In Montana a court has found that an exception for easements not in the public records removes coverage as to easements filed anywhere except the land recorder's office.

Scott and Carolyn Miller bought a home in Helena, Montana.  They got a title insurance policy from Title Insurance Company of Minnesota (now Old Republic National Title Insurance).  The policy contained the commonly used exception for "easements, or claims of easements, not shown by the public records."

Eight years later, the Millers began building a garage, and found out that their neighbor's water and sewer lines ran under the planned garage.  No easement was recorded, because the two parcels had been owned by the same person when the lines were installed. However, there were records in the city engineer's office about the pipes, apparently in the form of a permit application.

The Millers asked Old Republic to pay for relocation of the lines and attorney fees.  The insurer declined, because the policy contained the unrecorded easement exception.  The Millers said the easement was not excepted because the city engineer's office records are "public records" under the Montana "public writings" law.

In this case, the term "public records" defined in the title policy is not reasonably subject to two different interpretations.  The title policy issued to the Millers specifically defines "public records" as "those recorded which by law impart constructive notice of matters relating to said land."  This is entirely consistent with existing Montana statutory law and Montana recording procedures, which require that documents affecting title to real property be recorded with the county clerk and recorder of the county in which the real property is located.  See 70-21-201, et seq., MCA.  In addition, judgments docketed in the clerk of the district court's office become liens on the real estate owned by the judgment debtor.  See 25-9-302, MCA.  These are the records that impart constructive notice of matters relating to real property and, for the purposes of this case, are the "public records" defined in the title policy.  The records of the city engineer are not such public records.

The applicable Montana statutes, therefore, do not impose a duty upon title insurers to search city engineer or water department records.  Pursuant to Montana law and the title policy at issue, a title insurer is only under a contractual duty to investigate the documents properly recorded or docketed and which themselves, or through their contents, impart constructive notice of liens and encumbrances, including easements.

The Millers also argued that they had a reasonable expectation that the title insurer would make a search of the records at the engineer's office.  The court found that, because the policy was clear as to what records it covered, the insured could have no such reasonable expectation.  In reaching this conclusion, it noted the insurer's plea that "no title underwriter could maintain copies of such a broad assortment of records, nor could any local title company research those records every time a request for title insurance was presented."

See Miller v. Title Insurance Co. of Minn., 1999 MT 230, 1999 WL 781075 (Mont.) not yet released for publication).