Opinion ID: 877680
Heading Depth: 1
Heading Rank: 1

Heading: effect of the failure to discover the easements:

Text: The title companies argue that under the policy terms they had no duty to discover the ditch right easements. First, they argue that the easements were not of record and therefore they should not be held responsible for reporting their existence to Lipinski. Second, they argue that the title insurance contract expressly excludes water rights, that the basis of the easement is an underlying water right, and therefore that coverage is precluded. Third, they argue that Lipinski had or should have had personal knowledge of the easements and his failure to report them to the title insurance companies should preclude his right to recover. A 1944 warranty deed in Lipinski's chain of title recited that the grant was  subject to rights established by irrigation ditch.  The question is whether this recital put the title companies sufficiently on notice that a duty was imposed to further determine the nature of that right recited in the deed. The policy expressly excludes coverage for ... easements ... not shown by the public records ... Because the warranty deed recital did not state that an easement existed, the title companies argue that the policy does not insure against that undisclosed easement. We hold, however, that the ditch rights were sufficiently mentioned in the recorded 1944 warranty deed to put the title companies on notice that there might also be easements accompanying those ditch rights. These possibilities should have been brought to Lipinski's attention and either specifically insured or specifically excluded from insurance coverage. Nor do we agree that coverage should be denied because the basis of the easement was an underlying water right specifically excluded by the policy. Lipinski did not claim damages and damages were not awarded because of the existence of an undisclosed water right, but rather for the existence of an undisclosed easement accompanying those water rights. The existence of the ditch rights  here accompanied by easements  is necessarily derived from the existence of the water rights, and findings and conclusions concerning those water rights could hardly be avoided. The trial court, however, awarded damages because there was sufficient notice of possible ditch rights  accompanied by easements  which the title companies should have, but did not, call to Lipinski's attention. The title companies next argue that Lipinski should be denied recovery under the policy because he had actual knowledge of the easements sufficient to require him to bring it to the title companies' attention or be excluded from coverage. Lipinski admitted knowledge of the existence of the ditches, but he denied having any knowledge that anyone had a right to enter upon his land. He stated that he relied on the title report to tell him whether anyone had such a right to enter his land in order to maintain the ditches. Lipinski, as a layman with no knowledge of easements, could reasonably rely on the specialized knowledge of the title insurance business to reveal and explain to him any title defects and their consequences. Although title insurance applicants are interested in obtaining insurance coverage, their primary interest is in what the examination discloses. For this they rely on the title companies to tell them of any risks. Risks usually covered by title insurance policies include errors in the title examination, including the negligent failure to note a title defect. A title company, as insurer, owes its clients the duty of conducting a title search with reasonable care. Although liability does not attach for failure to discover defects which cannot be discovered with reasonable care, here a title examiner conducting a title search should have been alerted to the possible consequences of the recital in the 1944 warranty deed. An examination of the premises should have revealed the very real possibility that an easement existed to give effect to the irrigation ditch recital in the 1944 warranty deed. Examination would have revealed that water on Lipinski's property was being dammed and conducted away from his land through irrigation pipes or canals leading onto a neighbor's land. A title insurer cannot simply ignore a recital that puts it on notice of a possible defect in the title. We hold, therefore, that the title policy covered the existence of the defects.