Talbott, J.c.c., Temporarily Assigned.
[147 NJSuper Page 430] This is an action for damages by an insured against a title insurer of real property. Plaintiff William S. Keown is the succeeding trustee of a trust created by the will of Clarence A. Munger,
deceased. The testator died in 1959. Plaintiff qualified as successor trustee in November 1959 after the death of the original trustee, his father, Walter S. Keown. Plaintiff is a lawyer, as was his father. Plaintiff also acted as successor executor under the will after the death of his father, the original executor. Plaintiff acted as his own attorney as executor and trustee of the estate.
A principal asset of the estate was a commercial property located at the southwest corner of Broadway and Fedtral Streets in Camden which the plaintiff conveyed to the city as a result of a condemnation judgment in 1963 for $400,000. The net proceeds of the settlement were about $315,000 which the trustee was obliged to invest in some manner.
Plaintiff was advised of the availability for sale of a commercial property in Egg Harbor City, subject to a long-term lease to an Acme store, by an attorney who had done tax work for the estate. Negotiations between plaintiff and the agent of the owners of the property resulted in execution of an agreement of sale dated June 11, 1963 under which plaintiff, as succeeding trustee, agreed to purchase the Egg Harbor City property for the sum of $75,000 over the existing mortgage balance of $148,309.45, making a total sales price of $223,309.45. The agreement also provided for settlement to take place at the offices of defendant West Jersey Title and Guaranty Co. (West Jersey) on or before June 21, 1963. The agreement further provided that the "title to be delivered shall be marketable title and insurable by any reputable title company."
On June 10, 1963 plaintiff ordered title insurance from West Jersey. He spoke with Raymond B. Heston, defendant's then vice-president and treasurer. On the application form Heston placed a note reading "Examiner -- please check with Mr. Tobin as to capacity of Mr. Keown to take title as successor trustee." At the top of the form are the words "Super Rush." The application was assigned to Herbert S. Stepler, a title examiner then employed with West Jersey.
The title search work was done by South Jersey Title Insurance Co. and delivered in abstract form to Stepler. Stepler went to the surrogate's office in Camden and made a written list of the docket index in the Munger estate from the death certificate of Clarence A. Munger to the qualification of plaintiff as succeeding executor and trustee. Stepler examined the will index of the surrogate to confirm that plaintiff had qualified as successor trustee. Stepler did not review the will clauses to determine whether plaintiff had authority to invest trust funds in real estate. Neither Stepler nor Tobin, who was then West Jersey's Title Officer can now recall whether they discussed this matter or whether Tobin rendered an opinion as to whether plaintiff had the authority to invest in real estate under the terms of the will.
Plaintiff's secretary, Mary E. Morris, had a conversation with Stepler on the morning of June 18, 1963. She took notes of the conversation and transcribed them immediately afterwards and gave the memorandum to plaintiff during the morning and before he went to the afternoon settlement. The memorandum indicated that Stepler, after conversation with Tobin, said it was "o.k." for plaintiff to take title.
In 1968 plaintiff filed with the surrogate an account as succeeding trustee of the estate of Clarence A. Munger, deceased. Exceptions were taken to the account by the beneficiaries of the estate, contending that plaintiff lacked authority under decedent's will to invest trust funds in real estate. The trial judge decided that the will did not authorize investments in real property. The Supreme Court, in In re Munger , 63 N.J. 514 (1973), held on this single issue that the will did not empower plaintiff to invest in real estate and affirmed. After a further hearing on July 30, 1974 the trial judge surcharged plaintiff with respect to the investment in the Egg Harbor property in the sum of $121,911 as of December 31, 1973, with interest of 5% compounded annually, which sums were ordered restored to
the trust principal. Additional surcharge sums attributable to the investment of trust funds in the Egg Harbor real estate increased the total that plaintiff must replace in the trust funds in cash to over $160,000. The judgment containing the surcharges provides for its filing as a lien against the Egg Harbor property. This decision is now on appeal to the Appellate Division.
In this action plaintiff contends that his incapacity to invest in real estate was a risk insured against under the terms of the title insurance policy issued by West Jersey and defendant is liable to him for whatever loss he sustains in the accounting action. There are no New Jersey cases or cases in any other jurisdiction in which any court has determined that such a risk is one insured against by a title insurance policy.
Plaintiff contends that he was so insured because (a) the terms of the policy insure him against all loss or damage, not exceeding $225,000 that he shall sustain "by reason of defects in or unmarketability of title," and the title he received was unmarketable; (b) plaintiff's capacity to purchase real property was not a defect "created or suffered" by plaintiff, and therefore not an exclusion under paragraph 2 of the conditions and terms of the policy, and (c) by its actions defendant is estopped from denying coverage.
Defendant counters that (a) the title received by plaintiff was not defective but that he is the owner of an estate in fee simple; (b) any losses suffered by plaintiff were the result of his own grossly negligent acts which he "created or suffered," and as such are specifically excluded from insurance coverage by its terms and conditions, and (c) defendant did not, in telling plaintiff he had right to take title, pass on his authority to invest in real estate, and plaintiff did not rely on this representation in any way.
Title insurance is an agreement whereby an insurer for a valuable consideration agrees to indemnify the assured in a specific amount against losses sustained through defects in the title to real estate, or liens or encumbrances.
Sandler v. New Jersey Realty Title Ins. Co. , 36 N.J. 471 (1962). Like all other insurance, title insurance is based upon the principle of a distribution of loss among all contributors. A title insurance company binds itself absolutely to indemnify the policy holder for any loss resulting from a defect in title, no matter what the cause, unless the particular defect is excepted in the policy. 45 C.J.S., Insurance , § 966 at 1161. These exceptions can be either in the form of specific exceptions listed in the report of title or in the terms and conditions of the policy.
The standard form of policy of West Jersey issued to plaintiff, dated June 26, 1973, provides in part:
This Policy of Title Insurance WITNESSETH THAT, West Jersey Title and Guaranty Company (hereinafter called the Company) in consideration of the payment of its premium for insuring the title to the land hereinafter described in Schedule A of this Policy, hereby covenants that it will indemnify, keep harmless and insure WILLIAM S. KEOWN, Succeeding Trustee, under the Will of Clarence A. Munger, deceased * * * against all loss or damage, not exceeding TWO HUNDRED TWENTY-FIVE THOUSAND Dollars, which the said insured shall sustain by reason of defects in or unmarketability of the title of the Insured to the estate, mortgage or interest in Schedule A, hereto annexed, or because of liens or encumbrances charging the same at the date of the policy, -- saving estates, defects, objections, liens or encumbrances excepted in Schedule B or by the conditions and Provisions of this policy , hereto annexed, which Schedules, Conditions and Provisions are hereby incorporated into and made part of this Contract * * * [Emphasis supplied]
A line of cases beginning with Saracino v. Kasover Construction Co. , 102 N.J. Eq. 230 (E. & A. 1927), and see Gravino v. Gralia , 18 N.J. Super. 241 (Ch. Div. 1952); and emphasize marketability as saleability of real estate. They deal factually with formal liens or encumbrances like encroachments and restrictions.
Defendant contends that plaintiff received a marketable title since there was nothing deficient in the title held by the grantor. Title search revealed no liens or encumbrances on its fee simple ...