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Stewart Title Guaranty Co. v. Greenlands Realty, L.L.C.

58 F. Supp.2d 370 (D. N.J. 1999)

TITLE INSURANCE—An insured that has marketable title may at the same time have a title defect for which a title insurer must cover the resulting loss or damage.

In an earlier decision in this case, the Court determined that title was not “unmarketable” despite an early error in the chain of title omitting reference to a particular strip of land. Here, the Court had to decide whether the title company may have had a different obligation under its title insurance policy, specifically one which arose out of a provision of the policy protecting against “[a]ny defect in or lien or encumbrance on the title.” Whether this provision required the title insurance company to fulfill any obligations under the policy was a question of contract construction. A title insurance policy “is subject to the same rules of construction as are other insurance policies.” Generally, the words of an insurance policy are to be given their plain, ordinary meaning. In addition, phraseology in such policies must be liberally construed in favor of the insured and strictly construed against the insurer. What was needed was to define “defect” as used in the policy. A “defect” in title is: “[t]he want or absence of something necessary for completeness or perfection; a lack or absence of something essential to completeness; a deficiency in something essential to the proper use for the purpose for which a thing is to be used.” This definition makes clear that a “defect” is something less than “unmarketability.” Moreover, if “defect” was synonymous with “unmarketability,” there would be no reason for a policy to list both terms. That is, unless there are defects that do not render a title unmarketable, the inclusion of the word “defect” in the list of coverage would be superfluous. Simply put, some defects do not render title unmarketable, while others do. The circumstances in this case involved a situation in which there was an alleged “defect” that was sufficiently insignificant to leave the title “relatively free from doubt,” and, thus, marketable. Therefore, the Court found that while the insured had marketable title, it also had a “defect.” Consequently, the title insurance company was held to be obligated to cover the “loss or damage, not exceeding the Amount of Insurance[,] ... sustained or incurred by [the insured] by reason of ... [this] defect.” Having said that, the Court was only willing to go so far as to find that there was a genuine issue of material fact regarding whether or not the title insurance company had removed the defect “in a reasonably diligent manner.” Consequently, summary judgment in favor of the title insurance company was denied.


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