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Carney-Dunphy v. Title Company of Jersey & Chicago Title Insurance Co.

June 30, 2009

MARIE CARNEY-DUNPHY, PLAINTIFF,
v.
TITLE COMPANY OF JERSEY & CHICAGO TITLE INSURANCE COMPANY, DEFENDANTS.



The opinion of the court was delivered by: Simandle, District Judge

OPINION

I. INTRODUCTION

This case emphasizes the need for persons making estate planning arrangements to pay close attention to title insurance policies for real property which has been voluntarily transferred by the insured property owner to a trust. See Shotmeyer v. New Jersey Realty Title Ins. Co., 195 N.J. 72, 90 (2008).

This matter is before the Court upon Defendants' motions for summary judgment [Docket Items 24 and 25] and the motion of Defendant Title Company of Jersey for sanctions against Plaintiff's counsel pursuant to Rule 11, Fed. R. Civ. P. [Docket Item 33]. Plaintiff Marie Carney-Dunphy filed this lawsuit against Defendants Chicago Title Insurance Company ("Chicago Title") and Title Company of Jersey ("Jersey Title"), alleging that she was entitled to coverage under a title insurance policy underwritten by Chicago Title and issued by Jersey Title to Marie E. Carney ("Mrs. Carney"), Plaintiff's mother. Defendants argue that Plaintiff is not entitled to coverage under the insurance policy, because she is not the named insured under the policy and because the policy lapsed, pursuant to its own terms, when Mrs. Carney voluntarily transferred her interest in the property to an irrevocable family trust years before her death.

The principal issue to be decided is whether Plaintiff, who received the property from the family trust to which Mrs. Carney had previously voluntarily transferred her interests in the property, succeeded to Mrs. Carney's interest in the property "by operation of law," as that term is used in the insurance policy. For the reasons set forth below, the Court concludes that this question must be answered in the negative. The Court will thus grant Defendants' motions for summary judgment, although it will deny Defendant Jersey Title's motion for Rule 11 sanctions.

II. BACKGROUND

A. Facts

By deed dated May 22, 1976, Mrs. Carney, Plaintiff's late mother, purchased from Howard and Delia Jones a piece of property (the "Property") located at 7 Pelican Drive in Avalon, New Jersey for $120,000. (Cullen Decl. Ex. 1 at 1.) The deed contained an exception for the "[r]ights of the United States of America and the State of New Jersey in, over and along any portion of the insured premises now or formerly flowed by the tide water of Bluefish Harbor." (Id. at 1-2.)

In the month prior to Mrs. Carney's purchase of the Property, Defendant Jersey Title, as an issuing agent for Defendant Chicago Title, (Malloy Cert. Ex. 16 at 1), issued a commitment to issue a policy of title insurance for the Property to Mrs. Carney. (Cullen Decl. Ex. 2 at 2.) By letter dated May 18, 1976, Jersey Title advised Mrs. Carney that it was modifying its commitment to issue an insurance policy by adding a provision excepting from title insurance coverage the "[r]ights of the United States of America and the State of New Jersey in, over and along any portion of the insured premises now or formerly flowed by the tide water of Bluefish Harbor." (Cullen Decl. Ex. 3 at 3.) On May 24, 1976, two days following Mrs. Carney's purchase of the Property, Jersey Title issued the title insurance policy (the "Policy") to Mrs. Carney, insuring the title to the Property in the amount of $120,000.*fn1 (Pedro Cert. Ex. D at 2.) The Policy contained the aforementioned exception for the riparian rights of the United States and New Jersey. (Id. at 3.) A copy of the Policy was mailed to Mrs. Carney by letter dated August 2, 1976. (Malloy Cert. Ex. 3.)

Schedule A of the Policy lists "Marie E. Carney" as the "Name of Insured." (Pedro Cert. Ex. D at 2.) Significantly for purposes of this lawsuit, under the Policy's provision of "conditions and stipulations," the term "insured" is defined as follows:

the insured named in Schedule A, and, subject to any rights of defenses the Company may have had against the named insured, those who succeed to the interest of such insured by operation of law as distinguished from purchase including, but not limited to, heirs, distributees, devisees, survivors, personal representatives, next of kin, or corporate or fiduciary successors.

(Id. at 8) (emphasis added).

In 1989, in an effort to resolve the unsettled riparian claim against the Property, Mrs. Carney applied to the New Jersey State Bureau of Tidelands Management (the "BTM") and the Tidelands Resource Council for a tidelands grant for the Property. (Carney-Dunphy Dep. at 32; Pedro Cert. Ex. E at 1.) On September 19, 1989, the BTM contacted Mrs. Carney to inform her that her grant application would be approved upon her payment of $71,680. (Pedro Cert. Ex. F at 1.) Mrs. Carney never made the payment for the grant, and on June 5, 1991, the BTM canceled her grant application. (Pedro Cert. Ex. I at 1.) Mrs. Carney did not submit a claim under her title insurance policy to either Chicago Title or Jersey Title relating to the unsettled riparian claim. (Pl.'s Counter-Statement of Undisputed Material Facts ("SUMF") ¶ 50.)

On December 30, 1996, "as part of her estate plan to minimize or avoid taxes," (Def. Jersey Title's SUMF ¶ 20; Pl.'s SUMF ¶ 20), Mrs. Carney created an irrevocable trust, the MEC Avalon Trust (the "Trust"). (Cullen Decl. Ex. 8 at 1.) Under the Trust's terms, George J. Ballas and Francis Dunphy, Plaintiff's husband, were to serve as co-trustees of the Trust. (Id. at 1.) Mrs. Carney's son, Joseph Carney, and his issue were designated as the Trust's income and residuary beneficiaries. (Id. at 2.) By its terms, the Trust was "irrevocable," with Mrs. Carney having "relinquish[ed] absolutely and forever all possession or enjoyment of, or the right to the income from, this Trust, directly, indirectly, or constructively." (Id. at 11.)

On December 30, 1996, the same day the Trust agreement was executed, Mrs. Carney executed a deed which transferred a twenty- five percent interest in the Property to the Trust. (Cullen Decl. Ex. 10 at 1.) By deeds dated April 15, 1997 and December 31, 1998, Mrs. Carney transferred a second and third twenty-five percent interest in the Property to the Trust, (Cullen Decl. Exs. 11 and 12), and by deed dated January 19, 1999, Mrs. Carney transferred her remaining interest in the Property to the Trust.*fn2 (Cullen Decl. Ex. 13.) The Trustees did not obtain a new title insurance policy on the Property at any time. (F. Dunphy Dep. at 18.)

Nine months after Mrs. Carney had transferred the remainder of her interest in the Property to the Trust, Mrs. Carney, Joseph Carney, Plaintiff, and other family members entered into a "Family Settlement Agreement." (Cullen Decl. Ex. 15 at 1.) Under the terms of this agreement, Joseph Carney agreed to relinquish his and his sons' interest in the Trust and to have the Property transferred to Plaintiff, and Plaintiff agreed to transfer the entirety of her interest in the family business, Carney's, Inc., to Joseph. (Id. at 2-3.) Thereafter, between September 1999 and December 1999, Plaintiff transferred the remainder of her shares of Carney's, Inc., to Joseph, (Cullen Decl. Ex. 16 at 1), the Trust was terminated, (Cullen Decl. Ex. 17 at 1), and, by deed dated December 28, 1999, the Trust's co-trustees transferred the Property to Plaintiff.*fn3 (Cullen Decl. Ex. 19 at 1.) Nothing in the record suggests that Plaintiff obtained a new title insurance policy on the Property following this transfer.

Mrs. Carney died on January 14, 2002, nearly three years after she had transferred the remainder of her interest in the Property to the Trust. (Carney-Dunphy Dep. at 14.) After she obtained title to the Property, Plaintiff decided to prosecute the tidelands grant and satisfy New Jersey's claim against the Property. Plaintiff commenced efforts to obtain coverage under the Policy in October 2002 when she first contacted Jersey Title by telephone about the tidelands grant. (Id. at 70-72.) According to Plaintiff, Jersey Title informed her that she was not entitled to coverage under the Policy (Id. at 72.)

In December 2004, Plaintiff wrote to Chicago Title to assert a claim under the Policy with respect to New Jersey's riparian rights. (Rini Cert. Ex. A at 1.) In her letter to Chicago Title, Plaintiff stated that "the property was owned by my mother, who died, and which I inherited."*fn4 (Id.) (emphasis added). In response to Plaintiff's letter, on June 28, 2005, Chicago Title wrote a letter to the BTM, a copy of which was sent to Plaintiff, in which Chicago Title stated that it would be submitting a tidelands grant application on Plaintiff's behalf. (Pedro Cert. Ex. R at 1.) BTM subsequently processed the grant application, (Rini Cert. at ¶ 9), and, in its March 28, 2007 letter, Chicago Title informed Plaintiff that it would "tender[] payment of the policy amount of $120,000, plus an additional $60,000 adjustment, for a total of $180,000, which represents the maximum of the 150% of the policy amount,"*fn5 upon Plaintiff's providing ...


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