Opinion ID: 1358888
Heading Depth: 1
Heading Rank: 7

Heading: Assigning the Burden of Diligence To Discover Restrictions

Text: In addition to holding that loss from the rights of refusal contained in the Declaration was expressly excepted from ALTA 9 Endorsement coverage, the District Court also determined that Nationwide bore the burden of completing proper diligence to ensure that the Declaration did not contain restrictions harmful to its interest in the Property. Nationwide, 2006 WL 1192998, at . The Court based this determination on its reading of a passage in a LandAmerica article cited by Nationwide that describes paragraph 1(b)(2) of the ALTA 9 Endorsement: Paragraph 1(b)(2) insures the lender that a document, described only as containing restrictions, doesn't contain a grant of easement, a lien for liquidated damages, a private charge or assessment, an option, a right of first refusal or a right for prior approval of a future purchaser or occupant.... Paragraph 1(b)(2) is found under paragraph 1(b) because an exception that fully describes the features of a document kills the coverage. The Insured will not be misled by an exception that discloses the features of a recorded instrument. If the exception has incomplete disclosure, the lender must review all of the recorded documents for an opinion that none contains a provision that might harm it. Id. at  (quoting Robert S. Bozarth, LandAmerica SingleSource: Commercial Transactions 101 (May 2003), https://www.agentxtra.net/extranet/SingleSource/NavMaster.asp?IndexID=3770&IndexTerm=Zoning&LinkID=5187463). The Court particularly focused on the last sentence of this passage to support its ruling. See id. at -3. Nationwide asserts that the Court misread the passage and ruled in conflict with years of industry practice. See Nationwide's Br. at 16 n. 8. Nationwide is correct. The quoted passage makes clear that (1) an insurer must fully describe the features of a document to except loss arising from them, and (2) a full description of any excepted feature ensures that [t]he Insured will not be misled. In this context, it is unlikely that the passage further means to state, as the District Court ruled, that an insurer's failure to note a matter contained in a document in Schedule B forces the lender [to] review all of the recorded documents for an opinion that none contains a provision that might harm it. Nationwide, 2006 WL 1192998, at . Instead, we read the passage's remarks about incomplete disclosure as distinguishing between the two methods of taking express exception to matters outlined in the LandAmerica guidance document quoted above. To repeat, the first method lists both an excepted document and every matter within it as a separate exception: METHOD 1 (Multiple exceptions): Declaration of ... Restrictions for ___ dated ___ recorded at book __ page __ Easements reserved in Declaration of ... Restrictions for ___ dated ___ recorded at book __ page __ Rights of first refusal reserved in Declaration of ... Restrictions for ___ dated ___ recorded at book __ page __ LandAmerica, https://www.agentxtra.net/Extranet/singlesource/NavMaster.asp?IndexID=3202&IndexTerm=PUD&LinkID=5178317 (last visited Aug. 28, 2009). This method completely discloses to the insured lender the nature of each expressly excepted matter, the party benefitting from its terms, the date it was recorded, and its location in a deed book. Alternatively, the second method lists the excepted document in detail but only mentions in general the expressly excepted matters within the document: METHOD 2 (Single exception describing several elements): Declaration of ... Restrictions for ___ dated ___ recorded at book __, page __; also, easements and right of first refusal reserved in said declaration. Id. This method still marks the matters within a document as expressly excepted from coverage, but it does not disclose to the insured lender (1) the party benefitting from each expressly excepted matter, (2) the date on which each matter was recorded, or (3) the location of the matters in a deed book. Thus, when an insurer uses this method to take express exception to a matter within a document, the insured lender must research that matter further to determine its details. In our view, this is what the passage from the LandAmerica article quoted by the District Court means when it states that [i]f the exception has incomplete disclosure, the lender must review all of the recorded documents for an opinion that none contains a provision that might harm it. Nationwide, 2006 WL 1192998, at . The history and purpose of land title insurance further repudiate the District Court's conclusion that it was [Nationwide]'s duty to exercise proper diligence before issuing the subject mortgage. Id. at . Since the first land title insurance company opened in 1876, [15] [o]ne of the big talking points for title insurance is that it relieves the investor from title work, examinations and worry therefrom, as well as affording protection. Gosdin, supra, at 1 (internal quotations omitted). Title insurers also advertise their ability to review titles accurately and efficiently through use of their title records, which are more effectively organized than public records,... may also contain more complete title information, [and may] provide a more efficient means of evaluating title than ... a search through public records. Beatie & Kleven, supra, at 400-01. The District Court's contention that a lender or buyer paying for title insurance b[ears] the burden of completing proper diligence accordingly robs title insurance of one of its primary reasons to exist. Nationwide paid Commonwealth to review its interest in the title to the Property and either cover any title restrictions or explicitly identify them as exceptions. In so doing, Nationwide discharged its burden of completing proper diligence to the extent that Commonwealth did not expressly except such restrictions from coverage in Schedule B of the policy.