The Appellate Division of the Superior Court of New Jersey has confronted title insurance in a recent decision in the case of Princeton South Investors, LLC v. First American Title Insurance Co., 437 N.J. Super. 283, 97 A.3d 1190 (N.J. Super. Ct. App. Div. 2014).
As explained by the Appellate Division following decided case law on the subject from across the nation, title insurance is the same as other insurance only different. The cases do not say it, but title insurance actually operates prospectively, looking toward future losses. In the case of title insurance, the future loss is "[a]ny defect in or lien or encumbrance on the Title." The typical title insurance policy protects the policyholder from "Covered Risks" and states certain exclusions in providing its coverage.
In general terms, title insurance is an insurance contract which protects a landowner-policyholder against loss caused by defective title. "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." Princeton South Investors, LLC v. First American Title Ins. Co., 437 N.J. Super. 283, 287, 97 A.3d 1190, 1192 (N.J. Super. Ct. App. Div. 2014). So, title insurance provides coverage against the risk of future loss due to a title defect based on current events in basic terms; it does not provide coverage against future events which may result in title defects. The current events at the time that the title insurance policy is issued have already taken place, but they have not caused a loss yet; the loss due to a title defect has not taken place yet. To illustrate, the property may not be sold this year, or in this decade, or ever. There is no "title defect" in existence now and so there is nothing to insure against -- yet. But what will be insured against is future loss due to a title defect, not future events.
The present case presented this issue clearly. It is a case involving the potential assessment of taxes on some future date. "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.'" Princeton South Investors, LLC v. First American Title Ins. Co., 437 N.J. Super. 283, 288, 97 A.3d 1190, 1193 (N.J. Super. Ct. App. Div. 2014).
Therefore, in this case there was no coverage, the Appellate Division panel held. First, the insuring agreement in the policy did not extend coverage. The title policy at bar included a list of stated risks which could cause loss qualifying as "Covered Risk" under the policy. "Those stated risks include unpaid taxes that were due and payable, but unpaid, at the time the policy took effect ...." Princeton South Investors, LLC v. First American Title Ins. Co., 437 N.J. Super. 283, 291, 97 A.3d 1190, 1194 (N.J. Super. Ct. App. Div. 2014).
Consistent with its coverage grant in the insuring agreement, the title insurance policy involved in this case also contained several exclusions from coverage which would apply here. Princeton South Investors, LLC v. First American Title Ins. Co., 437 N.J. Super. 283, 292, 97 A.3d 1190, 1195 (N.J. Super. Ct. App. Div. 2014). Once the Court determined that there was no coverage because there was, well, no coverage, its task was completed at its first step of course.
Yet one thing more to mention, in the spirit of the Appellate Division in this decision. The party claiming coverage from the title insurer is a foreclosure sale purchaser. Perhaps it is enough that the purchaser received a certain discount at the foreclosure sale. Throwing insurance coverage into the investment is overreaching, even for a hedge fund.
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