Title: Trinder v. Connecticut Attorneys Title Insurance Co.

State: vermont

Issuer: Vermont Supreme Court

Document:

2011 VT 46













Trinder
v. Connecticut Attorneys Title Insurance Co. (2010-271)
 
2011 VT 46
 
[Filed 22-Apr-2011] 
 
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.
 
 
2011 VT 46
 
No. 2010-271
 
Kenneth Trinder
  and Larissa E. Trinder
Supreme Court
 
 
 
On Appeal from
     v.
Superior Court, Rutland Unit,
Civil Division
 
 
Connecticut Attorneys Title
  Insurance Company
January Term, 2011
 
 
 
 
William
  D. Cohen, J.
 
Stephen S. Ankuda
  of Parker & Ankuda, P.C., Springfield, for Plainiffs-Appellants.
 
Michael J. Harris of Collins
  McMahon & Harris, PLLC, Burlington, for Defendant-Appellee.
 
 
PRESENT:  Reiber, C.J.,
Dooley, Johnson, Skoglund and Burgess, JJ.
 
 
¶ 1.            
SKOGLUND, J.   Homeowners filed a declaratory judgment
action to establish defendant title insurance company's obligations to defend
or indemnify them regarding an encroachment of their septic system onto
neighboring property.  They appeal the trial court's conclusion that the
terms of their title insurance contract did not require title insurer to defend
or indemnify homeowners to establish a right to maintain the system.  The
court found the circumstances were not within the covered title risks absent an
action on neighbor's behalf to force removal of the septic system.  On
appeal, homeowners argue that the trial court: (1) misconstrued the
language of the policy, which they contend provides coverage under the forced
removal and marketability provisions; and,
consequently, (2) erred in determining that there was no obligation to defend
homeowners' title.  We affirm.
¶ 2.            
The court found the following facts.  Homeowners purchased the land
in question on January 3, 2005.  In conjunction with the sale, they
obtained title insurance from defendant, Connecticut Attorneys Title Insurance
Company.  Homeowners purchased an expanded policy and the covered risks of
their policy included defending against situations where "Your title is
unmarketable," and where "you are forced to remove your existing
structureother than a boundary wall or fencebecause: (a) it extends on to
adjoining land or on to any easement."  
¶ 3.            
Mount Holly Community Historical Museum, Inc. owns property bordering
homeowners' land to the north.  In the fall of 2007, homeowners received a
telephone call from the museum's realtor requesting a donation towards the
museum's planned expansion, and explaining that such goodwill might help settle
any dispute concerning homeowners' right to continue having their septic system
on the museum's property.  This was the first indication homeowners had
that their septic tank and leach field encroach on the museum's property.[1]  The situation was further explained
by a letter the museum sent to homeowners on October 24, 2007.  The letter
stated that the former owners of both properties had verbally agreed to allow
the septic system to be built partially on the museum's property.
 According to the museum, this permission was revocable upon the museum's
request.  The letter did not, however, revoke permission, demand removal
of the septic system or threaten legal action.  
¶ 4.            
Homeowners apparently perceived the letter as a threat to their title
and contacted their real estate closing attorney, who noticed insurer of
homeowners' claim by letter dated January 29, 2008.  Insurer replied in
May 2008, and informed homeowners that although its findings were not complete
it appeared title rights were not implicated.  
¶ 5.            
The museum sent another letter on August 5, 2008,
notifying homeowners that the museum intended to begin construction on its land
adjacent to homeowners' property.  The letter stated that because
homeowners had not responded to the previous letter, the museum was "uncertain
whether [homeowners'] failure to reply suggests an abandonment of any claim on
the part of [homeowners] to the use of the septic system on the Museum's
property."  The letter further notified homeowners "that the activity
which will soon commence may well compromise any such use."  The museum
did not demand or threaten removal of the septic system, instead the museum
expressed a willingness to meet and consider suggestions to resolve the
problem.
¶ 6.            
On August 19, 2008, insurer sent another letter denying coverage.
 Insurer based its denial on an exception in the policy, which states that
there is no insurance for damage that "an accurate survey or personal inspection
of the land would disclose."  According to insurer, a survey and
inspection would have revealed the encroachment.  Insurer also explained
in its letter that no coverage attached because the alleged encroachment did
not make homeowners' title defective.  
¶ 7.            
On September 5, 2008, homeowners filed suit naming insurer and the
museum as defendants.  Against insurer, homeowners sought a declaratory
judgment ordering insurer to prosecute its right to have the septic system on
the museum's land based on the forced removal and marketability provisions of
the policy.  Homeowners also alleged that insurer had breached the title
insurance contract by declining coverage and sought damages.  As to the
museum, homeowners claimed a right to title or access to the land where the
septic system was located by adverse possession, prescriptive easement or
license.  The museum did not countersue or request injunctive relief to
have the septic system removed.
¶ 8.            
In August 2009, homeowners and the museum reached an agreement setting a
mutual boundary line and settling rights.  Homeowners received the right
to maintain their septic system in the same location as long as they replaced
their septic tank with a new, larger tank with filters, and the museum obtained
the right to share homeowners' artisan well and to locate their propane tank on
homeowners' property.  Homeowners continued to pursue their claim against
insurer, alleging that its denial of coverage breached the parties' contract and
seeking damages for engineering costs, the septic tank replacement, and
attorney's fees.  
¶ 9.            
Following a bench trial, the court ordered judgment in insurer's
favor.  The court concluded that pursuant to the plain meaning of the
insurance contract there was no coverage under the forced removal clause. 
The court held that homeowners were not "forced" to remove their septic system
because the museum did not demand removal by letter or file suit or countersuit
to compel removal.  The court further held that the marketability
provision did not apply because there was no challenge to homeowners'
title.  
¶ 10.         On
appeal, homeowners claim that two covered risks are triggered in this case.
 First, they argue that there is coverage under the covered title risk
protecting them against being "forced to remove [their] existing structure . .
. because . . . [i]t extends on to adjoining
land."  They contend that the museum was forcing them to remove their
septic system because it extended onto museum land, and, thus, insurer was
obligated to defend and indemnify them.  Second, they argue that their
title is unmarketable due to the encroachment of their septic system on the
museum's land.
¶ 11.         The
proper construction of language in an insurance contract is a question of law
that we consider de novo.  Fireman's Fund Ins. Co. v. CNA Ins. Co.,
2004 VT 93, ¶ 8, 177 Vt. 215, 862 A.2d 251.  The terms of an insurance
contract are accorded their plain meaning, and "[a]ny ambiguity will be resolved in the insured's favor,
but we will not deprive the insurer of unambiguous terms placed in the contract
for its benefit."  Id. ¶ 9.  Further,
we give insurance contracts a "practical, reasonable, and fair interpretation,
consonant with the apparent object and intent of the parties, and strained or
forced constructions are to be avoided."  McAlister v. Vt. Prop. & Cas. Ins. Guar. Ass'n, 2006 VT 85, ¶ 17, 180 Vt. 203, 908 A.2d 455
(quotation and alterations omitted).
¶ 12.         Here,
homeowners' right to coverage turns on the meaning of the policy's terms
extending coverage to instances where the insured is "forced to remove" a
structure.  Applying the ordinary meaning of the language, the trial court
concluded that homeowners were not forced to remove their septic system because
the museum did not demand removal in its letters or seek to enforce removal
through suit or countersuit.  Homeowners argue that the court's
interpretation was overly narrow and that this clause should instead be given a
broader interpretation with the reasonable expectation of the parties in mind
because "[t]here are many forms of coercion that equate with force, a Court
order being only one."  According to homeowners, potential damage, in
addition to literal removal, should be included because it also results in loss
of the septic system's use.  Homeowners contend
that the museum's letter of August 2008, notifying them that the museum would
begin construction that might affect use of the septic system, was sufficient
to meet the requirement of forced removal.
¶ 13.         We
conclude that the language of the clause is unambiguous and by its terms
applies only to situations where an insured is "forced to remove" structures
that encroach on the property of another.  To require coverage in situations
where a structure is on neighboring land, but the neighbor has not
affirmatively sought its removal, would extend the policy beyond its
terms.  See McAlister, 2006 VT 85, ¶ 17 (explaining that in
construing insurance contract, court should avoid strained or forced
construction).  The clause is inapplicable here because the museum took no
action to force homeowners to remove their septic system.  The museum did
not revoke permission to have the septic system on its property, nor did it demand
removal by letter or through court action.  That homeowners wished to
resolve the uncertainty before the situation reached that level is
understandable, but does not result in coverage that is beyond the terms of the
policy.
¶ 14.         We need
not reach homeowners' argument that potential imminent damage is synonymous
with forced removal and could trigger coverage because under the facts found by
the trial court there was no such impending demolition of homeowner's septic
system in this case.  While the museum's August 2008 letter notified
homeowners that planned construction might influence homeowners' use of the
septic system, this was not a threat of imminent destruction.  The letter
merely warned homeowners of the museum's belief that it could revoke permission
for having the septic system on its land and request removal at any time.
 As the trial court found, however, the museum did not revoke permission,
demand removal, or threaten destruction by letter or through legal means such
as countersuit or the request of declaratory relief.[2]  Therefore, we conclude that there
was no coverage under this covered risk.
¶ 15.         Our
construction of the policy's language is consonant with the decisions from the
few other courts that have addressed similarly worded forced removal clauses in
title insurance contracts.  In Manneck
v. Lawyers Title Insurance Corp., 33 Cal. Rptr. 2d 771 (Ct. App. 1994), the insureds sought a declaratory judgment requiring
their title insurance company to prosecute an action on their behalf to resolve
the problem that their swimming pool and deck were constructed on their
neighbor's property.  The insureds sought coverage based on a forced
removal provision.  The court concluded that the language of the policy
was clear and the insurer had no duty to pursue an action "when made aware of
the mere potential, rather than the present existence, of the forced removal of
[the insureds'] improvements."  Id. at 776. 
The court explained that the insurer had no obligation under this covered risk
until "a court order requiring removal or the imminent destruction of the
encroaching improvements by bulldozers."  Id.  Similarly, a
Minnesota appellate court held that a title insurance company had no duty to
defend under a forced removal clause where there had been no demand for the
insureds to remove the structures that encroached on neighboring property.
 Fee v. Stahley, No.
A07-2211, 2008 WL 4849844, at *4 (Minn. Ct. App. Nov. 10,
2008) (unpub. op.).  As the court
explained, "[t]he policy covers actual loss, and because [the insureds] have
suffered no loss, their claim is currently either improper or premature." 
Id.  Such is the case here.  The mere existence of homeowners'
septic system on the neighboring museum property did not trigger coverage until
homeowners were forced to remove the offending structure.
¶ 16.         Homeowners
also argue that the mere existence of the septic system on the museum's
property created a cloud on homeowners' title and made the title
unmarketable.  Therefore, they seek to invoke the clause of the policy
providing coverage when "title is unmarketable."  Marketable title is
defined as "title that will enable [the purchaser] to hold the land purchased
free from the probable claim by another, a title which, if he wished to sell,
would be reasonably free from doubt."  First Nat'l
Bank of St. Johnsbury v. Laperle, 117 Vt. 144,
157, 86 A.2d 635, 643 (1952).  Homeowners assert that their
property is now unmarketable as evidenced by the fact that when they listed the
property for sale, they were impaired in their ability to sell it at a
reasonable price because of the uncertainty regarding the septic system. 
Apparently, the only offers homeowners received were contingent upon resolving
the location of the septic system.  Because of this difficulty, homeowners
argue that their title is unmarketable.  
¶ 17.         We
are not persuaded.  Homeowners' ability to sell their home at a reasonable
price is separate from the question of whether homeowners hold marketable title
to their property.  As one scholar explained, "defects which merely
diminish the value of the property, as opposed to defects which adversely
affect a clear title to the property, will not render title unmarketable within
the meaning and coverage of a policy insuring against unmarketable
title."  11 L. Russ & T. Segalla, Couch on
Insurance 3d § 159:7, at 159-17 (2005).  
¶ 18.         The
fact that homeowners' septic system is partially located on the museum's land
created no challenge to homeowners' title to the property described in their
deed. See Manneck, 33 Cal. Rptr. 2d  at 776 (explaining that the fact that plaintiffs' improvements encroached on
their neighbor's land did not implicate plaintiffs' title to their
property).  Homeowners hold title to their property free and clear of any
adverse claim.  No party asserts an interest in the land described in
homeowners' deed.  While the location of the septic system on the museum
property may have had an impact on the value of homeowners' property, that is a
separate question from the issue of title.  Id. ("Plaintiffs thus
have confused title with the physical condition or value of the property they
purchased.").  "[O]ne can hold perfect title to land that is valueless and
one can have marketable title' to land while the land itself is
unmarketable."  11 Russ & Segalla,
supra, § 159:7, at 159-17.  The possibility that in the
future the museum might revoke permission and require removal of the septic
system did not implicate homeowners' title.  Cases in which courts have
found coverage for encroachments on neighboring land involve different facts or
application of different insurance clauses and language.  See Rackouski v. Dobson, 634 N.E.2d 1229, 1232
(Ill. App. Ct. 1994) (holding that title insurance company was obligated to
defend insureds after insureds' neighbor filed a complaint alleging that
insureds' barn and fence encroached on neighbor's property because "reasonable
persons would not purchase property which would require them to either remove a
substantial portion of a building from the property or defend a lawsuit, or
both"); First Am. Title Ins. Co. v. Dahlmann,
2006 WI 65, ¶¶ 31-42, 715 N.W.2d 609 (holding that substantial encroachment
onto adjoining land was an encumbrance and covered under title insurance
contract where survey and encroachment exception was deleted from policy). 
¶ 19.         Further,
if the marketability clause were construed to cover this type of situation, it
would render the specific provision dealing with encroachments onto neighboring
land meaningless.  We decline to construe the insurance contract in such a
manner.  "Contracts of insurance, like other contracts, must receive
practical, reasonable, and fair interpretation, consonant with the apparent
object and intent of the parties. . . . [and the] entire
contract is to be construed together for the purpose of giving force and effect
to each clause."  Town of Troy v. Am. Fid.
Co.,
120 Vt. 410, 417, 143 A.2d 469, 474 (1958).  In general,
when a contract contains both general and specific provisions relating to the
same matter, the more exact terms are given greater weight than the general
language.  Fairchild Square Co. v. Green Mountain
Bagel Bakery, Inc., 163 Vt. 433, 439, 658 A.2d 31, 35 (1995). 
The title insurer addressed the issue of encroachments onto neighboring land,
but limited its liability to situations where the policy holder was forced to
remove the offending structure.  As explained above, homeowners were not
forced to remove the septic system, and no coverage attaches.
¶ 20.         Finally,
homeowners argue that there is coverage under covered risk number twenty,
protecting against "[o]ther defects, liens or
encumbrances."  Homeowners contend that the septic tank's
encroachment on the museum land was an encumbrance and should be covered. 
In support, homeowners cite First American Title Insurance Co. v. Dahlmann, which held that under the particular title
insurance contract in that case, "a substantial encroachment, created by an
improvement onto adjacent land, constitutes an encumbrance on the title of the
insured property."  2006 WI 65, ¶ 2. 
Homeowners did not rely on this covered risk in their pretrial filings or at
trial.  The only mention of encumbrance is in homeowners' requests to
find, filed after trial, in which homeowners included the following paragraph: 
  39. 
The existence of the waste water disposal system of the [homeowners'] property
being located mostly on the adjacent property constituted a substantial encroachment
and an encumbrance on the title of the insured property and rendered that
property unmarketable under Vermont law.  Regarding encroachments on
adjoining parcels resulting in an encumbrance of title issuance,
see First American Title Insurance Company v. Dahlmann
. . . .
 
Homeowners did not cite covered
title risk twenty pertaining to encumbrances or delineate that they were
asserting coverage under this separate provision.  
¶ 21.         We
conclude that homeowners' limited reference to this argument in their requests
to find was insufficient to properly preserve the issue for our review because
the argument was not made with enough clarity to allow the trial court to rule
on the issue.  Progressive Ins. Co. v. Brown ex rel. Brown, 2008 VT
103, ¶ 6, 184 Vt. 388, 966 A.2d 666 (explaining that "in order to rely
upon an argument on appeal, an appellant must properly preserve it by
presenting it to the trial court with specificity and clarity" (quotation
omitted)).  Because the issue was not preserved, we do not reach it.
¶ 22.         In
sum, we hold that the existence of homeowners' septic system on the museum land
did not trigger the covered title risks in homeowners' policy pertaining to
forced removal and marketability of title.  Because the covered title
risks were not applicable, insurer had no duty to defend, and there was no
breach of the insurance contract.  
Affirmed.
 
 
 
FOR THE COURT:
 
 
 
 
 
 
 
 
 
 
 
Associate
  Justice 
 

[1] 
Insurer challenges this finding on appeal, claiming that homeowners had notice
prior to closing that the septic system was not entirely on their own
land.  In support, insurer cites two sources of evidence.  First,
insurer claims that the deposition testimony of homeowners' closing attorney
indicates that homeowners knew the septic system was not entirely on the
property they purchased.  Because the attorney did not testify at trial,
this testimony is outside of the record on appeal and we do not consider
it.  Insurer also cites the purchase and sale agreement, in which the
sellers checked a box indicating that the septic system was not entirely on the
property.  While this provides some evidence that homeowners should have
known that the septic system encroached on neighbor's land, there was other
evidence to the contrary.  Sellers certified in the same survey that there
were no encroachments or boundary disputes affecting the property. 
Homeowners also testified that they had no knowledge of the encroachment until
they received the museum's letter.  Given the conflicting evidence, the
trial court was within its discretion in resolving the evidentiary dispute in
the manner that it did.  See Quenneville
v. Buttolph, 2003 VT 82, ¶ 11, 175 Vt. 444, 833 A.2d 1263 (applying clearly erroneous standard of review to trial court's
finding of fact). 
[2] 
Because it is not raised in this appeal, we do not address whether a demand in
a letter would be sufficient to trigger coverage.