’s separate motions for summary judgment against two insureds and the insureds’ separate motions for partial summary judgment. Facts We declined to consider the first appeal, brought immediately after the trial court’s rulings on the motions, because the orders appealed from adjudicated fewer than all of the claims in the action.

In doing so, we set forth the facts of the case as follows: On June 23,1989, William H. and Katherine Baldwin filed a complaint in ejectment against appellees, Michael and ¹³⁷ Suzanne Knopf, and later amended the complaint to include appellee Liberty Savings Bank, F.S.B. (“Liberty”) as a defendant in its capacity as the holder of a lien on the Knopfs’ property. The Baldwins alleged that a 9.982 acre parcel of land owned by them included 3.182 acres of the 6+ acres purchased by the Knopfs in 1981 and that the Knopfs, after purchasing the property in 1981, took wrongful possession of this portion of the Baldwins’ land and constructed a house on it. A survey commissioned by the Baldwins, which supported their claim, was attached to the complaint.

Seymour Stern, Esq. had conducted the 1981 settlement in which the Knopfs acquired the property. In a letter dated April 28, 1991 to Liberty’s predecessor in interest, First Federal Savings & Loan Association, Mr. Stern outlined his concerns with the title to the property. He stated that with regard to the property the Knopfs planned to purchase: (1) “there was no Plat on record for this subdivision” and (2) “[in] addition ... there are some potential problems that should be addressed by the surveyor before we will be able to acquire title insurance.” Mr. Stern explained that the prior deeds for what he believed to be the property variously described it as containing 9 acres, 15.161 acres, and 55 acres. In another letter to the bank, dated May 5, 1981, Mr. Stern stated that he had met with the surveyor, who had resolved certain discrepancies.

After noting that the surveyor had completed his survey, Mr. Stern advised that his (Mr. Stern’s) underwriter would not insure the title unless further title work on the neighboring properties was done. Rather than incur this expense, Mr. Stern suggested that the title insurance policy recite that an acreage problem existed but that insurance was provided against loss “by reason of adverse possession to the property insured by reason of the aforesaid discrepancy.” Lawyers Title had issued a policy of title insurance to Charles Crothers when he had purchased the property, a portion of which he now proposed to sell to the Knopfs. In an effort to procure title insurance so that the sale to the ¹³⁸ Knopfs could be consummated, Mr. Stern, through his agent, wrote to Lawyers Title, in a letter dated May 13, 1981. He advised Lawyers Title that the “plat of subdivision (for the Knopfs’ lot) has been submitted for approval but has not yet been approved” and inquired if Lawyers Title would issue a policy of title insurance in accordance with the terms of his May 5, 1981 letter to the bank.

In a letter dated May 20, 1981, Lawyers Title indicated that it was aware of the discrepancies in the “acreage recitations in various deeds in the chain of title,” and would be “pleased to insure the conveyance out of Mr. Charles Williams Crothers subject to the present conditions of title,” but that “without a current survey of the specific property presently being acquired out of a larger tract, we cannot give survey coverage.” Lawyers Title explained: [t]he policy issued to Mr. Crothers insures boundaries and does not insure acreage content. No claim has been presented under the policy by adjoining owners and no loss is provable thereunder. I frankly do not see any problem with the Crothers property. Lawyers Title concluded that the language suggested by Stern would “limit the marketability coverage of the policy”; Lawyers Title “decline[d] to include such language in a policy which creates an issue of coverage where none exists.” Five days later, on May 26, Lawyers Title wrote to an attorney representing Crothers, the seller, and stated that: We have advised Mr. and Mrs. Knopf, purchasers of a portion of the property, as well as Mr. Stern that we will insure title without exception to the acreage discrepancy.

Since the new conveyance will convey less than the entire property previously insured, we will have a survey exception unless a current survey is furnished. (emphasis added). On the same day, May 26, the subdivision plat that included the Knopf lot was approved and recorded among the plat records of Frederick County. On June 5, 1981, settlement was held and the Knopfs acquired title to the property at issue here.

Upon the ¹³⁹ payment of the requested premium, Lawyers Title issued a title insurance policy to the Knopfs. Schedule A of that policy describes the real property being insured as follows: All that lot or parcel of land situate, lying and being in the Tuscarora Election District, Frederick County, Maryland, and being known and designated as Lot No. 1, Section 1, as set forth on the Plat entitled “HIGH KNOB EAST” and recorded in Plat Book 24, Plat 47, among the Plat Records for Frederick County, Maryland. Being all and the same real estate which was conveyed unto Michael W. Knopf and Suzanne Knopf, his wife, by Charles William Crothers, by deed dated the 5th day of June, 1981, and recorded in Liber 1148, folio 311, among the Land Records for Frederick County, Maryland. Insurance was to be provided “against loss or damage ... and costs, attorneys’ fees and expenses which the Company may become obligated to pay hereunder, sustained or incurred by the insured by reason of: 1.

Title to the estate or interest described in Schedule A being vested otherwise than as stated therein; 2. Any defect in or lien of encumbrance on such title; 3. Lack of a right of access to and from the land; or 4. Unmarketability of such title.

The policy further provides that Lawyers Title “at its own cost and without undue delay, shall provide for the defense of an insured in all litigation ... against such insured ... to the extent that such litigation is founded upon an alleged defect, lien, encumbrance, or other matter insured against by this policy.” Among those items expressly excluded from coverage were: Rights or claims of parties in possession and easements or claim of easements not shown by the public records, boundary line disputes, overlaps, encroachments and any ¹⁴⁰ matter not of record which would be disclosed by an accurate survey and inspection of the premises. Liberty obtained a similar policy from Lawyers Title. That policy also insured against loss caused by an defect in or lien or encumbrance on such title, and provided for the defense of actions founded upon an alleged defect insured against by the policy. The policy provided to Liberty also specifically excluded the items noted above, including “[s]uch state of facts as would be disclosed by an accurate survey and inspection of the premises.” Eight years after the Knopfs settled on their property the instant case was filed by the Baldwins against the Knopfs; the Baldwins eventually amended the complaint to join Liberty as an additional defendant.

The Knopfs filed a third party claim and Liberty filed a cross-claim against Lawyers Title, among others, for breach of contract, alleging that, under its title insurance policy, Lawyers Title was obligated to provide a defense to any action based on a defect in title. Both the Knopfs and Liberty filed motions for partial summary judgment, with supporting exhibits, against Lawyers Title, contending that the boundary dispute at issue was covered by their respective title policies, and that Lawyers Title was therefore obligated to provide them a defense to the Baldwins’ action. Lawyers Title responded to these motions and filed its own motions for summary judgment, with supporting exhibits, against the Knopfs and Liberty, claiming that the dispute at issue was specifically excluded from coverage. (All of the acts set forth above are undisputed and are based on the pleadings, motions, and exhibits to them).

After hearing argument from counsel, the circuit court issued orders denying Lawyers Title’s motions for summary judgment and granting the motions for partial summary judgment of the Knopfs and Liberty. Specifically, the lower court mandated that Lawyers Title “provide a defense” to both the Knopfs and Liberty against the Baldwins’ action, and “reimburse” the Knopfs and Lib ¹⁴¹ erty for the legal expenses and costs they had incurred to date in defending the litigation. Lawyers Title Insurance Corporation v. Knopf, 100 Md.App. 799 , 800, No. 1337, September Term, 1993, at 1-6 (April 25, 1994) (per curiam) (footnotes omitted). Subsequently, the underlying action in ejectment was settled and the complaint and cross-complaints were dismissed.

The trial court entered two money judgments against Lawyers Title for the costs and attorneys’ fees incurred by the Knopfs and Liberty. Discussion In ruling upon Lawyers Title’s motions for summary judgment and the motions for partial summary judgment filed by the Knopfs and Liberty, the trial court stated: The problem is although Mr. Stern shared the concern that he expressed, apparently Lawyers Title did not at the time. Which leads into question whether or not there is that survey exception. And whether or not it was satisfied when the subdivision was placed on record.

That is the problem that I foresee in granting summary judgment [in favor of Lawyers Title]. I do not believe that it is clear. First of all I have some question as to whether or not this particular problem does not concern superior title to real estate or marketability of title rather than a surveyor’s exception. And secondly, I think it’s questionable as to when this plat went on record in relation to the exception, if that’s what it is, a survey exception, whether or not the parties construed this to have satisfied that.

Therefore, I think there is disputed facts and I’m going to deny your Motion[s] for Summary Judgment. As to the motion[s] for partial summary judgment, I would think quite truthfully under Brohawn there’s, the defense provision is clear, there really has been no determination as to coverage or in essence whether or not any plat is correct. I think it’s clear that Lawyers owes a defense to both Knopf and Liberty Savings Bank. Therefore, I’m going to grant their motions for partial summary judgments ¹⁴² as far as requiring Lawyers Title Insurance to provide a defense and also reimburse the parties for the legal expenses they have incurred and the costs in connection with the litigation.

Lawyers Title now contends that the trial court erred by denying its motions for summary judgment and granting the motions for partial summary judgment filed by the Knopfs and Liberty, thus ordering it to defend the Knopfs and Liberty against the Baldwins’ action in ejectment. Lawyers Title argues, in essence, that the trial court’s rulings were based on an erroneous belief that Lawyers Title was required to defend the Knopfs and Liberty if the terms of their title insurance policies could potentially be construed to provide coverage. It adds that, in any event, the survey exception contained in the policies indisputably excluded coverage. The Knopfs counter that the trial court’s understanding of the law was correct and that Lawyers Title waived the survey exception in their policy when the insurer described the property in question by reference to the subdivision plat that was recorded several days before the policy was issued.

In the Knopfs’ view, the subdivision plat was, in effect, a survey. The Knopfs and Liberty further contend that, even if the survey exception was valid, their cross-complaints against Lawyers Title were based on a failure of title rather than a mere encroachment or boundary dispute. They suggest that a survey exception could not be applicable to such a situation. Preliminarily, we shall address the Knopfs’ and Liberty’s contentions that a valid survey exception could not be applicable to what they characterize as a failure of title.

As we have observed, the title insurance policy in question obligates Lawyers Title to defend and pay any loss due to: 1. Title to the estate or interest described in