Read Those Title Insurance Policy Exclusions

Mineral Wells insurance lawyers will tell you that you have to be aware of “exclusions” in your insurance policies, otherwise, you risk finding out the hard way. A 1999, Austin Court of Appeals case illustrates this. The style of the case is, Zimmerman v. Chicago Title Insurance Company. Here is the relevant information.
In 1988, the Zimmermans purchased residential property in Austin and obtained a policy of insurance from Chicago Title insuring title to that property. The policy obligates Chicago Title to defend the Zimmermans against any action in which a claim adverse to their title is asserted, unless the claim is based on matters excepted by the policy. In the separate litigation underlying this dispute, the Zimmermans were sued by the owners of adjoining property, Mary Joseph and her four daughters, who asserted title by adverse possession to a twelve- to twenty-inch strip of land insured under the Zimmermans’ policy. Chicago Title refused the Zimmermans’ request to defend them against the suit.
The Zimmermans sued Chicago Title for a declaration that it owed a duty under the policy to defend them in the underlying suit. The Zimmermans subsequently moved for partial summary judgment, asserting that Chicago Title had relied on four policy exclusions to refuse their defense, none of which applied. Chicago Title filed its own motion for summary judgment, arguing that each of the claimed exclusions justified its refusal to defend. Following a hearing, the district court rendered an order denying the Zimmermans’ motion and granting summary judgment for Chicago Title.
To determine whether an insurer must defend its insured against a lawsuit, a court reads the factual allegations in the pleadings in light of the language of the policy. The focus is on the facts, not the legal theories, alleged. If a petition does not allege facts within the scope of coverage, an insurer is not legally required to defend a suit against its insured.
The Zimmermans’ policy excepts from coverage the “rights of parties in possession.” The exception for claims by parties in possession is a standard exception from coverage specifically relating to claims such as adverse possession. The rationale for the exception, at least in part, is that possession of land should put the insured on notice of an adverse interest.
The character of possession sufficient to give an insured notice is that which is open, visible, unequivocal, exclusive, and actual rather than constructive.
In the adverse-possession suit, members of the Joseph family alleged that they owned the property bordering the Zimmermans’ to the north. Shortly after buying the property in 1936, plaintiff Mary Joseph and her husband built a picket fence along the southern boundary of the property. The fence extended from the end of an existing rock wall on the east to the southwestern corner of the property. Mr. and Mrs. Joseph landscaped the property up to the fence. The Josephs built the fence to mark the southern boundary of their property, and at all times while it stood, both they and the Zimmermans’ predecessors-in-title treated the picket fence line as the boundary between the two properties.
Some time after 1965, the Josephs alleged, the fence was removed, but fence posts remained along the boundary line. At about the same time, the Zimmermans’ immediate predecessors-in-title put up a chain-link fence along the back portion of the original picket fence. The chain-link fence and the rock wall continued to mark the boundary claimed by the Josephs. In the gap between the rock wall and the chain-link fence, the several fence posts remaining from the original picket fence were sawed close to the ground. Mrs. Joseph painted the tops of these fence posts white to continue to mark the boundary of her property. Until the Zimmermans purchased the property in 1988, the Josephs and the owners immediately preceding the Zimmermans continued to treat the former picket fence line as the boundary between their properties.
The Josephs further alleged that, when the Zimmermans bought the property, they obtained a survey. The survey clearly showed that both the rock wall and the chain-link fence lay inside the Zimmermans’ property line. Nevertheless, the Josephs treated the old picket fence line, marked by the chain-link fence, the end of the rock wall, and the old fence posts in between, as the southern boundary of their property. Mrs. Joseph continued to landscape along the line, and before 1997 the Zimmermans made no attempt to use the strip of land between the old picket fence line and the survey line. Several years before the Josephs filed suit, the Zimmermans erected a lattice fence in the gap between the chain-link fence and the rock wall. This fence occupied substantially the same position as the old picket fence. Mrs. Joseph planted rose bushes on her side of the lattice fence. The Josephs claimed title to the strip of land by adverse possession per Texas Civil Practice & Remedies Code, Section 16.026.
This Court believed the Josephs alleged a character of possession that was sufficient to give notice to the Zimmermans of their claim. The Josephs specifically alleged that, after the picket fence was removed, fence posts remained in the ground marking the boundary they claimed. Although the posts were sawed close to the ground, Mrs. Joseph painted the tops white to show the boundary line, and the Josephs landscaped the property to that line. The owners immediately preceding the Zimmermans acquiesced in the Josephs’ occupation of the strip of land by erecting a chain-link fence along the line of the former picket fence. The chain-link fence was present when the Zimmermans bought the property. The Zimmermans themselves put up a lattice fence along the old picket fence line between the rock wall and the chain-link fence, and Mrs. Joseph planted rose bushes on her side of the lattice fence. In sum, the Josephs alleged that they possessed the strip of land in a manner that was open, visible, unequivocal, and exclusive.
The Josephs’ allegations of possession thus met the exception in the policy for the rights of parties in possession. Because Chicago Title asserted a ground in its motion that entitled it to judgment as a matter of law, the district court correctly rendered summary judgment in its favor.