First American Title Ins. Co. v. Dahlmann

• Decision Date: 07 June 2006
• Docket Number: No. 2004AP2318.,2004AP2318.
• Parties: FIRST AMERICAN TITLE INSURANCE COMPANY, Plaintiff-Respondent, v. Dennis A. DAHLMANN, Defendant-Appellant-Petitioner.
• Court: Wisconsin Supreme Court

715 N.W.2d 609

2006 WI 65

FIRST AMERICAN TITLE INSURANCE COMPANY, Plaintiff-Respondent, v. Dennis A. DAHLMANN, Defendant-Appellant-Petitioner.

No. 2004AP2318.

Supreme Court of Wisconsin.

Argued April 25, 2006.

Decided June 7, 2006.

COPYRIGHT MATERIAL OMITTED

For the defendant-appellant-petitioner there were briefs by Timothy J. Yanacheck and Bell, Gierhart & Moore, S.C., Madison, and oral argument by Timothy J. Yanacheck.

For the plaintiff-respondent there was a brief by J. Bushnell Nielsen and Reinhart Boerner Van Deuren S.C., Waukesha, and oral argument by J. Bushnell Nielsen.

¶ 1 N. PATRICK CROOKS, J

Petitioner Dennis A. Dahlmann (Dahlmann) seeks review of an unpublished decision of the court of appeals,¹ affirming the circuit court's declaratory judgment in favor of First American Title Insurance Company (First American). The issue before this court is whether an encroachment by an improvement onto adjacent land constitutes a defect or encumbrance in the title of the insured property for the purpose of the title insurance contract at issue in this case.

¶ 2 We reverse the decision of the court of appeals. We hold that a substantial encroachment, created by an improvement onto adjacent land, constitutes an encumbrance on the title of the insured property for the purpose of the title insurance contract at issue in this case. We further hold that such a substantial encroachment, and thus an encumbrance, is covered under the terms of the title insurance policy at issue. However, the issue of whether the encroachment here is "substantial," so as to constitute an encumbrance on title, for purposes of the title insurance contract, presents a question of fact for the trier of fact to resolve.² We, therefore, remand the case to the circuit court for such a determination.

I

¶ 3 On January 15, 1999, Dahlmann purchased the Madison Inn (Inn), a hotel that abuts Frances Street in Madison. At the time Dahlmann purchased the Inn, he also purchased title insurance from First American on the property.³ The policy provided:

SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULE B AND THE CONDITIONS AND STIPULATIONS, FIRST AMERICAN TITLE INSURANCE COMPANY ... insures... against loss or damage ... sustained or incurred by the insured by reason of:

1) Title to the estate or interest described in Schedule A being vested other than as stated therein;

2) Any defect in or lien or encumbrance on the title;

3) Unmarketability⁴ of the title[.]

¶ 4 In addition, the policy defined the "land" for which title is being insured:

[T]he land described or referred to in Schedule (A),⁵ and improvements affixed thereto which by law constitute real property. The term "land" does not include any property beyond the lines of the area described or referred to in Schedule (A), nor any right, title, interest, estate or easement in abutting streets, roads, avenues....

¶ 5 In issuing the title insurance policy, First American relied upon a survey completed by Jeffrey Johnson in 1994 (Johnson survey), and an affidavit from the landowner who sold the Inn to Dahlmann. The Johnson survey depicted the encroachment of an exterior wall of the parking garage and a vent into a four-foot right-of-way.⁶ However, the survey did not depict the encroachment of the garage under Frances Street. The seller's affidavit stated that no changes had been made to the Inn to affect the structure's size or location since the Johnson survey was conducted. As a result, at the request of Dahlmann's attorney, First American agreed to omit from the title insurance policy two potentially relevant exceptions, which were included in the standard form title commitment⁷: (1) "Any discrepancies or conflicts in boundary lines, any shortages in area, or any encroachment or overlapping of improvements." (Encroachment exception); (2) "Any facts, rights, interests or claims which are not shown by the public record but which could be ascertained by an accurate survey of the land." (Survey exception). As a result of the policy amendments, Dahlmann paid an additional premium.

¶ 6 The Inn and its underground parking garage were built in 1960. From the time of its initial construction, the parking garage encroached upon the land beneath Frances Street, which is owned by the City of Madison (City). Although the encroachment is not recorded in any record maintained by the City, the original building plans depict the encroachment. The City discovered the encroachment in March 2002 when it was repairing a sidewalk adjacent to the Inn. Upon discovering the encroachment, the City sought to collect a $3,980 annual fee from Dahlmann for the privilege of encroaching under Frances Street pursuant to a city ordinance. Otherwise, the City suggested it would require Dahlmann to remove the encroachment.⁸

¶ 7 In response to the City's demand for the privilege fee, Dahlmann requested that First American provide a defense and indemnification. First American, in turn, filed this action, seeking a declaratory judgment that its policy did not afford Dahlmann coverage for the encroachment. The Dane County Circuit Court, John C. Albert, Judge, agreed with First American, and granted the motion for a declaratory judgment. The circuit court determined that the policy did not afford coverage because the policy only covered the land within the legal description in Schedule A. Therefore, because the encroachment was outside the described property, it did not fall within the title insurance coverage. The court of appeals affirmed, and Dahlmann petitioned for review.

II

¶ 8 The facts were stipulated to before the circuit court, including the date of purchase, the existence of an encroachment from the time the Inn was built, the absence of the buyer's agent's knowledge of the encroachment, and the striking of the Survey and Encroachment exceptions from the title policy. Since the parties do not dispute any of the facts, this case presents a question of law, of insurance policy interpretation, which this court reviews de novo. Mau v. N.D. Ins. Reserve Fund, 2001 WI 134, ¶ 12, 248 Wis.2d 1031, 1041, 637 N.W.2d 45; Blackhawk Prod. v. Chicago Ins., 144 Wis.2d 68, 77, 423 N.W.2d 521 (1988).

III

¶ 9 The issue before this court is whether the encroachment of the Inn's parking garage onto property owned by the City is covered under First American's policy as an "encumbrance on the title." The parties dispute the correct interpretation of the policy, and in particular, the significance of the deletion of the Survey and Encroachment exceptions.

¶ 10 Dahlmann argues that coverage for the Inn's encroachment onto City land under Frances Street exists under the title insurance policy, as the encroachment constitutes an encumbrance on the title. Dahlmann maintains that it does not matter whether a structure encroaches upon the insured property, or a structure on the insured property encroaches upon adjacent land—if the encroachment is substantial, the result is an encumbrance on the title of the insured property, and the title insurance policy insures him against any damage or loss caused by such an encumbrance on his title. Dahlmann further contends that deleting the Survey and Encroachment exceptions from Schedule B demonstrates the parties' intent to insure against an encroachment such as the one at issue in this case.

¶ 11 First American does not claim that any exclusion or exception from coverage precludes coverage. Rather, First American claims that the loss for which Dahlmann seeks compensation does not fall within the initial grant of coverage, as limited by the definition of "land" in Schedule A. First American argues that the title insurance policy does not insure the title to any property beyond the bounds of what is described in Schedule A. In other words, there is no encumbrance on title, because Dahlmann does not have title to any part of Frances Street. Further, it is First American's position that the policy insures the title to a specifically described piece of land, and land is defined in the policy to exclude "any property beyond the lines of the area described or referred to in Schedule A," as well as "any right, title, interest, estate or easement in abutting streets, roads, avenues. . . ." First American notes that the policy issued to Dahlmann is a standard form, which many other jurisdictions have had occasion to interpret as failing to provide coverage for encroachments similar to that in the present case.⁹

¶ 12 "Title insurance is a contract of indemnity which obligates the title insurer to pay loss as defined by the policy." Duane H. Wunsch, Wisconsin Commercial Real Estate Transactions, § III-1 (2000). The purpose of title insurance "is to indemnify the insured for impairment of its interest due to failure of title as guaranteed in the title insurance report." Greenberg v. Stewart Title Guar. Co., 171 Wis.2d 485, 493, 492 N.W.2d 147 (1992)(quoting Blackhawk, 144 Wis.2d at 78, 423 N.W.2d 521).

¶ 13 There are three steps necessary in our consideration of whether the encroachment of the Inn parking garage onto adjoining property is covered under the terms of the title policy. First, we must determine when an encroachment constitutes an "encumbrance on title." Second, we need to examine the terms of the policy, including the effect of the omission of the Survey and Encroachment exceptions. Finally, we must discuss the effect on coverage of the definition of "land" in Schedule A.

A

¶ 14 A title defect is a claim or interest that is inconsistent with the title purportedly transferred. Turner v. Taylor, 2003 WI App 256, ¶ 8, 268 Wis.2d 628, 673 N.W.2d 716. One treatise explains there are four types of defects: (1) defects in the chain of title; (2) lack of record title because the seller claims ownership through adverse possession; (3) lack of title in the seller because a third-party claims adverse possession against the seller; and (4) encumbrances....