commercial claims: a symptom of a healthy market · commercial title insurance ywhat is it? ywhat...
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P R E S E N T E D B Y S T E V E N P A R K E RV I C E - P R E S I D E N T / S R . C L A I M S C O U N S E L
S O U T H E A S T R E G I O NJ A C K S O N V I L L E C L A I M S C E N T E R
Commercial Claims: A Symptom of a Healthy Market
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IntroductionCommercial Title Insurance
What is it?What is covered?What is not covered?
Claims ProcessWhen to submit?What to submit?Claims investigation
Recent ClaimsExamples
Conclusion
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Introduction
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Introduction
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Introduction
Jennifer Gaytan, Managing Counsel
Ted Bailey Anna JarvisLauren Cheatham Pat KyserPerry Craver Andy LiebermanDanna Jo DeCintio Steven ParkerGreg Foster Kelly PritchardSteve Graber Catherine WogomanMarsha Isham
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Commercial Title Insurance
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Commercial Title Insurance
What is it?
What is covered?
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What is Covered?
Commercial Owner’s Title Policy – 10 covered risksTitle to the property is vested in the insured
Property is free of defects, liens, encumbrances (forgery, fraud, undueinfluence, duress, authority, defective instrument, etc)
Unmarketable title
Property has access to a public road
Violation of governmental regulations
Exercise of governmental power
Title defective as a result of avoidance
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What is Covered?
Commercial Lender’s Title Policy – 14 covered risksTitle to the property is vested in the insuredProperty is free of defects, liens, encumbrances except for exceptions onSchedule BProperty has access to a public roadTitle to the property is marketableMortgage is valid and enforceable and lender has right to foreclose if debt isnot paidPriority of the mortgageMortgage insured against any claims that may be asserted by mechanics ormaterialmen’s liensPolicy insures the validity and enforceability of any assignment of themortgage or loan deed
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What is not covered?
ExceptionsOwners
Schedule BRights of Parties in PossessionSurvey ExceptionUnrecorded EasementMechanics Lien ExceptionTaxes and Special AssessmentsSpecial Exceptions
LendersSchedule B Part I – lists all exceptions based on title examination, should be carefullyreviewed; special exceptions which can be deleted by use of surveys and affidavits.Schedule B Part II – exceptions to title concerning liens, defects or encumbrancessubordinate to insured mortgage (i.e. – tenants of a commercial property with leases thatare expressly subordinate to any mortgage or loan deed on the property).
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What is not covered?
Exclusions1(a) Zoning and other governmental regulations
2. Eminent domain and policy powers
3(a) Matters created, suffered, assumed or agreed to by the insured
3(b) Title Defects Not Known to the Insurance Company
3(c) Matters Resulting in No Loss or Damage to the InsuranceClaimant
3(d) Title Defects that are First Attached or Created after the EffectiveDate of the Policy
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Common Endorsements
Survey EndorsementInsures that the property insured in a policy is the same as that shownon a survey and the location of improvements, etc. and all matters onsurvey are correct.
Zoning EndorsementGenerally insures that the use being made of the property complieswith the applicable zoning ordinance, etc.
Leasehold EndorsementIntended to protect tenants and leasehold lenders for losses arisingprimarily from loss of possession of the premises, or loss of thetenant’s ability to use the premises for the use permitted by the lease.
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The Claims Process
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What happens when a title problem arises?!?
The Claims Process
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The Claims Process
What is a title claim?Any incident in which the underwriter or policy issuing agency becomesaware of facts that may trigger an obligation, indemnity or defense under apolicy, or that may make it advisable for the underwriter to take affirmativeremedial action to avoid a potential loss
When should a claim be submitted?Is there an obligation to indemnity or defend under a policy, or is thereanother reason you think the underwriter should act?Is there reason to believe the Insured has or will suffer a [email protected]
What constitutes notice of a claim?Claim letter from insured or counselPhone inquiry to the closing attorney or underwriterDemand from a third partyNotice of a pending suit affecting the insured property.
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The Claims Process
Compile information relating to the transaction and forward to the claims office
What if a lawsuit has been filed?Forward immediately.Claims Counsel needs time to investigate and evaluate.
Generally, claims do not “go away” by avoidance so it is imperative to send to the claims office immediately!
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The Claims Process
What should be submitted with the claim?An explanation of the claim
Complete facts and detailing the issues The more accurate information provided with the claim, the more efficiently, easily, and perhaps quickly, the claim can be resolved.
Documents:Policy, Commitment, Closing Protection LetterEvidence of StandingPleadingsHUDTitle search, survey, appraisal, etc.
Do not opine on coveragedo you have any suggestions for curing the defect?
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The Claims Process
We are highly regulated and audited, so we must comply with statutory deadlines
Acknowledgment letter within 10 daysCoverage letter within 30 daysMore information needed?
Communicate with claimant every 45 days until resolved State Guidelines
The quicker we have notice, the better
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The Claims Process
What does the Claims Administrator do?Investigate and evaluate the claim
Closing AttorneyClaimantLand records
What is the goal of evaluation?To accurately make a coverage determination
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The Claims Process
How is the coverage determination made?Was a policy issued? Commitment issued? CPL?Is the claimant the insured?Is it a covered title risk?Is the matter excluded?Is the matter excepted?Did the insured actually experience a loss?
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The Claims Process
Formulating a Plan to Cure the Covered IssuesClaims Administrator Cures
IndemnityTaxesLoss in authorityClosing attorney assisted resolution
Claims Administrator retains counsel to cureLitigated matters
Duty to defendTitle Search errorsSettlement Procedures errorsLegal description errorsMissing interestsRecording errors
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The Claims Process
DamagesActual lossAppraisal
DIVLimited to Policy Limits
No consequential damagesActual loss under CPL
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Number and Types of Claims
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Number of Claims in NC
How much did FNTG pay out in NC claims in 2013, 2014 and 2015?
ANSWER : Over $19.7 Million
2013: Approximately $8,250,0002014: Approximately $6,000.0002015: Approximately $5,500,000
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Recent Commercial Claims
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Who moved my sand?
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Who moved my sand?
Insured LLC owns 10 tracts intended for golf coursedevelopment.Discovers 25-ton capacity tractor trailer dump truckhauling two loads dailyWhen demand was made on company to ceaseremoval, company produced recorded “Agreementfor Sale of Minerals” between company and insured’spredecessor.
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Who moved my sand?
Claim: filed on $19M policy - 50 tons of sandremoved; insured demanded $365K from company;5-year minerals agreement expired May 2013.Coverage: seller did not disclose agreement; titlesearch error; no exception in policy; counselretained; expiration of agreement effect on damagesMediation: seller offered $20K; company held $13Kroyalties in escrow after discovering ownership byInsured
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Who moved my sand?
Damages: removed sand was valued at$250K/$330K
white v brown sandsand in ground v packagedwhat is the DIV? Based on value of sand, loss payment of$1,600.
Suit against the Company
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Wait! Where’s My Notice ?!
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Wait! Where’s My Notice ?!
In December 2011, Bank foreclosed its DOT on all ofthe land encumbered by its DOT (Tract 12 and otherproperty). Bank conveyed the land to Insured’sgrantor.Insured’s grantor conveyed the land, including Tract12, to the Insured; Company insured title to tracts 1-23 for $7,700,000 under policy dated March 6, 2013;FC’d owners filed lawsuit alleging Tract 12 a part oftheir property; FC of the DOT was defective becausewife was an owner and received no notice of FC
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Wait! Where’s My Notice ?!
Claims are barred by res-judicata and collateral estoppel(grounds for challenging the 2011 FC were same groundshusband previously made unsuccessfully)Notice of appeal July 20, 2015There is no easement on the insured property for thesewer line. According to retained counsel, after summaryjudgment was granted to the insured, the insured cut asewer line on its property that serviced a rental propertyowned by Insureds grantors.The County Health Department condemned the rentalproperty after the line was cut.
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Leasehold Interest
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Hell no, we won’t go!
In 2004 developer owned 350 acres in HorryCounty, SC and developing a subdivision phases 1-3
March 2005 entered a 25-year lease with an LLC for86 acres; lease not recorded and lost
April 2007 the developer gave a DOT on phases 2, 3and additional property to Bank; DOT insured for$1.7m
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Hell no, we won’t go!
November 2010 developer and LLC entered LandLease Agreement (revive lost lease)
Bank filed FC action June 2011 against developer
All parties consented to foreclosure judgment exceptthe LLC; order entered June 2013; Bank purchasedat FC sale in August 2013 for $795K, same day LandLease Agreement recorded
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Hell no, we won’t go!
Bank entered sales contract in June 2014 with 3P,however, LLC refused to vacate; Bank filed claim
Sale did not close; Bank filed action against“squatters”; defendants filed counterclaim
Coverage: cc alleged the unrecorded pre-policy leasecreated long term property interest; duty to defend;reservations CC&Rs, knowledge, tort
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“Your land is my land…”
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“Your land is my land…”
Owner's policy for $4.9M; loan policy for $15M; golfcourse in Lumpkin County, Georgia
Receiver appointed for the owner in 2012 and ismarketing the golf course for sale (residentialdevelopment surrounds golf course and someundeveloped land remains)
Property in Receivership and the Receiver has a salelined up for the golf course and the additional landfor $3.5M
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“Your land is my land…”
Adjoining landowner claimed that four golf cart pathssignage and access road to a maintenance building on thegolf course encroach onto the adjoining land; claim ofROFR
When golf course and residential development weredeveloped, parties entered into Mutual EasementAgreement which allowed for easements over and ontoeach property for the benefit of the other
Coverage: the Agreement was excepted in Schedule B tothe owner's policy; owners claim denied
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“Your land is my land…”
Coverage: encroachments covered under the loan policy;access, boundary, and tee-to-green endorsements, andinsured the Reciprocal Access Easement pursuant towhich the golf cart paths were installed.
Resolution: Company agreed to issue its commitment forowners and loan policies to a purchaser from the insuredand its lender, showing the encroachments as exceptionsin Schedule B and providing affirmative insurance for theclaimed encroachments.
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Conclusion
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Best Practices for Avoiding Claims
When in doubt – check with underwritersFollow closing instructionsExamination of documents (legal errors, missinginterests)Record instruments (mortgage, deeds, releases,subordinations) and no delay!
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