NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0850-12T3

PRINCETON SOUTH INVESTORS, LLC,

Plaintiff-Appellant,

v.

FIRST AMERICAN TITLE INSURANCE 

COMPANY,

Defendant-Respondent.

_________________________________

Argued January 22, 2014 – Decided

Before Judges Reisner, Ostrer and Carroll.

On appeal from the Superior Court of New 

Jersey, Law Division, Mercer County, Docket 

No. L-3122-11.

Brian P. Flaherty of the Pennsylvania Bar, 

admitted pro hac vice, argued the cause for 

appellant (Cozen O'Connor, PC, attorneys; 

Mr. Flaherty and Diana J. Lin, on the 

brief).

Robert L. Grundlock, Jr., argued the cause 

for respondent (Rubin, Ehrlich & Buckley,

PC, attorneys; Mr. Grundlock, on the brief).

The opinion of the court was delivered by 

REISNER, P.J.A.D.

APPROVED FOR PUBLICATION

September 8, 2014

APPELLATE DIVISION

September 8, 2014
2 A-0850-12T3

In this insurance coverage dispute, plaintiff Princeton 

South Investors (Princeton South or plaintiff) appeals from a 

trial court order dated September 28, 2012, granting summary 

judgment in favor of defendant First American Title Insurance 

Company (First American). The case presents two issues: in the 

context of a title insurance claim, whether a pending but asyet-undecided tax appeal by a municipality, asserting that a 

property has been under-assessed, creates a defect in or an 

encumbrance on the property owner's title, or renders the title 

unmarketable; and, based on the policy language, whether the 

First American policy covered plaintiff's claim. We answer both 

questions in the negative and, therefore, affirm the order on 

appeal. 

I

To summarize, plaintiff bought foreclosed commercial 

property at a sheriff's sale.1 The conditions of sale included a 

provision that the property was being sold "subject to . . . 

unpaid taxes or assessments." There were no delinquent taxes 

outstanding at the time of the sale or on the effective date of 

 

1 Princeton South's parent company, Rubenstein Properties Fund 

LP, was the successful bidder at the sheriff's sale and 

negotiated the title policy. Rubenstein created Princeton South 

as an entity to take title to the property. We will refer to 

Princeton South and Rubenstein, collectively, as plaintiff.
3 A-0850-12T3

the First American title policy. However, plaintiff contends 

that municipal tax appeals covering several prior tax years, 

which were pending at the time it bought the property, 

constituted a title defect covered by the policy.2 Plaintiff 

cites no cases from this State or from any other jurisdictions 

that so hold. 

On the other hand, defendant cites case law from other 

jurisdictions that is both on point and persuasive. Defendant 

further relies on language in the title policy, both in terms of 

what is covered and what is excluded, that, read together, 

convinces us that the policy does not insure against the 

imposition of taxes assessed after the date the policy was 

issued. 

 

2 There is no dispute that before plaintiff closed on the 

property, its representatives knew that the tax assessment of 

the property was based on an unrealistically low value. Before 

closing on the property, plaintiff did not bring that 

information to First American's attention, ask the current owner 

or the municipal tax office about possible pending tax appeals, 

or order a tax search from the municipal tax office. See

N.J.S.A. 54:5-12. While negotiating the terms of the title 

policy, but without disclosing its concerns about the low 

assessment, plaintiff asked First American to delete a policy 

exclusion for omitted or added assessments. First American 

refused to do so. Plaintiff claims it had no actual knowledge 

that there were pending tax appeals, until after the closing 

occurred. On the record before us, there is a material dispute 

of fact as to that issue. If plaintiff knew about the pending 

tax appeals before the closing, its claim would probably be 

barred by a policy exclusion for known risks the insured 

voluntarily undertook without disclosing those risks to First 

American.
4 A-0850-12T3

II

We review an order granting summary judgment de novo, using 

the same legal standard employed by the trial court. Henry v. 

N.J. Dep't of Human Servs., 204 N.J. 320, 330 (2010). Likewise, 

we owe no deference to the trial court's legal interpretations, 

including its construction of an insurance policy or other 

contract. Ibid. 

A title insurance policy is a "'contract that protects a 

landowner against loss caused by defective title to the land.'" 

N.J. Lawyers' Fund for Client Prot. v. Stewart Title Guar. Co., 

203 N.J. 208, 217 (2010) (quoting Shotmeyer v. N.J. Realty Title 

Ins. Co., 195 N.J. 72, 82 (2008)). Title insurance protects a 

buyer against the risk of defects that exist at the time the 

policy is purchased, but not against the risk of defects that 

may arise in the future. Shotmeyer, supra, 195 N.J. at 82. "In 

that sense, title insurance covers 'a state of ownership at a 

specific point in time.'" Ibid. (quoting 11 Couch on Insurance 

§ 159:5 (3d ed. 1998)).

Like other types of insurance, a title insurance policy 

should be "'liberally construed in favor of the insured and 

strictly construed against the insurer.'" Ibid. (quoting 

Sandler v. N.J. Realty Title Ins. Co., 36 N.J. 471, 478-79 

(1962)). However, courts will enforce the title insurance 
5 A-0850-12T3

policy as written and will not rewrite a more favorable policy 

for the insured than the one purchased. See ibid.; Amidano v. 

Donnelly, 260 N.J. Super. 148, 154 (App. Div. 1992), certif. 

denied, 133 N.J. 435 (1993).

A.

Before focusing on the title policy at issue in this case, 

it is helpful to consider the way annual property taxes are 

assessed in New Jersey. First, the municipal tax assessor must 

assess all property as of October 1 of the pretax year.

N.J.S.A. 54:4-23. After completing the preparation of the 

municipal tax assessment list, the assessor files the list with 

the County Board of Taxation (Board), which may examine, revise 

and correct the proposed assessments. N.J.S.A. 54:4-35. The 

annual taxes on a particular property are set by multiplying the 

municipal tax rate – previously set by the Board – by the 

property's assessed value. See East Orange v. Palmer, 47 N.J.

307, 317 (1966). The annual tax then "becomes due in four 

installments on February 1, May 1, August 1 and November 1." Id.

at 318.

Once taxes are assessed, they give rise to a lien on the 

property which continues unless they are paid. See N.J.S.A.

54:5-6 ("Taxes on lands shall be a continuous lien on the land 

on which they are assessed . . . ." (emphasis added)). "A lien 
6 A-0850-12T3

arises against the real estate on which the taxes are assessed 

in the event of non-payment." S & R Assocs. v. Lynn Realty 

Corp., 338 N.J. Super. 350, 360 (App. Div. 2001). In Princeton 

Office Park v. Plymouth Park Tax Services, LLC, ___ N.J. ___, 

___ (2014), the Court recently observed that N.J.S.A. 54:5-6 

"confers on a municipality . . . 'a continuous lien on the 

land'" for delinquent taxes, and provides that any subsequent 

delinquent taxes are added to the lien. Id. at ___ (slip op. at 

11) (quoting Simon v. Cronecker, 189 N.J. 304, 318 (2007)). 

Here, there were no delinquent taxes at the time First American 

issued the policy, and any potential taxes that might have 

arisen in the future, following a successful tax appeal, had not 

yet been "assessed." N.J.S.A. 54:5-6.

If a taxpayer wishes to challenge the assessed valuation of 

the taxpayer's property, or if a taxing district "feel[s]

discriminated against by the assessed valuation of property in 

the taxing district," the taxpayer or taxing district may file 

an appeal with the Board. N.J.S.A. 54:3-21(a)(1). If the 

assessed valuation of the property is in excess of $1,000,000, 

the complaint can be filed directly in the Tax Court, provided 

it is filed "on or before April 1, or 45 days from the date the 

bulk mailing of notification of assessment is completed in the 

taxing district . . . ." N.J.S.A. 54:3-21(a)(1). Here, the 
7 A-0850-12T3

municipality filed its appeals for this property for tax years 

2009, 2010, and 2011, directly with the Tax Court. See N.J.S.A.

54:51A-2. If the municipality prevails on its appeal, the Tax 

Court will "enter judgment revising the taxable value of the 

property." N.J.S.A. 54:51A-6(a). Based on that revised taxable 

value, additional taxes may be assessed which, if not paid, will 

give rise to a lien. See S & R Assocs., supra, 338 N.J. Super.

at 360.

In addition to the regular annual tax assessments, the tax 

statutes make provisions for omitted or added assessments. The 

term "omitted assessment" refers to a situation where properties 

have been inadvertently, or intentionally but incorrectly, 

omitted from an annual assessment. 

In any year or in the next succeeding 

year, the county board of taxation may, in 

accordance with the provisions of this act, 

assess any taxable property omitted from the 

assessment for the particular year.

[N.J.S.A. 54:4-63.12.]

An "added assessment" taxes improvements to real estate 

that are substantially ready for their intended use after the 

assessor has completed the annual October 1 assessment. 

[W]hen any parcel of real property contains 

any building or other structure which has 

been erected, added to or improved after 

October 1 in any year and completed before 

January 1 following, the assessor shall, 

after examination and inquiry, determine the 
8 A-0850-12T3

taxable value of such parcel of real 

property as of the first day of the month 

following completion . . . and . . . if such 

value so determined exceeds the assessment 

made as of October 1 preceding, the 

assessor, shall enter the amount of . . . 

such excess, as an assessment or an added 

assessment against such parcel of real 

property, for the subsequent tax year in a

list to be known as the "Added Assessment 

List, 19 . . . " (inserting the name of the 

year in which the assessment is made); . . . 

. In addition, the assessor shall enter in 

such added assessment list an assessment for 

that portion of the pretax year between the 

first day of the month following completion 

. . . and December 31 to be determined by 

multiplying the amount of such assessment or 

such excess by the number of whole months 

remaining in the pretax year after the 

completion . . . of said property, and by 

dividing the result by 12.

[N.J.S.A. 54:4-63.2.]

The tax statutes give prospective purchasers of real 

property a means of protecting themselves against unanticipated 

assessments or outstanding taxes at the time of purchase. By 

statute, ordering a municipal tax lien search protects a 

prospective buyer against assessments not disclosed in the 

search. Within fifteen days after receiving a search request 

and the required fee, the tax official must 

issue a certificate certifying the taxes, 

assessments or other municipal liens or 

charges, levied or assessed against the 

property described in the application, which 

are liens thereon at the date of the 

certificate. He shall include therein all 

unpaid installments of assessments 
9 A-0850-12T3

theretofore levied and in force, whether due 

or not . . . .

[N.J.S.A. 54:5-12.]

The purchaser is thereafter protected against municipal liens 

not disclosed on the certificate:

A bona fide purchaser, lessee or 

mortgagee who shall acquire for a valuable 

consideration an interest in lands covered 

by an official tax search and in reliance on 

said search shall hold such interest free 

from any municipal lien . . . not shown on 

that search.

[N.J.S.A. 54:5-17.]

At least one case also holds that a municipality's failure 

to disclose its pending appeal of a tax assessment, in response 

to a prospective purchaser's tax search request, will preclude 

the municipality from collecting additional taxes based on the 

appeal. Go-Lit Realty Co. of N.J. v. City of Jersey City, 120 

N.J.L. 592, 594 (Sup. Ct. 1938). Thus, the Legislature has 

required municipalities to "turn square corners" by disclosing 

in a tax search financial information that would be important to 

a prospective purchaser in deciding whether to buy the property. 

Ibid.; see Belles v. East Amwell Twp., 178 N.J. Super. 63, 73-

74, 2 N.J. Tax 103, 112-13 (Tax 1981) (municipality must 

disclose in a tax search report the "virtual certainty [] of an 

omitted assessment"); F.M.C. Stores Co. v. Borough of Morris 
10 A-0850-12T3

Plains, 100 N.J. 418, 427 (1985) (discussing square corners 

doctrine).3

 B.

Against that background, we consider the First American 

title policy. The policy protects plaintiff from "Covered 

Risks" subject to certain exclusions. The pertinent policy 

language provides coverage for "[a]ny defect in or lien or 

encumbrance on the Title.

4 This Covered Risk includes but is not

limited to insurance against loss from" a list of stated risks. 

 

3 In this case, rather than ordering a municipal tax search, 

plaintiff's counsel simply called the municipal tax office to 

inquire about any outstanding taxes. In so noting, we are not 

implying that counsel was negligent. Due to the upcoming 

sheriff's sale, at which plaintiff needed to place a bid or lose 

the chance to buy the property, time was of the essence. 

Plaintiff might have decided to take a calculated business risk 

by having its counsel perform a telephone inquiry rather than 

waiting for the results of a municipal tax search.

4 First American's Underwriting Library, a copy of which is 

included in appellant's appendix, contains a list of definitions 

applicable to its policies. The Library defines "defect" as: "A 

blemish, imperfection or deficiency. A defective title is one 

that is irregular and faulty." The term "encumbrance" is 

defined as: "A claim, right, or lien upon the title to real 

estate, held by someone other than the real estate owner." 

(Emphasis added). In turn, "claim" is defined as: "A right to 

assert, or the assertion of, a demand for payment of money due, 

or the surrender or delivery of possession of property or the 

recognition of some right. A demand for something as one's 

rightful due." A "lien" is defined as: "The liability of real 

estate as security for payment of a debt. Such liability may be 

created by contract, such as a mortgage, or by operation of law, 

such as a mechanics lien."
11 A-0850-12T3

Those stated risks include unpaid taxes that were due and 

payable, but unpaid, at the time the policy took effect:

SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE 

EXCEPTIONS FROM COVERAGE CONTAINED IN 

SCHEDULE B, AND THE CONDITIONS, FIRST 

AMERICAN TITLE INSURANCE COMPANY . . . 

insures, as of Date of Policy . . . against 

loss or damage, not exceeding the Amount of 

Insurance, sustained or incurred by the 

Insured by reason of:

. . . .

2. Any defect in or lien or encumbrance on 

the Title. This covered Risk includes but 

is not limited to insurance against loss 

from

. . . .

(b) The lien of real estate taxes or 

assessments imposed on the Title by a 

governmental authority due or payable, but 

unpaid.

. . . . 

3. Unmarketable Title.

[Emphasis added.]

The next section of the policy is entitled "Exclusions from 

Coverage" and specifically excepts from coverage: "Any lien on 

the Title for real estate taxes or assessments imposed by 

governmental authority and created or attaching between Date of 

Policy and the date of recording of the deed." Paragraph 3(d) 

of the Exclusions section also excepts from coverage: "Defects, 
12 A-0850-12T3

liens, encumbrances, adverse claims, or other matters . . . (d) 

attaching or created subsequent to Date of Policy."

An additional section entitled "Schedule B" details 

Exceptions from Coverage, including:

[T]he Company will not pay loss or damage, 

costs, attorney's fees or expenses that 

arise by reason of:

. . . . 

2. Lien of unpaid taxes for the year 2011. 

Taxes are paid through the 2nd quarter of 

2011. 2011 3rd quarter taxes, a lien, due 

but not delinquent.

. . . .

3. Subject to added or omitted assessments 

pursuant to N.J.S.A. 54:4-63.1 et seq. not 

yet due and payable.

[Emphasis added.] 

It is clearly inferable from Exclusion 3(d), particularly read 

together with the other policy provisions that specifically 

address taxes, that the policy does not cover tax liens created 

after the policy was written.

III

We turn next to plaintiff's central argument on this 

appeal. Plaintiff claims that the municipality's pending tax 

appeals, in themselves, create a defect in or encumbrance on its 
13 A-0850-12T3

title, or render the title unmarketable.5 Plaintiff contends 

that the appeals cloud the title, because they have the capacity 

to eventually result in a higher assessment of the property, 

which in turn would result in the imposition of additional taxes 

which, if unpaid, will become a lien on the property. 

Plaintiff's argument, however, proves too much. The 

underlying issue in the tax appeals is the alleged undervaluation of plaintiff's property by the tax assessor. 

Accepting plaintiff's argument would mean that any time a 

property was assigned too low a value by the tax assessor, the 

property's title would be considered defective or unmarketable 

due to the risk of a tax appeal and a reassessment. But to 

intelligently insure against such a risk, a title insurer would 

have to research the assessed value of every property to be 

insured, and analyze its potential for a tax appeal and a higher

revaluation. Plaintiff did not present an expert report to the 

trial court – and cites no legal authority on this appeal – to 

support the proposition that a title insurer has a duty to make 

such an analysis. Further, we consider it likely that imposing 

such a new obligation could drive up the cost of title 

insurance. See Shotmeyer, supra, 195 N.J. at 83 (stating that 

 

5 For purposes of this opinion, we refer to the existence of any 

of these title problems as a "cloud" on the title.
14 A-0850-12T3

"because insurance premiums and coverage provisions are based on 

predictable levels of risk, title insurers need to rely on 

certain consistent conditions in order to calculate premium 

rates reliably").

6

Pursuing plaintiff's argument further only reveals its 

additional weakness. Taxes do not actually become a lien on 

property until they are assessed. See N.J.S.A. 54:5-6. Until 

then, they are only a potential expense which the owner may have 

to pay in the future. Future assessments, however, cannot 

logically be considered a cloud on title, because taxes are a 

known, predictable, constantly-recurring phenomenon. Taxes will 

be assessed on plaintiff's property this year, next year, and on 

into the future ad infinitum. If a property's potential for the

future assessment of taxes were considered a cloud on title, it 

would be impossible to pass marketable title to any property.

As the court explained in Keown v. West Jersey Title & 

Guarantee Co., 161 N.J. Super. 19, 23 (App. Div.), certif. 

denied, 78 N.J. 405 (1978):

A marketable title is one that is relatively 

free from doubt, such that in a suit for 

 

6 Moreover, if the property's condition of being under-assessed 

were a title defect, this was a risk plaintiff knew about before 

it bid on the property, and which it failed to disclose to First 

American. Hence, it would probably fall under the policy 

exception for known risks which the prospective insured failed 

to disclose to the insurer. 
15 A-0850-12T3

specific performance a court would compel 

the prospective purchaser to accept the 

title. 4 American Law of Property § 18.7 at 

670 (1952). If it is reasonably probable 

that the purchaser would be exposed to 

litigation not of a frivolous nature 

concerning the title, or would have to bring 

an action to quiet title, then specific 

performance would be denied to the 

prospective seller and the title would be 

considered unmarketable.

A municipality's tax appeal is not "litigation . . . concerning 

the title" to property, such as, for example, a suit to 

foreclose an existing lien, challenge a boundary, or enforce 

"restrictive covenants on the use of the property." Id. at 23-

24. Rather, a tax appeal is litigation challenging the 

property's valuation for tax purposes. See N.J.S.A. 54:3-

21(a)(1).

In support of its appeal, plaintiff cites the Law 

Division's opinion in Bel-Air Motel Corp. v. Title Insurance

Corp., 183 N.J. Super. 551 (Law Div. 1981). That case concerned 

an omitted assessment for a local sewer improvement, a condition 

that would be specifically excluded by the First American 

policy. By statute, the local improvement assessment became a 

lien "upon confirmation by the governing body, or by the court." 

N.J.S.A. 40:56-33.7 In other words, as soon as the governing 

 

7 The statute was amended in 2002. L. 2002, c. 15, § 2. We quote 

the version in effect in 1981.
16 A-0850-12T3

body confirmed the assessment for the sewer improvement, it 

became a lien "upon the real estate described in the 

assessment." N.J.S.A. 40:56-33. The assessment in Bel-Air was 

confirmed in 1967, three years before the plaintiff bought the 

property in 1970, but the assessment was invalidated in 1968, 

and a reassessment was not completed until 1976. Bel-Air, 

supra, 183 N.J. Super. at 552. 

The court observed that N.J.S.A. 54:5-18.1 required 

municipalities to provide "official certificates of searches as 

to municipal improvements authorized by ordinance of the 

municipality but not assessed." Id. at 554.8 The court also 

observed that, by statute, one who acquires land in reliance on 

such a certificate showing no assessment, takes the land free

from any subsequent municipal lien for improvements. Id. at 554 

(citing N.J.S.A. 54:5-18.5). Based on those statutory 

provisions, the court reasoned that the Legislature had 

recognized that an enacted assessment ordinance created a defect 

 

8 This section applies to assessments that are certain to be 

imposed, even if not presently quantified in amount: "[T]he

governing body of each municipality shall provide by resolution 

for the making of official certificates of searches as to 

municipal improvements authorized by ordinance of the 

municipality, but not assessed, affecting any parcel or tract of 

land in said municipality in that a future assessment will be 

made thereon pursuant to such ordinance." N.J.S.A. 54:5-18.1 

(emphasis added).
17 A-0850-12T3

in title as to the properties subject to the assessment, even if 

the amount of the assessment was not yet approved. 

In reaching that conclusion the judge reasoned that "[a] 

'defect' in a title is something different from a 'lien or 

encumbrance,'" and could be considered as "'the want or absence 

of something necessary for completeness or perfection.'" Id. at 

555 (quoting McMinn v. Damurjian, 105 N.J. Super. 132, 139 (Ch. 

Div. 1969)). See also Stewart Title Guar. Co. v. Greenlands 

Realty L.L.C., 58 F. Supp. 2d 370, 382 (D.N.J. 1999) (noting 

that a defect "is something less than 'unmarketability.'"). He 

concluded that a defect existed due to the certainty of the 

assessment:

I conclude a title defect affecting 

plaintiff's property existed in 1970 when it 

was purchased; it was created in 1967 when 

the improvement was completed and therefore 

prior to the purchase and the issuance of 

the defendant's policy. The ordinance was 

effective whether or not the commissioners' 

report had been filed. The fact that the 

local improvement had been completed made 

the eventual assessment of the property a 

certainty. The only question then remaining 

was the amount of the assessment. Bel-Air, 

therefore, bought its property subject to a 

liability: the obligation to pay the 

assessment when its amount was fixed, an 

obligation which would ripen into a lien 

when the assessment was confirmed. The 

Legislature recognized the fact that the 

local improvement ordinance itself created a 

title defect when it adopted N.J.S.A. 54:5-

18.1, mandating searches for municipal 

improvements not assessed in order to 
18 A-0850-12T3

protect prospective purchasers of property. 

The ordinance contains a description of the 

areas in the municipality in which the 

improvement was to be constructed. If 

examined, it would have revealed the 

liability to which plaintiff's property was 

subject. The fact that this property was 

not included in the list of assessments 

which accompanied the initial report of the 

assessment commissioners is of no moment. 

The ordinance provided appropriate notice 

that it was subject to assessment. 

Furthermore, N.J.S.A. 40:56-33 makes the 

omission immaterial; it states that the 

assessment is a lien "notwithstanding any 

mistake in the name or names of any owner." 

[Bel-Air, supra, 183 N.J. Super. at 555-56 

(emphasis added).]

The court also reasoned that the title was unmarketable 

because the "property was subject to a definite liability. It 

would be assessed for part of the cost of the local 

improvement," and "[t]he assessment, when confirmed, would 

become a lien against the property." Id. at 557 (first emphasis 

added, second emphasis in the original).

Bel-Air is not binding on this court and we need not decide 

whether it was correctly decided. It is distinguishable, 

because it addressed a local assessment that was a certainty,

based on the passage of a municipal ordinance and the 

installation of a physical improvement affecting the property.

See Strass v. District-Realty Title Ins. Corp., 358 A.2d 251, 

258 (Md. Ct. Spec. App. 1976) (holding that "the assessments in 
19 A-0850-12T3

this case were not encumbrances until they were inevitable").

By contrast, the case before us concerns additional taxes that 

have not been assessed and may never be assessed. We also find 

the case inapplicable here, for the same reasons we find that 

un-assessed property taxes generally are not a cloud on title. 

All future taxes are a potential lien on property; the fact that 

their imposition is "inevitable" does not make them clouds on 

title for purposes of title insurance. 

We also reject plaintiff's invitation to construe an 

exception to the First American policy for added or omitted 

taxes as an implied extension of coverage for other types of 

future assessments. See Weedo v. Stone-E-Brick, Inc., 81 N.J.

233, 247 (1979). Instead of inferring coverage from the 

language of this exception, we look first to the affirmative 

statement of coverage for taxes. That language is limited to 

the "lien" of taxes which have already been assessed and are 

"due and payable but unpaid." The potential additional taxes, 

which might be assessed if the municipality wins its tax 

appeals, do not fit any of the quoted criteria.

While it may be argued that the paragraph covering taxes 

due and owing but unpaid, is part of a non-exclusive list of 

covered title defects, policy exclusion 3(d) specifically 

excludes from coverage liens and other title defects "attaching 
20 A-0850-12T3

or created" after the date of the policy. The fact that a

policy exception also specifically excepts from coverage added 

or omitted assessments serves, at most, to emphasize that future 

taxes are not covered.9

Our conclusion, that the First American policy does not 

cover the pending municipal tax appeals, is supported by out-ofState authority holding that "the mere prospect of future taxes" 

is insufficient to create an encumbrance or other covered title 

defect under a policy of title insurance. Rhone v. First Am. 

Title Ins. Co., 928 N.E.2d 1185, 1195 (Ill. App. Ct. 2010). 

"[I]n the context of a title insurance policy, we reject the 

Rhones' reliance on a broad use of the term 'encumbrance' to 

bring their claim regarding unassessed and unlevied [property] 

taxes within the title policy." Id. at 1194.

10

 

9 The record does not reflect when this provision became part of 

the standard policy. It may have been added in response to the 

Bel-Air decision. Or it may have been a response to Belles, 

supra, a Tax Court decision stating that, to be consistent with 

the purpose of the legislation authorizing omitted assessments, 

they are considered liens as of the tax year in which they 

should have been assessed. Belles, supra, 178 N.J. Super. at 

68-69, 2 N.J. Tax at 107-08. 

10 In Rhone, the court recognized that "[e]ncumbrances 'include 

not merely liens such as mortgages, judgment liens, [or] taxes 

*** but also attachments, leases, inchoate dower rights, water 

rights, easements, restrictions on use, or any right in a third 

party which diminishes the value or limits the use of the land 

granted.'" Id. at 1190 (citations omitted).
21 A-0850-12T3

The Utah Supreme Court cogently addressed the issue in the 

following language, which we find persuasive: 

Unlike other insurance contracts, title 

insurance does not insure against future 

events. Thus, in order for a defect, lien, 

or encumbrance to fall within the insurance 

policy's coverage, it must have been in 

existence as of the effective date of the 

policy. At a minimum, an existing 

assessment that has been recorded would be 

considered a defect in the title and would 

be covered unless it had been otherwise 

exempted or excluded. The more difficult 

question, and the one before us now, is 

whether the recorded notice of the 

possibility of a future assessment also 

rises to the level of a defect, lien, or 

encumbrance. We conclude that it does not.

[Vestin Mortg., Inc. v. First Am. Title Ins. 

Co., 139 P.3d 1055, 1057 (Utah 2006) 

(footnote omitted) (citing 43 Am. Jur. 2d 

Insurance § 529 (2003)).]

See also Edwards v. St. Paul Title Ins. Co., 563 P.2d 979, 980-

81 (Colo. App. 1977) (holding that "the prospect of taxes in the 

future was not a lien, encumbrance, or defect as of the date of 

issuance of the policy" and did not affect the marketability of 

the title); Butcher v. Burton Abstract Title Co., 216 N.W.2d 

434, 436-37 (Mich. Ct. App.), cert. denied, 419 U.S. 998, 95 S. 

Ct. 314, 42 L. Ed. 2d 293 (1974).

In conclusion, summary judgment was properly granted, 

because (a) the pending tax appeals did not render the title 

unmarketable or constitute a defect in or encumbrance on the 
22 A-0850-12T3

title, and (b) the First American policy, by its terms, did not 

cover the potential future lien of taxes that might be assessed 

after the policy was issued.11

Affirmed.

 

11 To the extent not specifically addressed here, plaintiff's 

arguments are without sufficient merit to warrant discussion in 

a written opinion. R. 2:11-3(e)(1)(E).