Bulletin: TX000013

Dear Associates:

New Rule P-39 - "Express Insurance" (attached)

The Board has adopted new Rule P-39 (Express Insurance). This Rule is effective October 30, 1992.

1. This Rule authorizes title companies to provide affirmative (express) insurance.
   
   In the past, Texas title companies have been unable to provide affirmative insurance. Instead, we either excepted to a title problem, or we issued without exception. For example, we have "issued with exception" to liens where we complied with Rule P-11.
   
   We will now generally prefer to except to and insure against some matters that we previously thought were significant, but insurable, risks: encroachments, defects, and liens.
   
   
2. Encroachments
   
   a. Rule
   
   Rule P-39 allows the title company to expressly insure against removal of encroachments if the risk is acceptable. To provide this coverage to an owner, the owner must pay for the survey coverage. To provide this coverage, the title company must amend the area and boundary (survey) exception.
   
   b. Single-Family Residences
   
   On single-family residences, you may provide the express insurance on the following encroachments to the insured on either the Owner or Mortgagee Policy if you amend the survey exception on that policy:
   
   Building encroaches into utility easement by no more than 50% of easement width (e.g., 4-foot house encroachment into 8-foot utility easement). In the event of a greater encroachment, please call.
   
   Building encroaches into plat or restriction building line by no more than 10% of building line width (e.g., 3-foot house encroachment into 30-foot building line on plat). In the event of a greater encroachment, please call.
   
   Building encroachment of any length into plat or restriction building line for more than four years (e.g., house has encroached 10 feet into 30-foot building line on plat for four years).
   
   One the Mortgagee Policy only, a driveway or swimming pool walkway crosses a utility easement.
   
   Example: The builder sells a new house to the Doe's. The house encroaches by two feet into a 20-foot setback line and by five feet into a 10-foot utility easement. Both the buyer and its lender want protection against the encroachments. To provide express insurance, you must amend the survey exception on that policy. You then except to the encroachment as follows:
   
   "Encroachment of house into (e.g., 20-foot building setback line or 10-foot utility easement). Company insures the insured against loss, if any, sustained by the insured under the terms of this policy by reason of a final, non-appealable judgment of a court of competent jurisdiction that orders the removal of this improvement because it encroaches over or into (e.g., the 20-foot building setback line or 10-foot utility easement). Company agrees to provide defense to the insured in accordance with the terms of this policy if suit is brought against the insured to require the removal of this improvement because it encroaches as herein stated."
   
   c. Other Land (e.g., Commercial Property)
   
   On other land, you may provide express insurance on the following encroachments if you amend the survey exception on that policy:
   
   Building encroaches into utility easement by no more than 50% of easement width. In the event of a greater encroachment, please call.
   
   Building encroachment for at least one year by no more than 10% of plat or restriction building line width. In the event of a greater encroachment, please call.
   
   Building encroachment of any length into plat or restriction building line for more than four years.
   
   d. Show Encroachment
   
   We prefer to show the encroachment when we amend the survey exception. Offer to provide the express coverage on the Mortgagee Policy. If the lender insists (or closing instructions require), you can omit the encroachment exception on the Mortgagee Policy on the above matters.
   
   In the above cases, only offer to expressly insure on the Owner Policy (if requested); do not eliminate the encroachment exception. Only provide the express coverage to an owner if you amend the owner's survey exception.
   
   e. Minor Encroachments
   
   Some encroachments that are minor can be eliminated from the Mortgagee Policy if you amend the mortgagee's survey exception, but must be excepted on the Owner Policy if you amend the owner's survey exception.
   
   Examples: Our owner's fence encroaches into adjoining land; a non-permanent building (e.g., shed without concrete foundation) encroaches into building line or easement.
   
   f. Major Encroachments
   
   Some encroachments are significant and must be shown in Schedule B if you amend the survey exception. Do not provide express insurance as to these matters. They include: fence of adjoining owner encroaches into our land; building of adjoining owner encroaches into our land; building of our owner encroaches onto adjoining property; building of our owner encroaches into government (not covenant or restriction) setback line.
   
   g. Disclosure on Commitment
   
   In every Commitment, add the following to Schedule B of that Commitment:
   
   "If the Company is furnished a satisfactory current survey (and is paid the required premium where applicable) to amend its "area and boundary" exception, Company may except to encroachments and other matters reflected by the survey. If Company's requirements and guidelines are met, Company may add the following after the description of those encroachments that are acceptable risks: Company insures the insured against loss, if any, sustained by the insured under the terms of this policy by reason of a final, non-appealable judgment of a court of competent jurisdiction that orders the removal of this improvement because it encroaches over or into (describe applicable building line or easement). Company agrees to provide defense to the insured in accordance with the terms of this policy if suit is brought against the insured to require the removal of this improvement because it encroaches as herein stated."
   
   h. No Amendment of Survey Exception
   
   If you do not amend the survey exception, you may not provide the express insurance on encroachments.
   
   
3. Defects in Title
   
   a. Rule
   
   Rule P-39 allows the title company to expressly insure against defects in title if the risk is acceptable. You should not recite all minor title problems in your Commitment where we are willing to assume the title risk.
   
   b. Recent Gaps in Chain
   
   Sometimes we are willing to insure, based on use and occupancy affidavits. If we do not have a record chain of title for 50 years or more and we have not previously insured the seller or borrower, describe the adverse interest reflected in the prior chain of title. If we are satisfied by use and occupancy affidavits, then add the express insuring language of P-39 to the Mortgagee Policy.
   
   Example: There is a gap in the chain of title of Lot 2, Sunny Acres. In 1940 there was a deed to Margaret Jones. In 1950 there was a deed from James Doe to Regina Roe. There is no deed from Jones to Roe. We are satisfied that the successors of Regina Roe have title, based on use and occupancy affidavits and on other facts in the transaction. You should except as follows:
   
   "Any adverse right, claim or interest of Margaret Jones and her spouse, if any, or those claiming by, through, or under her or her spouse. Company insures the insured against loss, if any, sustained by the insured under the terms of this policy by reason of a final, non-appealable judgment of a court of competent jurisdiction that divests the insured of its interest as insured because of this right, claim, or interest. Company agrees to provide defense to the insured in accordance with the terms of this policy if suit is brought against the insured to divest the insured of its interest as insured because of said rights to the land."
   
   c. Other Defects
   
   If the customer requests that you provide express insurance against minerals, oil and gas leases, easements, ancient unreleased deeds of trust (apparently paid), restrictions, or other matters, please call.
   
   
4. Liens
   
   a. Rule
   
   Rule P-39 allows the title company to expressly insure against liens on the title if we comply with P-11 and if we consider the risk acceptable.
   
   b. Prior Liability
   
   If we have prior policy liability to a seller or borrower under an Owner Policy without exception to the lien and Stewart decides to reissue a Policy, we will not expressly insure under this rule. We will follow prior practice: we will issue the new policy without exception and secure a P-11 disclosure letter from the new insured.
   
   c. New Liability
   
   If we do not have prior policy liability for a lien, we must decide whether to rely upon an acceptable indemnity from another title insurer, escrow of money (and agreement), indemnity (where allowed by P-11), or bond. If we then decide to assume the risk, we will except to the lien and then add the express insurance language of P-39.
   
   Example: We decide to insure against a mechanic's lien claim based on an indemnity and escrow of funds. We should except to the mechanic's lien affidavit and then add the following:
   
   "Company insures the insured against loss, if any, sustained by the insured under the terms of this policy by reason of a final, non-appealable judgment of a court of competent jurisdiction that orders foreclosure of said lien on the land. Company agrees to provide defense to the insured in accordance with the terms of this policy if suit is brought against the insured to foreclose said lien on the land."
   
   Example:
   
   We decide to insure against a prior deed of trust based on an acceptable indemnity from another title insurer. We should except to the deed of trust and then add the following:
   
   "Company insures the insured against loss, if any, sustained by the insured under the terms of this policy by reason of a foreclosure of said lien on the land. Company agrees to provide defense to the insured in accordance with the terms of this policy if suit is brought against the insured to foreclose said lien on the land and to take action in accordance with the terms of the policy if the holder of the lien commences a foreclosure action based on said lien."
   
   
5. Questions
   
   Should you have any questions about this Rule or be requested to issue inconsistently with this letter, please call Richard Black, Robert Doshier, George Barnett, Ed Hellewell, Ginny Abiassi, Jim Kletke or Jim Gosdin.