The prior posting of this disappeared into the ether. Sorry.
Daily Development for
By: Patrick A.
Randolph, Jr.
Elmer F. Pierson Professor of
Of Counsel: Blackwell Sanders Peper Martin
Kansas City,
prandolph@cctr.umkc.edu
Today's "guest appearance" is by Bushnell Nielson
TITLE INSURANCE; "CREATED OR SUFFERED"
EXCLUSION: An insurer must prove that
the insured intended to create a lien, or had the power to prevent it, in order
for Title Insurance
Exclusion 3(a), the "created of suffered "
exclusion, to apply. ,
Archambo v. Lawyers Title Ins. Corp., 2002 WL 31013194 (Mich.App.)
(unpublished).
The new decision comes after the
Archambo was a shareholder in a
solar heating company. The IRS filed a
tax lien against the corporation and all of its shareholders, including Archambo. He changed
careers, becoming a home builder. Archambo was forced to buy back a house he had built, and
took title in his own name. His title
insurer failed to locate the IRS lien filed against Archambo. The lien was discovered when Archambo sold the house a second time. Archambo borrowed
money to pay off the lien, then sued Lawyers Title for
get the money back.
Lawyers Title defended by arguing that the tax lien was
excluded under 3(a) as a matter "created" or "suffered" by
the insured. The court began by noting
that the policy does not provide definitions of these words. Therefore, the court drew on a summary of
cases in an ALR article on the exclusion.
It summarized the annotation's commentary this way:
"That annotation states that generally the provision
has not barred coverage for liens that were brought about by the insured's
negligence. . . . Conversely, where the
lien has resulted from the intentional misconduct of the insured, the clause
will bar coverage. . . . While none of
these foreign cases deal with a federal tax lien, other states have
consistently held that an insured must intentionally act in order to be deemed
to have come within the terms of the exclusion. . . . The word "suffered" within the
exclusion has been deemed to be synonymous with the word "permit" and
to imply power to prohibit or prevent. . . .
An insured is not barred from coverage if he was merely negligent."
Archambo had not been in charge of
the corporate books at the solar heating company, and testified that he did not
know the company had failed to pay the federal taxes. The trial judge believed him. Based on these facts, the appellate court
found that Archambo had neither "created"
nor "suffered" the tax lien.
"Not having been in charge of these corporate
responsibilities, plaintiff would have lacked control of the nonpayment of the
taxes that gave rise to the lien. He
consequently could not be charged with intentionally failing to make the
payments. Therefore, under the uniform
interpretation of the clause, the trial court did not err in finding that
plaintiff neither created nor suffered the lien. All evidence and testimony regarding the
matter established that plaintiff had no responsibility for the payment of
taxes in the corporation and in no way agreed to the placement of a lien."
Reporter's Comment:
The case highlights two issues. First, the lack of definitions for the
words used in Exclusion 3(a) has provided the excuse for a series of decisions
narrowly limiting the exclusion. Courts
have relied on commentators to supply the definitions lacking in the policy
itself. The earlier Archambo
decision, similarly, ruled that Exclusion 3(b) did not apply, based on the
court's interpretation of the undefined term "known."
The second and more distressing aspect of Archambo is that the opinion says Exclusion 3(a) does not
remove coverage as to all liens filed against the insured. It has long been assumed by title insurers
that there is no coverage for liens against the insured, because those are the
insured's obligation. The tax lien was Archambo's debt, even though it stemmed from a corporate
tax obligation. This decision orders
insurance reimbursement for a valid tax debt.
It should be contrary to public policy to allow an insured to obtain
insurance against his own tax obligations. It would
behoove ALTA to refashion the exclusion to make this coverage limitation more plain.
The Reporter for this item is Bushnell Nielson, writing in his excellent Title Insurance Law Newsletter. Visit WWW.woodridgelegal.com for information.
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