Sylvania v. Stein

• Decision Date: 17 November 1980
• Citation: 177 N.J.Super. 117,425 A.2d 701
• Parties: Joseph SYLVANIA, Plaintiff, v. Harry STEIN, Defendant and Third-Party Plaintiff, v. COMMONWEALTH LAND TITLE INSURANCE COMPANY, Third-Party Defendant.
• Court: New Jersey Superior Court

Page 117

177 N.J.Super. 117

425 A.2d 701

Joseph SYLVANIA, Plaintiff, v. Harry STEIN, Defendant and Third-Party Plaintiff, v. COMMONWEALTH LAND TITLE INSURANCE COMPANY, Third-Party Defendant.

Superior Court of New Jersey, Chancery Division Atlantic County.

Decided Nov. 17, 1980.

Harris Aron, Northfield, for plaintiff (Valore, McAllister, Aron & Westmoreland, Northfield, attorneys).

Arthur Momjian, Atlantic City, for defendant and third-party plaintiff (Cooper, Perskie, Katzman, April, Niedelman & Wagenheim, Atlantic City, attorneys).

David A. Spitalnick, Northfield, for third-party defendant (Vasser, Spitalnick & Mazin, Northfield, attorneys).

HAINES, J. S. C.

Plaintiff Joseph Sylvania claims a right-of-way over property of defendant Harry Stein. Title to the premises was insured by Commonwealth Land Title Insurance Company, through its predecessor, South Jersey Title and Insurance Company. Stein claiming to be protected by the policy, demands that Commonwealth defend the action, a demand which it resists. Stein and Commonwealth have filed cross-motions for summary judgment on the question of Stein's coverage under the policy. The essential facts are not disputed and the motions therefore permit a final disposition of the question raised. R.4:46.

The title policy was issued to William Stein, who then owned the property, on April 8, 1939. William Stein died. His will devised the premises to his widow, Yetta Stein, who transferred the premises to Anne Mann in 1942. Mann and her husband conveyed the property to defendant Harris B. Stein a few months later. All of these transferees, except Yetta Stein, acquired their rights in the property by deeds containing covenants of general warranty. Neither Commonwealth nor its predecessor received any notice of any conveyance after its policy was issued; it did not consent to any assignment of its policy of insurance and did not agree to insure any title holder other than William Stein.

The title policy contains the following condition:

All interest in this Policy (saving that for damages accrued) shall cease by the transfer of the Policy, or of the title insured; except where the transfer of the Policy is authorized by its conditions, and transferred and approved. Partial transfers of title shall reduce the insurance in the proportion of the value of the estate transferred to that retained. Such transfers shall not affect the interest of a holder of this Policy transferred with the consent of the Company endorsed, as collateral security.

It also lists three circumstances which permit the policy to be transferred. None applies in the present case.

Title insurance policies, being contracts of adhesion, are construed most favorably to the insured; if policy language is subject to different readings, the one most favorable to the insured should be employed. Ohio Cas. Ins. Co. v. Flanagin, 44 N.J. 504, 513, 210 A.2d 221 (1965); Keown v. West Jersey Title and Guar. Co., 147 N.J.Super. 427, 440, 371 A.2d 370 (Law Div.1977), rev'd 161 N.J.Super. 19, 390 A.2d 715 (App.Div.1978). Stein couples this rule with his doubtful claim that an insurance policy will remain in force, notwithstanding a transfer of the property insured, when there has been no increase in risk, citing Sandler v. N. J. Realty Title Ins. Co., 36 N.J. 471, 178 A.2d 1 (1962). This case held that

... Unlike fire or accident policies which are for fixed terms and which are such as contemplate a reappraisal of the risk on the part of the insurer at the end of the term, title policies by nature are without time limit and are not subject to reassessment of the risk for they insure solely on the basis of what is already irretrievably past. It follows, then, that the risk cannot be increased by a conveyance from and a subsequent reconveyance to the insured. There being no increase in risk and it being undisputed that absent the mesne conveyance the insurance coverage would remain in full force and effect, a reimposition of liability works no injustice to the insurer. (at 482, 178 A.2d 1)

Stein, arguing that no increase in risk has occurred here as a result of any title transfer, claims that the provisions of the insurance policy which eliminate coverage in the event of such transfer should be construed to require that elimination only when there has been an increase in risk. His argument not only overlooks the plain language of the policy, but also ignores Sandler's basic holding. That case involved the transfer of property to the insured's wholly owned corporation and a later transfer back to him. The court made it clear that the insurance was not in force during the period when the insured did not have title, saying (at 482, 178 A.2d 1): "The reconveyance to him served merely to re-establish the status which existed at the inception of the insurance contract. The policy was, at most, only suspended during the time that Sandler Realty Co. held title and was revived upon reconveyance to him."

The Stein argument also fails to meet the following rule set forth in Sandler:

Although there is no unanimity in other jurisdictions as to whether an insured must have an insurable interest both at the time of making the insurance contract involving indemnity against damage to property as well as at the time of actual loss, our courts have held that the parties are free to contract for indemnity if the interest existed at some time during the term of the risk and upon the occurrence of the loss. (at 481, 178 A.2d 1)

See also 4 Appleman, Insurance Law and Practice, § 2241 (1943). Under this rule Harris Stein would not be covered by the insurance policy. He claims through his predecessor in title, William Stein, whose interest in the property ended with his death. The loss, of course, occurred much later. Consequently the existence of the insurable interest of the insured, William Stein, and the occurrence of the loss do not coincide, unless the domino theory constructed by Stein prevails.

Stein argues that he may bring suit against his predecessor in title for breach of the covenants contained in his deed, resulting in successive suits against successive predecessors in title until the estate of William Stein is reached as a defendant, as which point Commonwealth would be required to defend the estate. ¹ He suggests that this kind of circuitous action should not be encouraged under our Rules, that the ultimate liability of the insurer should be recognized now and settled. The theory is intriguing; if it is supportable, title insurance policies could be enforceable forever, an unhappy circumstance for insurance companies. On the other hand, if an owner of real property insures his title and thereafter, in reliance upon the absence of any title exceptions in his insurance policy, conveys the property to another, it may be inequitable to hold that the coverage upon which he relied was thereby lost. No direct authority has been found dealing with the problem.

Indirect support for Stein's position may be found in Sandler's approval of the proposition, quoted from Clinton v. Norfolk Mut. Fire Ins. Co., 176 Mass. 486, 57 N.E. 998 (Sup.Jud.Ct.1900), that

... A total transfer of his interest ... defeated the policy. But any change short of a complete transfer of his entire interest did not have that effect. The general rule was and is that, in the absence of any provision to the contrary in the policy, any change in the insurable interest of the insured, whether by a complete sale of only a part of the property or a change in the title to a part or the whole of the property, does not avoid the policy which has once attached, provided that at the time of the loss the insured has...