The Practical Real Estate Lawyer | 17

The 2006 amendments made coverages more explicit, added to the coverages, and eliminated some of the restrictions.

The 2006 TiTle policies adopted by the American Land Title Asso-ciation (“ALTA”) have both clarified and enhanced the coverage of prior policies. Prior policy revisions, including those found in the 1992 Policy, had also clarified such matters. However, those changes for the most part favored the insurer, whereas the changes made in the 2006 Policy almost entirely favor the insured. No attempt is made here to provide a side-by-side comparison of the provisions of the 2006 Policy provisions with prior policies. Numerous treatises do that. Rather, the focus here is to highlight the changes that

Jeffrey G. Gurrenis a co-founder and President of Title Associates, now a division of Stew-art Title Insurance Company. Prior thereto, Mr. Gurren was a real estate partner with the national law firm of Finley, Kumble for approximately five years. Before that, he practiced real estate law with the national law firms of Morgan Lewis & Bockius and Weil Gotshal & Manges, and with the real estate specialty firm of Carb Lu-ria Glassner Cook & Kufeld. He spe-cialized in lending work for major banks and insurance companies and development work for major real es-tate developers throughout the na-tion, including owners and operators of hotel chains and shopping cen-ters. Mr. Gurren is a faculty participant in the ALI-ABA program, Real Estate Finance Documentation. Mr. Gurren is a member of the Real Estate Finance Committee and the Committee on Title and Transfer (Real Property Law Section) of the New York State Bar As-sociation. He can be reached at Jefrey.Gurren@stewart.com.

2006 ALTA Title Insurance Policies: The Significant Changes

by Jeffrey G. Gurren

18 | The Practical Real Estate Lawyer September 2008

should be of significance to commercial real prop-erty attorneys in everyday practice. It was the intent of prior policies to afford in-surance coverage in certain areas where the cover-age was more implied than expressly stated. The 2006 Policy changed the format to make the insur-ing provisions express by adding “covered risks.” Additionally, changes were made to the 2006 Policy conditions that both added to the scope of coverage and eliminated certain restricting provisions such as expanding the continuation of insurer’s liability in favor of the insured, providing for apportionment of insurance among multiple parcels, eliminating the need for a last dollar endorsement, eliminating coinsurance provisions, and other areas discussed in this article.

Covered risks • The 2006 Policy added new insuring clauses and augmented existing clauses contained in the 1992 Policy. Unlike the 1992 Poli-cy, which did not “name” these insuring provisions as such, the 2006 Policy, consistent with casualty insurance policies, titles them “Covered Risks.” The 2006 Policy expanded the insuring provisions in two ways. The first was to create as covered risks certain items that were intended to be covered in prior policy forms, but not expressly stated. The second method was by being more illustrative by way of example of the risks insured by the policy.

iNsUriNG PoliCe PoWer/eMiNeNT doMAiN risks ANd oTher eXClUded MATTers • A basic principle of insurance law is that coverage for a particular matter must be found in the insuring provisions and cannot be inferred by reference to an exception to or exclusion from cov-erage. There are three areas where the 1992 Policy expressed the intent to afford coverage based not on insuring provisions, but rather on exceptions to or carve-outs from excluded matters. The first was a broad exclusion from coverage for building, zoning, land use, and environmental

laws and regulations, as well as other laws relat-ing to the exercise of governmental police powers. There was then carved out of the exclusion “ex-cept to the extent that a notice of the enforcement thereof or notice of a defect, lien or encumbrance resulting from a violation thereof ” has been record-ed in the public records as of the policy date. The second was an exclusion for the rights of eminent domain, “unless notice of the exercise thereof has been recorded in the public records” at the policy date. Also carved out of the exclusion was any tak-ing that had occurred before the policy date that would have been binding on a bona fide purchaser. The third instance of excepting out matters from an exclusion was the preferential transfer provision contained within the 1992 Policy’s creditors’ rights exclusion. There, the exception to the preferential transfer exclusion addressed the situation in which the preference may have resulted from any late or ineffective recording. In all of the foregoing instances, it was clearly the intent of the 1992 Policy to afford coverage for the matter carved out of the exclusions. By con-trast, the 2006 Policy added each of these matters as a covered risk. The other change to the insuring provisions may be more window dressing than sub-stantive, in that the 2006 Policy sets forth by way of illustrative examples matters that constitute certain covered risks.

iNsUriNG AGAiNsT deFeCTs, lieNs, ANd eNCUMBrANCes • Both the 1992 Policy and the 2006 Policy insure against “any defect in or lien or encumbrance on title.” An encumbrance is a right or interest that burdens the land and di-minishes its value. A lien, being one form of en-cumbrance, is a charge on the property as security for a debt or obligation. The “defect” is often less understood—being any matter that keeps title from being perfect, complete, or free from doubt. The 2006 Policy, in a departure from the 1992 Policy, lists numerous kinds of defects by way of illustra-

2006 ALTA Policies | 19

tion. These defects include, but are not limited to, those caused by fraud, forgery, undue influence, in-capacity, lack of authority, improper execution or delivery, improper recording of documents, and so on. Defects also include failure to perform any of the required acts by electronic means authorized by law.

iNsUriNG sUrveY MATTers • The 2006 Policy addresses issues involving survey coverage, which have been the source of continuing confu-sion and controversy. It does so by adding survey coverage as an insured risk and also by creating a definition of “encumbrance” to clarify the scope of the survey coverage. Title companies include in the title certificate a standard exception for any state of facts an accurate survey or physical inspection of the land would show. In this way, there is excepted from coverage those issues that might indicate an encumbrance or otherwise affect the marketability of title, both of which are insured by the policy. By omitting the survey exception or by providing coverage through a survey reading, title companies intend to remove doubt that particular physical at-tributes of the property constitute encumbrances or create marketability issues: for example, path-ways, roads, or utility lines could indicate possible rights of third parties such as easements; off-line fences could raise out-of-possession issues or even loss of property by adverse possession; encroach-ments and boundary line disputes clearly raise marketability concerns. Other than the reference to possible effects on marketability and the statement with respect to the policy’s insurance that the property is free of en-cumbrances, there was, before the 2006 Policy, no expressly stated insurance for survey matters. The 2006 Policy adds as a covered risk the following: “Any encroachment, encumbrance, violation, vari-ation, or adverse circumstance affecting the Title that would be disclosed by an accurate and com-plete land survey of the Land.”

The 2006 Policy also adds a definition of the term “encroachment,” which is intended to re-move the uncertainty that existed in prior policy forms. All title policies in defining the term “land” exclude any property located outside the boundary described in Schedule A. It has been argued that by reason of such exclusion, coverage would only exist for encroachments of improvements from adjoining property onto the insured land, but not vice-versa. The term “encroachment” in the 2006 Policy expressly includes improvements which run from the insured land onto the adjoining property. Pursuant to the Minimum Standard Detail Re-quirements for ALTA/ACSM Land Title Surveys as adopted by ALTA and the American Congress on Surveying and Mapping, the “character and location of all walls, buildings, fences, and other visible improvements within five feet of each side of the boundary lines shall be noted.” The 2006 Policy provisions, which now expressly cover en-croachments both from and onto the insured land, conform to the ALTA survey requirements.

iNsUriNG AGAiNsT CrediTors’ riGhTs issUes • Without intending to sub-stantively change the treatment of creditors’ rights coverage and exclusions, the 2006 Policy makes formatting and clarifying changes to the 1992 Pol-icy. It is another example of adding insurance as a covered risk, rather than relying on an exception to an exclusion to form the basis of the insurance, as is the case with the 1992 Policy. The 1992 Policy excluded in broad terms any claim arising out of the transaction being deemed a fraudulent conveyance, a preference, or addition-ally in the case of a mortgage policy, subject to lien subordination or avoidance based on equitable subordination principles. Excepted from the exclu-sion were instances in which a preferential trans-fer occurred by reason of an untimely recording or because the recording failed to impart adequate notice, as required by bankruptcy law, to a purchas-