Title Insurance - Parties in Possession & Adverse Possession

The “Parties in Possession” exception is not limited to unrecorded easements or tenants rights, but also extends to adverse possession claims. Below are three cases where the “Parties in Possession” exception was successfully invoked in denying coverage in prescriptive easement or adverse possession claims.

Rockhold v. Fidelity National Title Insurance Company
Unreported Decision, Ct. of Appeals of Texas, San Antonio
No. 04-98-00504

The insured's neighbor claimed an easement by estoppel or prescription for a driveway that overlapped onto the insured's property. After the neighbor filed an action to establish an easement by prescription or estoppel, the insured demanded that Fidelity defend. Fidelity declined the tender of defense and denied the claim based upon the following Schedule B Exceptions:

- Under Schedule B, an exception to coverage exists where the dispute centers on “the rights of the parties in possession.”

- Schedule B also provides that the policy excludes from coverage “visible and apparent easements on or across the property.”

- Finally, Schedule B also excludes “any discrepancies, conflicts, or shortages or boundary lines or any encroachments or protrusions, or any overlapping or improvements.”

The insured sued Fidelity for denying coverage. Fidelity prevailed on a Motion for Summary Judgment.

Dickins v. Stiles, et al 916 P. 2nd 435(Wn. 1996)

Stiles was an Old Republic insured who was sued by her neighbors for overburdening an easement Stiles had for access across her neighbors property. The area was primarily residential, but Stiles was using her property for commercial purposes, which greatly increased the traffic on the easement. One neighbor claimed ownership through adverse possession for a portion of the easement. Old Republic denied liability. Subsequently, Stiles sued Old Republic and Old Republic prevailed on the coverage issue. In ruling for the Old Republic, the court found:

“Standard exception 1 provides that the policy does not insure against loss or damage by reason of encroachments or questions of location, boundary and area, which an accurate survey may disclose.”

“Standard exception 3 states that no coverage is provided for loss or damage by reason of rights or claims of persons in possession, or claiming to be in possession, not disclosed by the public records.”

“Stiles claims that the exceptions are inconsistent with exclusion 3(b) and that the inconsistency must be resolved in her favor. Exclusion 3(b) expressly excludes from coverage: Defects, liens, encumbrances, adverse claims, or other matters … (b) not known to Old Republic and not shown by the public records but known to the insured claimant either at the Date of Policy or at the date such claimant acquired an estate or interest insured by this policy and not disclosed in writing by the insured claimant to the company prior to the date such insured claimant became an insured hereunder.

Stiles claims the exclusion is inconsistent with the exceptions because it, unlike the exceptions, requires knowledge by the insured of the defect, lien, encumbrance, adverse claim, or other matter. We disagree. Exclusion 3(b) is a general exclusion, applicable to any claim. Under that exclusion, if an insured fails to inform Old Republic of something the insured knows at the relevant dates, then there is no coverage for that matter. The exclusion is akin to a notice requirement. Old Republic will not provide coverage for matters not disclosed to it by the insured prior to the issuance of the policy, including adverse possession claims.

Under the exceptions, regardless of whether the insured knew of the adverse possession claim at the time it became an insured, there is no coverage. The provisions are not inconsistent. One is a notice provision applicable to all claims existing at the time the policy is issued; the only other is a standard exception from coverage specifically relating to, inter alia, adverse possession claims, regardless of when they arise. Under the policies, Old Republic was not under a duty to defend against adverse possession claims.”

Again, note that the parties in possession exception excluded an adverse possession claim.

Cheverly v. Ticor
642 A. 2nd285(Md. App. 1994)

Cheverly purchased a shopping center where the tenants for an adjacent apartment complex parked their cars in the shopping center parking lot. The apartment owner filed suit against Cheverly to establish the rights of their tenants to park on a portion of the parking lot through adverse possession or implied easement. Cheverly requested Ticor to defend, but Ticor denied liability based upon the following exceptions:
Rights or claims of parties in possession not shown by the public records.

Easements or claims of easements not shown by the public records.

Cheverly filed suit against Ticor for wrongful denial of a title claim. In ruling for Ticor, the court held:

“The rationale for excluding claims of parties in possession in title insurance policies was expressed in Guarantee Abstract and Title Insurance Company v. St. Paul Fire and Marine Insurance Company, 216 So. 2nd 255, 257(Fla. Dist. Ct. App.1968):”

“When a person, who does not appear in the chain of title, is found in possession of the property it may indicate, for example, that he is making claim to the property by adverse possession, or that he is claiming under an unrecorded deed. A title examiner, however, seldom visits the land, the title which he is concerned with. Thus, both to protect themselves and to put their client on notice of this state of affairs, title examiners and title insurance companies generally exclude from their title opinions and policies claims of parties in actual possession.”

“The appartment owner alleged in its complaint that it was in possession of a portion of Cheverly's parking lot and that its use of the lot had been adverse, open, exclusive, and continuous for over twenty years.” These alleged claims of title to the property were not recorded. Thus, having examined the policy coverage and the allegations raised in the underlying suit, we conclude that these adverse possession claims fell within the exemptions in the title insurance policy for claims of parties in possession not shown by the public records or easements not shown by the public records."

In these 3 cases, the courts ruled that the “Parties in Possession” exception applied to adverse possession.