Early in my legal career, I searched a title prior to contentious litigation surrounding a commercial tract in Horry County. I was eight months pregnant with my son at the time. Title examiners as old as I am will remember we used to pull huge books down from high shelves to search titles in South Carolina. I remember this project so well not because of the difficult work in my puffy condition, but because of the time it took to resolve the litigation. When we finally received the final order, my son was in the second grade.

That timing may not hold a candle to the case decided last year in The United States District Court for South Carolina surrounding a tract in Dorchester County. Dudek v. Commonwealth Land Title Insurance Company* is the culmination (I hope) of what the court calls a “long- standing and enduring legal battle” over an eight-acre tract that was divided into two parcels of six and two acres, respectively.

Summarizing the almost undisputed facts as briefly as possible, plaintiffs Stephen Dudek and Doreen Cross entered into a contract to purchase the six-acre tract in 2012. A third party, Molly Morphew, entered into a back-up contract with the sellers to purchase the property in the event the plaintiffs’ purchase fell through. Both parties ultimately sued the seller for specific performance, and the plaintiffs in this case prevailed.

Dudek and Cross purchased the property in 2017 and obtained a title insurance policy from Commonwealth. The litigation with Morphew continued with two subsequent suits, the first alleging fraud and abuse of process in the purchase, and the second seeking to enforce a contract provision setting up a water and sewer easement in favor of the two-acre tract, which by this time had been purchased by Morphew. Dudek and Cross filed a title insurance claim on the easement issue, and Commonwealth denied the claim relying on an exception for easements and the exclusion for risks created by or known to the insured prior the policy date.

I’m eliminating a lot of facts and procedural nuances that title insurance nerds like me will find fascinating, so pull the case for the long story.

The Court held Commonwealth had no duty to defend the insured property owners, relying on the fact that they knew about the easement before they closed. Simple enough, right?

The more convoluted and interesting discussion revolves around the treatment of the policy of the easement issue.  The covered risk in question in the policy was that “someone has an easement on the Land”. The policy contained two exceptions, however, one for unrecorded easements and one for recorded easements. The court stated that the policy simultaneously extended and eliminated coverage for easements, rendering the policy provision meaningless and illusory.

Title insurance agents routinely add specific exceptions to title insurance policies to limit coverage. This case cautions against adding exceptions that operate to prevent all coverage from a covered risk. We will all need to be careful about this holding as time progresses.

*466 F. Supp. 3d 610 (D.S.C. 2020)