Princeton South Investors, LLC v. First American Title Insurance Insurance Company ( 2014 )

NOT FOR PUBLICATION WITHOUT THE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,
APPROVED FOR PUBLICATION
Plaintiff-Appellant,
September 8, 2014
v.
APPELLATE DIVISION
FIRST AMERICAN TITLE INSURANCE
COMPANY,
Defendant-Respondent.
_________________________________
Argued January 22, 2014 – Decided September 8, 2014
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.
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 as-
yet-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.
2 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.
3 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
4 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
5 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," N.J.S.A. 54:3-21(a)(1), 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 . . . ."
6 A-0850-12T3
N.J.S.A. 54:3-21(a)(1). Here, the 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
7 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
8 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
9 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."
10 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,
11 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
12 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 under-
valuation 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.
13 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.
14 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.
15 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).
16 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
17 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
18 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
19 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-of-
State 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).
20 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
21 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).
22 A-0850-12T3