On appeal from Superior Court of New Jersey, Law Division, Bergen County.
King, Deighan and Bilder. The opinion of the court was delivered by Deighan, J.A.D.
[202 NJSuper Page 63] This action concerns the rights and liabilities between an insured and the insurer under a title insurance policy and whether a survey has been excepted or excluded from coverage under the title policy; if not, the issue as to proper measure of damages must be determined where the survey erroneously locates an easement. Also involved is the question of whether
under the facts and circumstances of this case, the insured may recover punitive damages and attorney's fees against the insurer. The rights and liabilities of the prospective purchasers and the surveyor are also brought into focus as well as crossclaims for indemnity by all of the defendants against each other.
Plaintiffs Robert E. and Rosemary S. Enright (Enrights) as owners and sellers of real estate filed this action against defendants Harold W. and Ryna Lubow (Lubows), prospective purchasers; Earle W. Bailey, P.E. & Associates (Bailey), a land surveyor, and U.S. Life Title Insurance Co. of New York, a corporation of New York (Title Company), the title insurer. The Enrights sued the Lubows as buyers for breach of contract to purchase the property; Bailey for negligence and breach of warranty in the preparation of a survey for the property, and Title Company on a policy insuring title to the property.
The Lubows counterclaimed against the Enrights for rescission of the contract and damages resulting from the Enrights' failure to convey title free of defects. The Lubows also crossclaimed against Bailey and the Title Company for indemnification. The Title Company also crossclaimed against Bailey and the Lubows for indemnification and Bailey crossclaimed against the Lubows and the Title Company for indemnification.
After a seven-day bench trial, the trial judge found that a utility right-of-way was located six feet from the Enrights' home rather than 50 feet as appeared on the survey by Bailey and insured by the Title Company. He awarded compensatory damages in favor of the Enrights and against the Title Company for $22,000 plus $18,438.81 interest and $15,000 counsel fees for total compensatory damages of $55,438.81. He further awarded $30,000 punitive damages in favor of the Enrights against the Title Company for a total judgment of $85,438.81.
In addition, the trial judge awarded damages in favor of the Lubows against the Title Company comprised of a mortgage application fee of $200; engineer's inspection fee $195; termite inspection $37; insurance fees $20; attorney's fees for attendance
at the closing $500, and attorney's fees during the course of litigation $2,500, for a total amount of $3,452 compensatory damage.
The facts in this matter are complex, and, not surprisingly, in many respects disputed. In the summer of 1978 the Enrights bought a home in Montvale, New Jersey. Their attorney, Joseph Higgins, Jr., ordered a title insurance policy from John Lyons of Inter-County Abstract, an agency of U.S. Life Title Insurance Co. of New York. Higgins also ordered a survey of the property from Bailey. The property was traversed by utility easements owned by Tennessee Gas Co. and Rockland Electric Co. Instead of plotting a metes and bounds description to locate the easement on the survey, Bailey merely protracted the utility easement from a previously filed map. The easement was incorrectly plotted on the original map and the mistake was reproduced on Bailey's survey. It is this error which gave rise to the present litigation.
Prior to settlement of the property in 1978, the Enrights were aware of the power lines and utility poles on the property and discussed the easement with the prior owners. They were shown a copy of Bailey's survey which erroneously plotted the location of the easement; neither the Enrights nor the title company knew of the error. The power lines and utility poles were actually located a considerable distance from the house.
The Enrights were not aware of any problem concerning the utility easement until February 1980. At that time they received notice from Rockland Electric that they were going to trim vegetation under the power lines. When a Rockland Electric employee told the Enrights that the electric company would be cutting down trees near their home, the Enrights became suspect that there might be a problem with the location of the easement. When they told the employee that the trees which were to be cut down were not within the easement they were assured that Rockland Electric would check into the matter before cutting the trees.
At this time Mr. Enright was transferred to Virginia and, in fact, was already living there. Inasmuch as the Enrights were required to relocate in Virginia, on March 10, 1980 the property in Montvale was listed for sale with a real estate broker. On March 22, 1980 the Enrights signed a contract to buy a home in Arlington, Virginia. Although the original contract did not schedule a settlement date, the settlement was subsequently scheduled for October 6, 1980. On March 30, 1980 they signed an agreement to sell their home in Montvale to the Lubows.
On May 7, 1980 Lyons of Inter-County issued a certificate or report of title binder dated April 16, 1980 to the Lubows. The binder guaranteed title to the property and had a copy of the erroneous Bailey survey annexed. The binder required only that insofar as the survey exception is concerned, an "affidavit of no structural change" need be furnished for the issuance of a title policy. On May 15, 1980 the Lubows appeared prepared to consummate settlement. Susan Spiro, a paralegal from the claims office of the Title Company, appeared at settlement. She advised that the Title Company had ordered another survey from Bailey which had not been received. She stated that the Title Company would not insure the location of the easement until it was satisfied as to the accuracy of the survey. In light of this the Lubows refused to complete settlement on the property.
Other facts will be developed relevant to discussion of the issues involved.
The Title Company contends that (1) it is not liable to the Enrights for equitable fraud; (2) the Enrights are precluded from recovery because of their failure to timely notify it of the easement problem; (3) the Enrights are estopped from recovery of damages in that they "created, suffered, assumed or agreed to" an encumbrance by entering into an agreement with the Lubows; (4) it was not guilty of negligence in issuing the title policy in 1978; (5) the easement is excluded and excepted from coverage under the title policy; (6) the court erred in (a)
awarding punitive damages to the Enrights, (b) awarding counsel fees to the Enrights and the Lubows, and (c) failing to award indemnity in favor of the Title Company against Bailey for the full amount of the judgment entered against it.
The Enrights propose that the trial judge erred by failing (1) to include certain damages in the judgment; (2) to award adequate punitive damages, and (3) to award adequate counsel fees. Bailey maintains that the Title Company is (1) solely liable or jointly liable for mislocation of the easement, and (2) not entitled to full indemnity. Bailey further contends that judgment must be entered against Earle Bailey, P.A. & Associates, Inc., a corporation, and not against him individually.
Initially, a title insurance policy is a contract of indemnity under which the insurer, for a valuable consideration, agrees to indemnify the insured in a specific amount against loss through defects of title to, or liens or encumbrances upon, realty on which the insured has interest. Sandler v. N.J. Realty Title Ins. Co., 36 N.J. 471, 478-79 (1962). A report of title is a "binder", i.e., a binding receipt affording coverage pending the agreed issuance of a policy under which the title company agrees to "guarantee" the title subject only to specifically noted and listed "estates, liens, defects and questions." Caravan Products Co., Inc. v. Ritchie, et al., 55 N.J. 71, 75 (1969).
The definition and the function of a report of title is set forth in 13 N.J.Practice (Lieberman, Abstracts and Titles), (3 ed. 1966), § 226 at 147:
Perhaps, however, the most important feature of the Preliminary Title Report is the agreement usually therein, by the title company, that it will insure the applicant for any loss up to the amount stated, subject, of course, to the terms and exceptions in the report; sustained by reason of the failure of the report to reflect the title; and to issue a title policy upon the closing of title. In this way, the insured may safely proceed with the closing of title or mortgage loan, as the case may be, on the basis of such preliminary report.
Consistent with the nature of a title insurance policy and a report of title, "the liability to [the insured] is contractual and does not depend upon negligence." Caravan Products Co., Inc. v. Ritchie, et al., supra, 55 N.J. at 74; see also Booth v.
N.J. Highway Authority, 60 N.J. Super. 534, 438 (Law Div.1960); 13 N.J.Practice, supra, § 222 at 142; 7 Powell, Law on Real Property, para. 1042 at 90-30.
We now turn to the multiple issues raised by the parties. Initially, in his conclusions the trial judge found that the Enrights sustained damages, among other grounds, as a result of the Title Company's negligence. The Title Company contends it was not negligent in issuing the 1978 title insurance policy to the Enrights or in its conduct surrounding the 1980 Lubow binder. The only negligence issue in the pretrial order is that of the surveyor Bailey. From our review of the record we conclude that the Enrights' basic claim against the Title Company was contractually based upon the title insurance policy issued in 1978, not negligence. Their negligence claim is based on the activities surrounding the issuance of the binder to the Lubows in 1980 which will be dealt with below.
The Policy Insures the Accuracy of the Survey
Because it underlies all other issues, we initially consider whether the easement is excluded or excepted from coverage under the title insurance policy issued to the Enrights on July 20, 1978. Schedule A generally insures the title of the Enrights; Schedule B lists the following exclusions:
This policy does not insure against loss or damage by reason of the following:
2. Survey made by Earle W. Bailey, dated June 23, 1978 shows 2 story frame dwelling with attached 2 car garage, location of driveway, walkway, concrete pad, patio, 50 ft. gas and electric right of ways. No variation or encroachments.
In MacBean v. St. Paul Title Insurance Corporation, 169 N.J. Super. 502 (App.Div.1979), 8 A.L.R. 4d 1238 (1979), this court interpreted an alleged exclusion of a survey under a title insurance policy. In MacBean the printed form of policy also contained the same type of exception under Schedule B:
This policy does not insure against loss or damage by reason of the following:
3. Survey: Any encroachments, measurements, party walls, or other facts which a correct survey of the premises would show. [169 N.J. Super. at 505].
This exclusion for coverage was then expressly omitted by a typewritten addendum.
7. Item No. 3 of Schedule "B" is omitted in its entirety. [ Ibid. ].
Followed by another typewritten provision:
8. Survey made by Robert Towns Clymer & Associates, L.L.S., dated April 12, 1973, shown clear. [ Ibid. ].
Although we held that the survey was thus incorporated by reference into the title policy, the record was unclear whether the survey was physically attached to the policy. Ibid. In the present case the survey was attached to and thus incorporated into the title policy and became an integral part of it. See McMinn v. Damurjian, 105 N.J. Super. 132, 137 (Ch.Div.1969).
In MacBean we held that the title insurers' liability was governed by the reasonable expectation of an average lay purchaser of insurance. Id. 169 N.J. Super. at 507. The doctrine of "reasonable expectation" which was expressed in Kievit v. Loyal Product. Life Ins. Co., 34 N.J. 475, 482 (1961), had previously been held applicable to title insurance policies. Sandler v. N.J. Realty Title Ins. Co., supra, 36 N.J. at 479. The "reasonable expectation" principle applies to misleading terms and conditions of insurance contracts and is also based on the doctrine that genuine ambiguities are resolved against the insurer. DiOrio v. New Jersey Mfrs. Ins. Co., 79 N.J. 257, 269 (1979).
Here the survey exclusion at best is ambiguous and at worst misleading. Lyons, the attorney and head of Inter-County Abstract as well as attorney for the Title Company, maintained that the title insurance policy only insures the boundary of the survey but does not insure locations within the survey itself. Therefore, he opined, the survey would not insure the distance of the house to the sidelines and the location of the easement on the survey. He admitted that there is no language or specific exception in the binder indicating the Title Company would not insure the survey or locations.
Joseph Higgins, plaintiffs' attorney at settlement, testified that the policy of insurance actually insures the survey as correct. On this basis, the Enrights would have a claim for any errors, deficiencies or mistakes arising from the inaccuracy of that survey.
We hold that the title insurance policy issued to the Enrights insures against loss by virtue of any errors or mistakes contained in the survey made by Bailey dated June 23, 1978 attached to the policy. Our determination is based upon the reasonable expectation of the insureds that the purpose of requiring a survey is not only to locate the outbound lines of the survey but also to insure its accuracy in the location of those conditions which are shown within the boundaries of the survey.
Our conclusion is based, not only upon reasonable expectation, but also customs of title insurance companies and construction of the policy itself. Schedule B in the usual form of title insurance policy contains a list of encumbrances, liens, defects and exceptions against which the title company will not guarantee and which are excepted from the policy. See 13A N.J.Practice, supra, § 244 at 158. Since a survey indicates the possibility of future difficulties with regard to property, title guaranty companies, almost without exception, issue their policy of guarantee subject to conditions shown by ...