This matter arose out of a boundary line dispute. What is left for resolution is the claim of the defendants-third party plaintiffs, Smith, against the third party defendant, New Jersey Realty Title Insurance Company. The background facts are the following.
By deed dated January 25, 1973, the defendants-third party plaintiffs, Smiths, acquired title to property known as Block 30, Lot 5 in Millstone Township. Their title was insured by third party defendant, New Jersey Realty Title Insurance Company under its policy in the amount of $6,500, dated January 29, 1973. The pertinent language of the policy*fn1 provides that New Jersey Realty "covenants that it will indemnify, keep harmless and insure" (the Smiths) "from all loss or damage not exceeding the amount of this policy which" (the Smiths) "shall sustain by reason of defects in or unmarketability of the title of" (Smiths) "to the estate or interest" (in the described property) "or because of liens or other incumbrances charging the same . . . . excepting the estates, defects, objections, liens and incumbrances stated in Schedule B hereof, the validity or sufficiency
of which is not covered by this contract. The obligation and liability of the Company hereunder shall be limited to and established in the manner provided by, and the amount of loss and damage sustained by" (the Smiths) "shall be in accordance with the scope and conditions of this policy . . . . which are annexed to, incorporated in and made part of this contract and not otherwise."
The listed Schedule B exceptions do not affect the issue before the court.
Under Scope and Conditions of the Policy, the following are pertinent:
1. New Jersey Realty Title Insurance Company will, at its own cost, defend the party insured in all actions of ejectment or other proceedings founded upon a claim of title or incumbrance prior in date to this policy of title insurance and hereby insured against.
8. Within five days after receipt by the party insured of notice or knowledge of any matter injuriously affecting or which may injuriously affect the title insured by this policy, the party insured shall notify the Company thereof in writing, and within five days after receipt of service of every notice, process or pleading affecting said title, shall deliver the same to the Company. Upon request, the party insured shall secure to the Company the right to defend any action or suit brought, or to prosecute any action or suit affecting said title it may desire, including the opportunity and right for review by the highest appellate court, give it all reasonable aid and permit it to use the name of the part insured. In default of the performance of any of the requirements hereby made or if without the Company's written consent any suit or legal proceeding shall be commenced by any person interested in this policy, the result of which suit or proceedings may cause any liability to the Company hereunder, the Company may declare this policy void.
9. In every case where the liability of the Company to pay loss or damage has been definitely fixed in accordance with these conditions, the Company shall, within thirty days after written notice to it of the loss or damage and proof of loss, pay at its option (a) the loss or damage or (b) the amount of this policy subject to the following provisions: (I) whenever there shall appear to be an outstanding estate, interest or lien in or on any portion or all of the premises insured which might be acquired by the party insured either by agreement or by the exercise of any power, privilege, franchise or authority vested in said party insured, the party insured shall upon request by the Company acquire such estate, interest or lien, provided the same shall not cost more than the amount of this policy, in the negotiations or proceedings to acquire which the Company may, if it so elected, represent the party insured, or the party insured may upon request to the company
proceed with the acquirement of any estate, interest or lien in or upon said premises, or any part thereof as above provided for, the Company shall be obligated for the actual cost of all proceedings taken in addition to its obligation under the other provisions of this policy; and (II) whenever, in the opinion of the Company, the loss or damage shall approximate or exceed the value of the estate or interest insured, the Company may demand a valuation of the insured estate or interest, less estates and incumbrances not hereby insured, to be made by three disinterested arbitrators or any two of them, one to be chosen by the party insured, the other by the Company, and they two choosing the third; no right of action shall thereupon accrue until thirty days after written notice of said valuation shall have been served upon the Company accompanied by a tender of conveyance of such appraised estate or interest to the Company, or its nominee, at its option, at such valuation, and unless within said time the Company shall neither pay said loss or damage, the amount of the policy, nor accept said tender; acceptance of such conveyance and payment of such consideration fixed as aforesaid shall discharge all obligations of the Company under this policy.
In 1981 the adjoining property, Block 30, Lot 6, was purchased by the plaintiffs in this action, the Costagliolas. Their title was insured by Lawyers Title Insurance Company. In 1987 the Costagliolas obtained approval for and began constructing a small shopping center based on a survey and site plan prepared by Robert Kee, Jr. of Kee Engineering, Inc. The ...