Case Title: New England Federal Credit Union v. Stewart Title Guarantee Co.

Citation: 171 Vt. 326, 765 A.2d 450

Docket Number: 

State: vermont

Court: Vermont Supreme Court

Date: 2000-02-25T00:00:00Z

Document:
New England Federal Credit Union v. Stewart Title Guarantee Co. (98-003); 
171 Vt. 326; 765 A.2d 450 

[Filed 25-Feb-2000]
[Motion for Reargument Denied 15-Nov-2000]

       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal  revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter  of Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any  errors in order that corrections may be made before this opinion goes
  to press.

                                 No. 98-003

New England Federal Credit Union	         Supreme Court

                                                 On Appeal from
     v.		                                 Chittenden Superior Court

Stewart Title Guarantee Co.	                 November Term, 1998

Linda Levitt, J.

Edward D. Fitzpatrick and Daniel P. O'Rourke of Bergeron, Paradis, 
  Fitzpatrick & Smith, Essex Junction, for Plaintiff-Appellant.

Marikate E. Kelley and Guy L. Babb of Ward, Kelley & Babb, South 
  Burlington, for Defendant-Appellee.

PRESENT:  Amestoy, C.J., Dooley, Morse, Johnson and Skoglund, JJ.

       AMESTOY, C.J.   New England Federal Credit Union (NEFCU) appeals a
  summary  judgment of the Chittenden Superior Court in favor of Stewart
  Title Insurance Company on  NEFCU's claim for coverage and compensation for
  losses due to the absence of a required  subdivision permit on real
  property insured by Stewart Title.  NEFCU contends the court  erroneously
  concluded that: (1) the failure to obtain a subdivision permit in violation
  of state public  health regulations was not an encumbrance on title covered
  by the title insurance policy issued by  Stewart Title, and (2) coverage
  was not triggered by the public-records exception to the policy  exclusion
  of encumbrances on title resulting from violations of governmental
  regulations.  We 

 

  conclude that NEFCU's claims have merit and, therefore, reverse and remand
  for further  proceedings.
 
       The stipulated facts were as follows.  By warranty deed, dated July
  14, 1976, Alfred and  Dorothy Lafrance conveyed a parcel of land in Essex,
  together with a modular home and a mobile  home, to Gordon Reinhart and
  retained a parcel of land less than ten acres in area.  Because the 
  retained parcel was less than ten acres, Alfred Lafrance obtained a
  deferral of permit on the property  from the Vermont Department of
  Environmental Conservation.  The permit prohibited the  construction or
  erection of a structure or building "the useful occupancy of which will
  require the  installation of plumbing and sewage treatment facilities"
  without first complying with Vermont's  subdivision regulations.  There is
  no evidence that the deferral of permit was recorded in the Town  of Essex
  land records.  	

       In August 1986, by warranty deed, the Lafrances conveyed the retained
  parcel of property  to Eugenia Evans.  The property tax return for the
  August 1986 conveyance indicated that the  primary use of the property
  prior to the transfer was as a primary residence with an existing mobile 
  home.  In August 1988, Evans conveyed the property and premises to Edward
  Fleming.  The  resulting property transfer tax return indicated that the
  primary use of the property prior to the  transfer was as a primary
  residence.  

       In 1989, Fleming obtained a building permit from the Town of Essex to
  replace a mobile  home that was located on the lot with a two-story house. 
  In July 1991, NEFCU extended a $67,000  loan to Fleming in connection with
  the refinancing of the subject land and premises.  At the same  time,
  Stewart Title, through its agent, issued a title insurance commitment to
  NEFCU to provide title  insurance in the amount of the loan.  Subsequently,
  Stewart Title issued a contract of title insurance. 

 

  The title insurance contract issued to NEFCU provided, in pertinent part,
  as follows:

     SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE 
     EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULE 
     B AND THE CONDITIONS AND STIPULATIONS, STEWART 
     TITLE GUARANTY COMPANY . . . insures, as of Date of Policy 
     shown in Schedule A, against loss or damage, not exceeding the 
     Amount of Insurance stated in Schedule A, sustained or incurred by 
     the insured by reason of: . . .
     2.  Any defect in or lien or encumbrance on the title . . . .  
 
  The policy excluded loss, damage, costs, attorneys' fees or expenses which
  arise by reason of:

     Any law, ordinance or governmental regulation (including by not 
     limited to building and zoning laws, ordinances, or regulations) 
     restricting, regulating, prohibiting or relating to (i) the occupancy, 
     use, or enjoyment of the land . . . (iv) environmental protection, or the 
     effect of any violation of these laws, ordinances or governmental 
     regulations, except to the extent that a notice of the enforcement 
     thereof or a notice of a defect, lien or encumbrance resulting from a 
     violation or alleged violation affecting the land has been recorded in 
     the public records at Date of Policy. (FN1)
 
(Emphasis added).

       In 1992, Fleming died, and his estate contracted to sell the property
  for $94,000.  The sale  fell through, however, upon the buyer's discovery
  of the violation of the deferral of permit resulting  from the erection
  during the late 1970's of a dwelling and wastewater system on the property
  without 

 

  a subdivision permit. (FN2)   NEFCU subsequently foreclosed on the property
  and sold it at a  decreased value of $10,734.  NEFCU forwarded a notice of
  claim to Stewart Title.  Stewart Title  denied NEFCU's request for coverage
  and compensation under the policy.

       NEFCU filed a complaint for declaratory judgment, after which the
  parties submitted cross  motions for summary judgment.  The trial court
  denied NEFCU's motion for summary judgment and  granted Stewart Title's. 
  The court ruled that the deferral of permit affected the physical use of
  the  land, not title to the land, and therefore was not an encumbrance on
  title under the policy.  The court  further ruled that the public-records
  exception to the exclusion of coverage for governmental  regulations was
  inapplicable because no notice of violation had been recorded in the public
  land  records.  This appeal followed.
   
       The standard on appeal for reviewing a summary judgment is the same as
  that used by the  trial court.  Summary judgment is appropriate where there
  is no genuine issue of material fact and  the moving party is entitled to
  judgment as a matter of law, after giving the benefit of all reasonable 
  doubts and inferences to the nonmoving party.  See Select Design Ltd. v.
  Union Mutual Fire Ins.  Co., 165 Vt. 69, 72,