Title Insurance Coverage Applied Where Diminution of Property Value was Due to Survey Error

Lawyers Title Insurance Corporation v. Doubletree Partners (5th Cir.; January 14, 2014)

A policyholder filed a title insurance claim alleging diminution of property value due to a property survey that erroneously underrepresented the size of a flowage easement. Applying Texas law, the court held it was correct to reform the title insurance policy to include survey coverage and an exception for a flowage easement encumbrance which had been omitted from the policy due to a software printing error. The court further held that the Texas Department of Insurance explicitly allows title insurers to provide survey coverage. Pursuant to Texas law, because the language of the policy was susceptible to more than one construction it was construed strictly against the insurer and in favor of the policyholder such that (1) the survey coverage clause provided coverage for survey errors in identifying the location of the flowage easement, and (2) the flowage easement encumbrance exception did not exclude coverage for the survey error. Moreover, an exclusion for “defects, liens encumbrances, adverse claims, or other matters created, suffered, assumed, or agreed to” by the policyholder did not apply because, among other things, knowledge of the extent of the title defect was required and the survey failed to disclose the full extent of the easement such that the policyholder did not agree to the full extent of the easement as a defect in title.