Reams v. Southern Title Insurance

By Judge T. J. Markow This case is before the court on demurrer. For the reasons stated below, die demurrer is overruled. The plaintiffs are Norbome Nicholas Reams, Sr., and Virginia D. Reams, owners of a parcel of land located in Powhatan County, Virginia. The defendant is Southern Tide Insurance Corp., issuer of a residential tide insurance policy on the plaintiffs’ Powhatan tract. This parcel contains 205.81 +/- acres according to the June 13, 1985, survey performed by John R. Nunnally, Land Surveyor, a copy of which is recorded in die Clerk’s Office of the Circuit Court of Powhatan County. Subsequent to the plaintiffs’ purchase of die Powhatan tract and the issuance of the tide insurance policy by the defendant, the Circuit Court of Powhatan County awarded Edmund C. Burras and others an easement by prescription and an easement by necessity over the Reams’ property on March 8,1994. See generally Davis v. Henning, 250 Va. 271, 276 (1995) (criteria fra establishing easement by necessity); Chaney v. Haynes, 250 Va. 155, 158-59 (1995) (factors for judicial establishment of prescriptive easement). Defendant refuses to pay plaintiffs for the diminution in value of their property which was caused by die easement Plaintiffs brought suit to enforce payment Title insurance policy number R 2856 was issued to the plaintiffs on April 25, 1986, for the face amount of $80,000. Insurer “will pay up to [policyholder's] actual loss or the Policy Amount in force when the claim is [495] made, whichever is less.” The “Covered Title Risks" includes easements that affect die insureds’ tide as of the policy date. “Easement” is defined in the policy as “the right of someone else to use your land for a special purpose.” However, defects, liens, encumbrances, adverse claims, or other matters (e.g., easements) attaching or «seated subsequent to Date of Policy are expressly excluded. Finally, Schedule B includes a survey exception which states that, in addition to the “Exclusions,” unrecorded easements which would be disclosed by an accurate survey and inspection of the premises are not covered by die policy. “A demurrer admits the truth of all material facts that are properly pleaded.” Bowman v. State Bank of Keysville, 229 Va. 534, 536 (1985). Only those grounds specifically stated in the demurrer will be considered by this court Klein v. National Toddle House Corp., 210 Va. 641 (1970). Southern Tide contends that plaintiffs’ pleadings fail to state facts upon which relief can be granted on this claim. Va. Code § 8.01-273. This argument is based upon the defendant’s contention that the plaintiffs are not entitied to recovery because die risks of harm which they allegedly suffered are excluded from coverage under die tide insurance policy, as the easement by necessity was not determined until after the policy was issued and as foe easement by prescription could have beat identified by a survey or by an inspection of the property. hi Carstensen v. Chrisland Corp., 247 Va. 433, 442 (1994), the Virginia Supreme Court stated that an easement by necessity is “inchoate” (i.e., imperfect or incomplete) until it is established by a judicial order. The Carstensen plaintiffs argued that foe purported easement was covered under their tide insurance policy and that foe policy exclusion did not apply to an easement by necessity. Id. at 441. The key policy provision excluded coverage for tide defects “attaching or created subsequent to Date of Policy.” The Supreme Court held that although an easement by necessity arises “legally” at the time foe dominant tract is severed from foe servient tract, it remains inchoate until established by judicial decree. Id. at 442. As foe judicial decree which declared foe existence and location of the easement was not entered until after the Date of Policy, it did not “attach” or was not created until after the policy was issued; therefore, foe easement was excluded from coverage. In addition, foe policy excluded all unrecorded easements which could have been ascertained by inspection. Id. It must be kept in mind that before this court, as before foe Virginia Supreme Court in Carstensen, is foe construction of a specific contract Carstensen held only that, in construing foe policy before it, easements by [496] necessity described by a court after the date of tibe policy were not covered title defects. In the instant case, Plaintiffs contended at the hearing on demurrer that the policy at issue in Carstensen is distinct from the disputed provisions here, such that the Carstensen rule is inapplicable. Counsel has provided copies of the policy construed in Carstensen. The court has reviewed the relevant material and finds plaintiffs’ position to be correct; the pertinent contract language is distinguishable from the policy issued here. The Carstensen policy insured against “[a]ny defect in or lien or encumbrance on the tide.” The following items were excluded: [d]efects, liens, encumbrances, adverse claims or odiar matters ... not known to die Company, not recorded in the public records at Date of Policy, but known to the insured claimant and not disclosed in writing to the Company... prior to the [coverage] date... [or] (d) attaching or created subsequent to Date of Policy. In addition, in Schedule B of die Carstensen policy, the company disclaimed coverage for “1. [a]ny... claims which are not shown by the public records but which could have been ascertained by an inspection of said land or by making inquiry of persons in possession thereof" and "5. easements, if any, not shown of record.” The Reams’ policy in this case covers easements that affect tide as of the coverage date and excludes title risks "that first affect [the] tide after the Policy Date.” Also unrecorded easements which would be disclosed by an accurate survey and inspection of the premises are excluded from coverage. The language of a tide insurance policy should be construed in accordance with the common understanding of the words. Marandino v. Lawyers Title Ins. Corp., 156 Va. 696, 699 (1931). Whereas the Carstensen outcome turned on die words "attaching or created” in order to buttress the "inchoate” versus "judicially established” status of an easement by necessity, the language in the instant case leads to a contrary outcome. The easement by necessity burdening the Reams’ property "affected” the tract prior to the 1986 Policy Date, even though court recognition did not occur until 1994. Such an easement arose by operation of law at die time die Reams’ parcel was severed from the dominant tract, hi other words, this encumbrance existed prior to the plaintiffs’ acquisition of die Powhatan tract and purchase of the tide insurance policy from the defendant. At the time the policy was issued it affected tide. Contrary to the defendant’s contention, there is no basis on demurrer for this court to determine whether the unrecorded easement by necessity would [497] have been disclosed by an accurate inspection prior to the Policy Date, such that the survey exception could be invoked. That is not a feet which may be considered on demurrer, as it is not pleaded. Carstensen is not dispositive of the prescriptive easement issue in this case. Justice Lacy refrained from including prescriptive easements under the umbrella of "inchoate” encumbrances. However, in Brenner v. Lawyers Title Insurance Corp., 240 Va. 185, 192 (1990), the Court held that a title insurance policy "survey exception” excluded coverage for a prescriptive easement which would have been disclosed by an accurate survey. The survey exception stated that "[ejncroachmenfs ... or any matters not of record which would have been disclosed by an accurate survey and inspection of the premises” are not insured by Lawyers Title. Id. at 188-89. Thus, the issue of whether the prescriptive .easement was "in place” at the policy date and not subject to a "post-policy exclusion” was mooted by the survey exception to the Brenners’ policy. Id. at 193. ¡h the instant case, plaintiffs’ policy includes an identical survey exception in Schedule B. The Reams chose to rely upon the April 1985 survey recorded with Powhatan County, a document which makes no mention of fee prescriptive easement later obtained by Mr. Burras and others in 1994. Although an up-to-date and accurate survey of fee Powhatan tract in 1986 might have disclosed fee existence of this easement (as the plaintiffs’ 1986 policy date was within fee twenty-year prescriptive period endorsed by fee Powhatan County Circuit Court in 1994), this matter is not determinable from the pleadings. As a final matter, even if fee plaintiffs were able to recover under fee policy for fee diminution in value of fee property feat they allegedly suffered and claim here, they are prohibited from recovering mora than fee $80,000 "amount of insurance” indicated on fee face of fee document. The coverage amount is clear and unambiguous. hi conclusion, fee demurrer is overruled.